Where is Delivery Hero headed?

Truth, Starbucks, Nuclear Power, Lidl, and Eric Schmidt

AuthorAuthor

Peeyush Jain & Mohit Garg
August 28, 2024

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Salutations, Olio aficionados! 👋

Happy Hump Day and welcome to the 93rd edition of Weekly Olio - your trusted source for giggles, wisdom, and a dash of intrigue, courtesy of our tantalizing thought piece (yes, buckle up for Publisher's Parmesan). 🧀

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The Quote󠀢 💭

“Truth cannot be given to you by somebody. You have to discover it.”

― J Krishnamurti, Indian philosopher and orator

The Tweet 🐦

Did you know that there are 380B+ drink combinations possible at a Starbucks outlet! Imagine the plight of the baristas who need to churn out drinks based on customer preferences in record time. Struggling with falling revenue, Starbucks is putting in place a $450M bar design project to speed up service. Even if each location is able to serve 5 drinks extra per day, it’ll lead to a $1B sales boost for them. Talk about scale!

The Infographic 💹

Global nuclear capacity is set to rise by over 75%. ⚡ With global pledges to boost nuclear capacity by 2050, the prospects for nuclear power's future are promising.

The Short Read 📝

Lidl is a German discount retailer owned by German billionaire Dieter Schwarz who runs the eponymous Schwarz Group and has amassed a personal fortune of more than €40B selling staples all across Europe. Similar to what Amazon did with AWS, Lidl owner Schwarz Group has now started offering its cloud and cyber security services to corporates in the region. Read more…

What started as a system built for internal use in 2021, is now being used by some big names across Europe including SAP, football club Bayern Munich and the Port of Hamburg. Given the stringent data protection guidelines in the EU, its biggest selling point has been that all client data is processed and stored exclusively in Austria and Germany. Lidl’s own experiments with cloud computing and storage began because it did not want to depend on third parties for its sensitive customer data.

The Long Read 📜

Eric Schmidt is the former CEO of Google - he was brought on Larry Page and Sergey Brin to help them run what was a fast growing startup back then. Recently, Eric Schmidt gave a private talk at Stanford that talked about AI and how it is going to reshape the market. It was initially posted on YouTube but has since been taken down. Read more…

Eric shared some pretty controversial opinions in this talk touching upon several topics that are relevant in today’s tech world. From why NVIDIA is leading the AI chips battle to why US will continue to remain ahead of China in AI. He also touched upon why Google was lagging behind in the AI race - ascribing blame to its current company culture that prioritizes work life balance over winning. Read the entire piece for more gems from the talk.

Publisher’s Parmesan 🧀

Where is Delivery Hero headed?

The food delivery industry in South Korea has become a battleground for market dominance, with major players like Delivery Hero's Baemin and Coupang Eats locked in a fierce competition. As the landscape evolves, the strategies these companies employ, the challenges they face, and the decisions made at the top will shape the future of the industry. In this article, we’ll delve into the intricacies of this competition, explore the broader implications for Delivery Hero globally, and examine the key factors that could determine the outcome.

In South Korea, food delivery is more than a convenience—it's a way of life. The market is mature, with high consumer expectations and a deeply ingrained delivery culture. Baemin, which was the market leader, was acquired by Delivery Hero in 2021 through its parent company, Woowa Brothers. This acquisition solidified Delivery Hero's position in Korea, but it also marked the beginning of a new phase in the market's evolution.

Enter Coupang, South Korea's leading e-commerce giant, which has aggressively expanded into the food delivery space with Coupang Eats. This move has set the stage for a two-horse race, where Baemin and Coupang Eats are battling for the lion’s share of a lucrative market. The stakes are high, and the strategies these companies adopt could make or break their fortunes.

Rising Costs and Consumer Backlash

Baemin has recently made a controversial decision to increase delivery fees, a move that has not gone unnoticed by consumers or competitors. This increase applies not only to customers but also to merchants, adding to the operational burden for many small businesses that rely on food delivery services. The reaction from consumers has been predictably negative, with many expressing their dissatisfaction online and switching to Coupang Eats, which has been more conservative with its pricing strategy.

This situation highlights a broader issue within the industry: the delicate balance between profitability and customer satisfaction. Delivery Hero’s decision to raise fees might be a response to rising operational costs or an attempt to improve profitability in a competitive market. However, the risk is alienating a loyal customer base, which could have long-term consequences.

Leadership Changes at Baemin: What Does It Mean?

Adding to the uncertainty, Baemin’s former CEO, Lee Gyeok-hwan, recently stepped down, raising questions about the leadership direction of the company. Whether his departure was voluntary or not remains unclear, but it underscores the challenges of managing a large, complex operation in a highly competitive environment.

Leadership transitions often signal a shift in strategy or priorities. In Baemin’s case, the departure of a CEO could mean a change in how the company approaches competition with Coupang Eats. However, there’s also a concern that strategic decisions are being made from Delivery Hero’s headquarters in Germany, potentially without a deep understanding of the local market nuances in Korea. This disconnect could hinder Baemin’s ability to respond effectively to the dynamic and fast-paced environment in which it operates.

The Broader Implications for Delivery Hero

Delivery Hero’s acquisition of Baemin was part of a broader strategy to dominate the food delivery markets across Asia. However, this approach has not been without its challenges. While Korea remains a profitable market, other regions, particularly Southeast Asia, have proven more difficult to crack.

In Southeast Asia, Delivery Hero operates under the Foodpanda brand, which has struggled to maintain its market share against competitors like Grab and Gojek. The company has faced significant setbacks, including a damaging boycott in Thailand following a political controversy. This event, coupled with intense competition, has eroded Foodpanda’s leadership position in the region.

As a result, Delivery Hero has been exploring options to divest its Southeast Asian operations, with rumors of potential sales to companies like Grab or Meituan. However, these deals have not materialized, likely due to pricing disagreements and strategic misalignments. The failure to secure a sale raises questions about the future of Delivery Hero’s presence in the region and its overall strategy for Asia.

The Global Footprint: Challenges in New Markets

Beyond Southeast Asia, Delivery Hero’s global expansion has seen mixed results. The company has a presence in markets across the Middle East, Europe, and Latin America, but it has faced challenges in maintaining a leading position in these regions. For example, in Latin America, Delivery Hero has avoided entering the largest markets like Brazil and Mexico, possibly due to the strength of local competitors and the high costs of market entry.

In the Middle East, Delivery Hero’s operations, under brands like Talabat and Hunger Station, are profitable but not without challenges. Meituan, a Chinese food delivery giant, has been eyeing the region, particularly Saudi Arabia, as a potential new market. The entry of Meituan could disrupt the existing balance, especially given the relatively weak customer satisfaction ratings for local players like Hunger Station.

Strategic Considerations: What’s Next for Delivery Hero?

As Delivery Hero continues to navigate these challenges, it faces a critical question: Can it maintain its global footprint while achieving profitability and market leadership? The company’s strategy has been to dominate each market it enters, but this approach requires significant investment and operational excellence, which may not be sustainable across such a diverse range of markets.

One possible path forward is a more focused strategy, concentrating resources on core markets like Korea, the Middle East, and perhaps Taiwan, where Delivery Hero has a stronger foothold. Divesting from less profitable regions could free up capital and management bandwidth to invest in these key areas. However, this would require a careful balance to avoid losing too much ground in potentially lucrative emerging markets.

The Road Ahead

The competition in Korea between Baemin and Coupang Eats is emblematic of the broader challenges facing Delivery Hero globally. As the company juggles multiple markets, each with its own unique challenges, the decisions made in the coming months will be critical. Whether it’s adjusting pricing strategies, navigating leadership transitions, or deciding which markets to focus on, Delivery Hero’s ability to adapt will determine its success in an increasingly competitive global landscape.

For now, the food delivery wars rage on in Korea, with Baemin and Coupang Eats at the forefront. But as this battle unfolds, it could offer valuable lessons not just for these companies, but for the entire food delivery industry worldwide.

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Disclaimer: The views, thoughts, and opinions expressed in the text belong solely to the author, and not necessarily to the author's employer, organization, committee or other group or individual.

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