Commentary: What is the logic of AirAsia entering Singapore’s food delivery market?

SINGAPORE: The delivery business in food-loving Singapore is a highly competitive market dominated by the likes of GrabFood, Foodpanda and Deliveroo.

Restaurants look for platforms with a healthy volume of diners, making set-up and management costs worthwhile, while customers look for platforms with a large variety of restaurants in their vicinity, ideally familial ones or favourites.To build the required volume, platforms typically run a lot of promotions for both parties. That is, diners and restaurants get discounts as the platform bleeds cash in the name of customer and vendor acquisition.

Bearing in mind that private equity will look carefully at the business model, its competitive edge, and potential exit strategies such as a trade deal or stock market listing.Investing a lot of money into a business only makes sense if the firm has a competitive edge that allows it to enjoy good profits in the future. Competitive edge means either lower costs than the competition, or unique services and features the competition does not have.

For these reasons, savings on the technology infrastructure are unlikely to help AirAsia truly achieve cost leadership in this market, given especially their small size.Is its target market unique? AirAsia said they will focus on small restaurants. It appears that the lower commission fees AirAsia is charging – free delivery within 8km until Mar 16 and a 15 per cent commission charge for that service - may entice smaller restaurants to initially sign up.

Unless these small restaurants need tailored solutions that differ from what current players already offer, this strategy may not be enough for the long term. For instance, Ernest Ting, owner of Swee Choon, told media that his key concern would be availability of riders and service reliability. Restaurants are also increasingly working with several delivery platforms and tend to channel the business to their preferred platform, which gives them the best service for commission paid, by offering merchant discounts.

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