Indonesia ride-hailing app finds new opportunities in food delivery
Popular service Go-Food becoming pillar of Go-Jek's business
WATARU SUZUKI, Nikkei staff writer
JAKARTA -- On a typical afternoon, motorcycle drivers wearing green jackets flock to a tiny coffee shop called Tuku in south Jakarta. They will wait in line -- sometimes for more than an hour. As soon as they receive their order, they jump back onto their bikes and drive off to deliver cups of the shop's ice coffee to their waiting customers. A staffer at the shop said the delivery people began flooding in about a year ago, making the store so popular that it had to stop taking orders after 3 p.m.
The drivers work for food delivery service Go-Food, part of the on-demand smartphone app Go-Jek. The business is emerging as a new pillar for the country's most valuable startup, as its core motorcycle taxi service faces intense competition from foreign rivals Uber and Singapore-based Grab. Since its start in April 2015, Go-Food has quickly taken over as the market leader, expanding into second-tier cities and partnering with popular chains. Other players have struggled to compete -- for example, foodpanda, a foreign competitor once backed by Rocket Internet, reportedly shut down operations last October.
Go-Food lists some 100,000 stores, from local satay stalls to fast food chains to pricey sushi restaurants. The wide range of offerings appeals to a country made up of hundreds of different ethnic groups and local dialects. The service also caters to those who avoid taking long trips out of the fear of getting stuck in Jakarta's heavy traffic. Users can place an order to a restaurant as far as 25 km away, and there is no minimum price -- a cup of Tuku's ice coffee sells for 18,000 rupiah ($1.4).
Such features are too costly for restaurants that run takeout services, and take time for startups to build. Go-Jek, which started out as a motorcycle taxi service, makes this possible by using its army of 300,000 drivers. Because people do not move when they are eating, Go-Jek dynamically allocates the drivers across the app's suite of services according to demand. When Go-Food orders spike at lunch and dinner times, the company gives extra "bonus points," which can later be converted to cash, for drivers who take them. At less busy times, drivers are similarly persuaded to deliver passengers, groceries or packages.
Another factor fueling Go-Food's popularity is Go-Pay, the electronic wallet feature rolled out in April 2016. By topping it up, either by bank transfer or handing cash to drivers, users can pay without worrying about change. "It's really easy because you just need to take the food," said Ayu, an office worker in Jakarta. The company says more than half of orders on the app, including ride-hailing and other services, are paid using Go-Pay.
Go-Jek said that Go-Food had 15 million orders in its first year. This is already more than any other food delivery service in Southeast Asia and India, but is a fraction of the market in China, where the top players take millions of orders every day. To catch up, Go-Food has a two-fold growth strategy. One is the expansion into outer regions -- it is now available in 50 cities, compared to 15 cities a year ago. In some popular destinations like Bali and Lombok where tourists try out the local cuisine, it is more popular than ride-hailing. Another is to deepen electronic payments. It recently introduced an app for restaurants that enables drivers to pay upfront using Go-Pay, so that restaurants can prepare meals before the driver arrives.
In the face of a bruising price war in ride-hailing, Go-Jek's success in the food delivery space may be key to winning support from investors. Although the company subsidizes drivers heavily, it takes a 20% cut from the delivery fee and a commission from "partner" restaurants, which in turn enjoy promotions and lower delivery fees. This makes the service more profitable than ride-hailing, if marketing and other costs are the same. Nadia Tenggara, head of Go-Food, declined to comment on its profitability but said it is "a constant source of revenue."
How long this will remain the case is unclear. People across the world are increasingly ordering food through apps and websites. U.S. consultancy McKinsey & Co. estimates that more than half of food delivery orders will be made online in 2019, up from 27% in 2015. The trend has boosted investor appetite, with funding in the sector hitting a peak of $4.17 billion in 2015, according CB Insights. While the figure has cooled since then, it has enabled a handful of well-funded startups in developed markets, such as U.K.-based Just Eat and Germany's Delivery Hero, to gobble up smaller players. Many of them are now looking to tap Asia's growing appetite, along with Internet giants like Uber and Amazon and regional startups like Singapore-based Grab.
Tenggara said competitors will simply be unable to match Go-Jek's sheer scale and range of products. The company is moving further ahead in the belief that users will eventually order all kinds of deliveries through the app. "Food is the hook for online delivery convenience," Tenggara said, "but we can definitely expand it." Go-Jek already has Go-Mart, a grocery shopping service, and more recently launched Go-Shop, which lets users request a driver to buy anything sold at a store by typing in the name of the product and its estimated price. This may be a warning sign for e-commerce players.
But with more than 15 different services, Go-Jek's operations have become increasingly complex. It has faced some major issues, such as flaws in its code that exposed users' personal information and Go-Pay accounts reportedly being hacked. As the food delivery business grows, so will potential risks. In a recent "Go-Food terror" incident that went viral, a heartbroken girl sent an avalanche of food to two love interests, who had to pay for the unexpected meals. The bigger question may be whether Go-Jek can sustain its breakneck speed of expansion without breaking down.
Erwida Maulia in Jakarta contributed to this story.