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Food & Beverage

Thai food delivery sector still hungry despite business boom

Government caps fees to protect restaurants while riders demand more pay

There are many new entrants to the Thai food delivery market, but none has reaped a profit yet. (Photo by Ken Kobayashi)

BANGKOK -- Thailand's food delivery industry is facing mounting financial pressure as the government urges companies to cut fees while drivers demand better pay.

The third wave of the COVID-19 pandemic has sharply pushed up demand for food deliveries in Thailand. The market is expected to grow by double digits every year, from 68.8 billion baht ($2.2 billion) in 2020 to more than 74 billion baht in 2021 and as much as 99 billion baht in 2024, according to Euromonitor.

In addition to major foreign players such as Grab, Gojek, Food Panda and LineMan, there are new local entrants: Robinhood, owned by Thailand's largest lender, Siam Commercial Bank; and TrueFood, an arm of Thailand's biggest food and agriculture conglomerate, CP Group.

However, none has reaped a profit yet.

Now the government has stepped in to cap handling fees in order to protect small and midsize restaurants.

"In the near future, we could see mergers among the existing services in order to cut costs and survive. It's like what we have seen in other countries," said an analyst at Kasikorn Research Center.

Many food vendors have resorted to online sales during the COVID-19 pandemic, which forced the government to impose a partial lockdown. But the high fees collected by food delivery companies have squeezed margins.

The high fees collected by food delivery companies squeezed the margins of Thai street vendors and restaurants. (Photo by Akira Kodaka) 

"That affected many small and medium restaurants and street food vendors, which are mostly lower income ... and that's why the government has to get involved," said a senior official at the Commerce Ministry's Department of Internal Trade.

The Commerce Ministry has already asked food delivery companies to cooperate and reduce their commission rate from 30% to 35% -- the average across the sector -- to 25% to give food vendors better margins. The major players, including Grab and Gojek, could not deny this request.

"To help reduce expenses for our merchants, Gojek is lowering commission fees throughout June, without a cap on orders per month," Gojek said in a statement. Other companies also complied.

The longer-than-expected third COVID-19 wave means the government wants food delivery companies to keep the lower fees until the end of the year, said a senior official at the Commerce Ministry.

In response to the lower fees, food delivery companies have tried to survive by cutting fees paid to delivery riders by around 20% to 30%. This has triggered anger among the riders, who claim that their earnings have dropped by up to 50% to only around 500 baht ($16) per day.

"That's completely unfair and that's why we need to protest," said Anukul Ratkula, a 30-year-old LineMan rider who joined the Freedom Riders Union, which connects around 300 riders from food delivery services across the country.

Anukul said the protests ranged from dozens of riders gathered in major cities demanding higher payments to strikes. Staff payments are the biggest expense for food delivery services.

LineMan Wongnai insisted "the amount riders received did not change."

"They can't cut riders ... because no rider, no business. So what they can do for now is launch more promotions to attract consumers and create an economy of scale to help offset rising costs," said an analyst at Asia Plus Securities. 

With intensified competition and rising costs, Grab, Gojek, Food Panda and LineMan had a combined loss of more than 4 billion baht in 2019, according to data from the Department of Business Development.

The food delivery industry in Thailand is a promising market, but operators will continue to face a tough battle as margins remain thin and sales high.

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