Digital tech unicorn Grab has been working to put its home delivery service that delivers food and grocery products in the black by the end of this year as it prepares to offer its shares on the Nasdaq stock market.
The Singapore-based company has an application for restaurants, allowing clients to monitor the effectiveness of their advertising and increase their earnings.
“You’re earning 10.5 times what you spent,” reads a message in the app as a marketing representative from Plain Vanilla, a chain of five cafes in Singapore, checks upon the impact of the company’s latest advertisement. The app shows a spend of 40 Singapore dollars ($27.73) helped lift sales by SG$440.
The platform also helps companies tailor their adverts to appear high in customer searches. For Plain Vanilla, this would mean including words such as “coffee” and “bakery”. Clients do see effective results as their sales are boosted.
This tool to offered to partner restaurants as an app or online free of charge and can be accessed by smartphones, allowing users to see data such as sales trends and menu-based sales.
As COVID-19 infections are still high throughout certain countries that Grab operates in, food deliveries often make up for sales declines, especially for small and midsize restaurants. It’s often a great first step for digitization for these restaurants.
Grab receives up to 30% of commissions on the deliveries and actually earns more fees if the sales promotion app helps partner restaurants generate more orders.
For the business year ended December 2020, Grab had adjusted net revenue of $800 million from the delivery business, a fourfold increase from the previous year, thanks in part to strong stay-at-home demand. By contrast, revenue from its ride-hailing business fell to $500 million from $600 million due to restrictions on movement, such as limits on the amount of people allowed in cars, imposed in response to the pandemic.
When Grab announced in April that it was going public, it forecast revenue of $1.2 billion from the delivery business in the current business year, up 50% from the preceding year and a swing to earnings before interest, taxes, depreciation and amortization (EBITDA) of $100 million, versus a loss of $200 million in 2020.
But besides food deliveries, Grab has started to provide home deliveries of perishable foods in September. Through tie-ups with local farmers and suppliers, Grab offers next-day deliveries of fresh food ordered before 5 p.m. Grab already offers 20- to 30-minute delivery of groceries.
The market for online home delivery services is expected to keep expanding. London-based market researcher, Euromonitor International, forecasts the gross merchandise value of online food deliveries in Southeast Asian countries will reach $28.1 billion in 2025, up from $9.4 billion in 2020. Over the same period, the total online grocery retail value is projected to rise from $4.1 billion to $11.9 billion.
Grab is also counting on synergies between its food delivery business and the one for groceries. According to the company, 85% of people who have used its grocery delivery service also have food delivered. At present, the company has only 5% as many grocery delivery customers as food delivery customers.
Grab plans to hold an initial public offering in the U.S. through a merger with an American special-purpose acquisition company before the end of the year. The merger values Grab at $39.6 billion.
Grab has grown on the strength of its ride-hailing business in Southeast Asia until the COVID-19 pandemic hit in 2019. In April to June this year, its ride-hailing service saw adjusted net sales fall 13% from the previous quarter to $146 million.
But thanks to continued growth in its delivery business, Grab predicts adjusted net revenue of $2.2 billion from deliveries in the 2023 business year, up nearly threefold from 2020, bringing its EBITDA to $500 million. If the delivery service turns profitable this year as planned and continues to grow, Grab will be able tout its improving earnings structure to investors.
However, Grab has seen many other rivals trying to compete in the rapidly growing delivery market. They, like Grab, are strengthening their marketing programs. Indonesia’s Gojek, for example, is providing advertising tools such as a hyperlocal targeting feature to reach customers within a 4 km radius of partner restaurants.
Foodpanda, Grab’s rival in Singapore and elsewhere, offers a marketplace for merchants to buy affordable ingredients from suppliers. The U.K.’s Deliveroo offers a loyalty program for restaurants that rewards customers if they place multiple orders with the same restaurant, helping clients expand their customer base.
While two to four companies look set to dominate the food delivery market in Southeast Asia, competition is expected to intensify in ancillary services for restaurants and other clients.
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