Singapore

IN A long-awaited move, Grab Singapore will integrate its food delivery service, GrabFood, into the Grab "super app" within the first half of this year, the company told The Business Times.

The tweak belies Grab's lofty ambition: By its first-year anniversary in end-May, GrabFood - currently a standalone app in Singapore - aims to be the leading food delivery player here in terms of order volume, having the widest selection of merchants and shortest delivery time.

Having both transport and food delivery on a single platform offers advantages that pure-play rivals cannot replicate, said Lim Kell Jay, head of Grab Singapore.

"For the merchants, the biggest proposition is our customer base. We have been working hard to build a customer base that's actively transacting on our main app. Now it's about providing this food delivery service to them, so that we direct more business to our merchants. This is something that the other players aren't able to do," he said.

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"By our own estimates, an average user transacts 100 times a month, and the top two use cases are transport and food... So while the other players may view just one use case, we are looking at it from a totally different lens," he added.

Grab has previously stated its intention to merge all offerings into a single app, but this is the first time it is publicly committing to a timeline to integrate GrabFood.

GrabFood is also studying the possibility of setting up a central kitchen in Singapore. Its key rivals have already embarked on this strategy - Foodpanda has "Favourites by Foodpanda" central kitchens in Woodlands and Mandai, while Deliveroo has "Deliveroo Editions kitchens" in Katong and Lavender.

Grab currently has a central kitchen in Jakarta, Indonesia, where it invited popular merchants from outside of the capital city. Reception has been positive, Mr Lim said.

"That's one model that we are studying, and we will see whether it could be adopted here in Singapore," Mr Lim added.

Grab's moves come amid cutthroat competition in the food delivery space, especially with the potential entry of Gojek. Asked if Gojek has plans to enter this segment, a spokesperson said the company has no details to disclose at present.

In the battle of "super apps" and pure plays, who will be king?

On the pricing front, Grab, Deliveroo and Foodpanda are all still pushing out promo codes and attractive subscription packages.

Deliveroo Plus for instance, offers unlimited free delivery for a monthly fee of just S$10.90 (the usual delivery fee is S$3 per order). Grab offers free delivery on 30 orders for just S$7.99 a month, under the newly launched GrabClub subscription packages, and unlimited free delivery from McDonald's at S$1.99 a month.

But this food fight is evolving from price-slashing race to other non-price strategies, say experts.

The victor will be whoever manages to optimise rider deployment to meet demand and keep delivery times short, reckons Thibault Ricbourg, a director at consulting firm Simon-Kucher & Partners.

"As it is a business with low margins, the player who will leverage on data and technology, such as dispatch algorithms, to optimise the logistics of the business will improve its cost structure significantly" and achieve a competitive advantage," he said.

With its core ride-hailing business, Grab could enjoy some synergies in this respect, said associate professor Lawrence Loh of the National University of Singapore Business School.

"The pool of riders is finite. Whoever grabs the riders will win the race," he said. "The riders don't have sticking power and it's easy for them to switch between players."

All three players have been aggressively scaling up their rider base. Deliveroo has more than doubled its rider base from 2,860 as of end-2017, to about 6,000 as of end-2018.

In the same period, Foodpanda has grown its rider base from about 3,000-4,000, to about 6,000. Grab estimates it had about 10,000 food delivery riders as of end-2018.

What it lacks in numbers, Deliveroo makes up for with efficient deployment, said Siddharth Shanker, general manager of Deliveroo Singapore.

"We have internal forecasting tools by neighbourhoods and time of the day... Based on those forecasts, riders get a lot of information about what kind of demand they can expect and what time they can work, so we can make sure there are enough riders on the road," he said.

The other deciding factor is merchant acquisition. GrabFood currently has over 4,000 merchants, compared to Deliveroo's 4,500 merchants and Foodpanda's 6,000 merchants.

While it requires significant capital expenditure, the central kitchen strategy is key to beefing up the selection of merchants, said Luc Andreani, Foodpanda Singapore's managing director.

"This is our strategic direction. It's innovative because this a new way of doing food delivery... The main reason we do this is to bring to parts of Singapore with high residential density an offer of restaurants that would not exist otherwise," he said.

However, experts are sceptical about whether an asset-heavy strategy will be sustainable in the long-run.

Jamus Lim, associate professor of economics from ESSEC Business School thinks that "it is difficult to see what edge these essentially technologically-oriented companies have in setting up and running central kitchens profitably."

Howard Yu, professor of management and innovation at IMD Business School, concurs: "The reason delivery players have been attractive to investors is precisely because they are asset-light and data-intensive... Extending into a physical central kitchen is rolling their business model backward."

"Unlike a machine algorithm that can be redeployed [abroad], a central kitchen built in Singapore will only be relevant to one local market. There is no scalability," he added.

Nevertheless, it is clear that the three deep-pocketed players are in for a capex-heavy phase.

When asked if Deliveroo is in cash-burning mode, Mr Shanker contended: "I don't like the word cash-burning. 'Burn' implies that it's money that's wasted... An investment is something that pays off... So we're in investment mode. "

Mr Lim of Grab pointed out that the company is concurrently taking measures to control operating expenditures, even as it carries out low-value orders like a single bubble tea.

"We offer bundle deals to increase the order value. We also introduce merchants that have slightly higher basket values," he said.

Perhaps if there's anyone who's embracing an all-out "cash-burning war", it would be Foodpanda's Mr Andreani. "Trust me, there's no problem for us in maintaining our strategy, which is to be the most affordable player in the market," he said. "Bring it on."