facebookGrabFood Delivery Cost Breakdown: Is Grab Benefitting From Circuit Breaker?
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GrabFood Delivery Cost Breakdown: Is Grab Benefitting From Circuit Breaker?

profileMing Feng

Increase in Demand for Food Delivery

I remember spending a few weekends undergo-ing my mum’s “cooking Bootcamp” when I was younger.

If you think your Army training was “Xiong” (tough), you need to go through spending hours chopping onions that make you cry and enduring the pain of splattering oil.

Also, thank god for home insurance.

Source: giphy

While the ‘Circuit Breaker’ has provided me with many opportunities to exhibit my talent, I still occasionally give in to the temptation of food delivery.

Source: giphy

Like many of us, food delivery during this period of time is a true life-saver. Especially so for those who cannot fry an egg without burning down the kitchen.

Pictured above: A picture of our editor’s home during an imaginary fire

With dining-in at hawkers and restaurants on a pause right now, food delivery apps provide us with the perfect solution to Netflix, chill and wait for our food.

While food delivery has enhanced our lives and spoilt us with food options, the delivery and commissions rates that food delivery platforms are charging can be daunting for both consumers and merchants.


A Cost Breakdown: Merchants, GrabFood and Delivery Partners

A recent Facebook post by a restaurant owner caught the attention of netizens. The post provided a cost breakdown of food delivery and indicated that about 35% of the amount paid goes to GrabFood. This is despite the subsidies that the government is providing.

I bet a lot of Singaporeans are also wondering if food delivery services are benefitting from Circuit Breaker and using this opportunity to increase their revenue.

Grab recently provided a cost breakdown on where their merchant commission goes.

Source: Facebook | Grab

The breakdown of our order can be split into:

  • Delivery Fee
  • Merchant Revenue
  • GrabFood Commission
  • Platform
Source: Facebook | Grab
Source: Facebook | Grab

An Illustration of Where the Money Goes To

Assuming:

  • Food order: $18
  • Delivery fee: $3.40
  • Platform fee: $0.20
  • The total amount paid by the consumer: $21.60

For a $21.60 order as mentioned above, it will be broken down into:

 Restaurants
(Merchants)
Delivery PartnerGrabFood
Food Order$12.60$4.60$0.80
Delivery Fee-$3.40-
Platform Fee--$0.20
Total$12.60$8.00$1.00
Percentage Breakdown58.3%37%4.7%

Do note that, of the 30% commission ($5.40) paid by the merchants, $4.60 goes to the delivery partner and Grab keeps the remaining.

Based on the cost breakdown, 58.3% of the amount goes to the merchant, 37% goes to the delivery partner and 4.7% to Grab.


What Consumer Thinks?

Based on the comments received, consumers are generally unhappy with the cost breakdown that GrabFood did.

There were comments that did a cost comparison across the rest of the food delivery services.

Source: Facebook | Grab

There are also consumers who care about how Grab is doing their part to help smaller hawkers get by.

For a group of consumers, the delivery fee is simply too high and it makes little sense. A point which Grab explains is based on supply and demand.

Generally, the cost break down for Grab seems to be well received given that out of 403 reactions on Facebook, only 40 of them were “angry”.

From a Marketing Point of View

According to Edwin Yeo, general manager of Strategic Public Relations Group, he believes that the post might come across as lacking in empathy for businesses that Grab depends on. In this case, the F&B outlets.

Whereas Lars Voedisch, managing director of PRecious Communications, has a differing view. He believes that the ad shares facts and adding transparency without getting emotionally involved, which is the basics of communication.


Cost Analysis: GrabFood, Merchants, Delivery Partners and Consumers

To understand better the situation better, we break down the costs involved for each party.

Cost on Restaurants and Hawkers (Merchants)

Here are some of the costs involved when keeping a restaurant or hawker running during this period of time:

  • Cost of ingredient
  • Cost of take-away packaging
  • Rental cost
  • Utility bills
  • Manpower cost

There is also the time and effort to keep the business going.

Cost on Delivery Partners

For individual delivery partners, here are some of the costs involved:

  • Cost of maintaining their mode of transport (Bicycle, car or motorbike)
  • Cost of fuel

Also, a huge chunk of time and effort on the individual delivery partner.

Cost on GrabFood

On the platform point of view, GrabFood will be looking at a different set of costs:

  • Cost of maintaining the platform such as server cost
  • Manpower cost (engineers, operations, customer service)
  • Office rental cost
  • Utility bills
  • Cost of marketing

Also, the time and effort of the employees at Grab.


Is Grab Really Benefiting From Circuit Breaker?

It is true that delivery apps take around 30% of commission from the hawkers. Singaporeans are also looking for ways to help hawkers reduce their reliant on food delivery platforms with various initiatives. We will leave the compilation of these initiatives for another article, but it got us thinking.

Did GrabFood really benefit from Circuit Breaker?

Don’t get me wrong. I am not in full support of the high commission, but I took a step back and look at the full picture to make sense of the situation.

Grab Is Still Working Towards Full Profitability

Despite what most people think, Grab is not profitable at the moment. It is also extremely difficult for a food-delivery-specific app to turn profitability.

It is a misconception that raising huge round funding equates to profitability. That is not true. In fact, Grab internally projected a 2019 annual net loss of about $1.5 billion.

Grab Is Probably Suffering from Circuit Breaker too

While it appears that the GrabFood business has definitely picked up during this period of time, do note that other services where Grab makes their money are badly hit by COVID-19.

In fact, when we look at the range of services provided by Grab as a holistic platform, there are certain services which are taking a big hit from COVID-19 too.

Grab Services doing better during COVID-19Grab Services affected by COVID-19
Food
Mart
Delivery
Transport
Insurance (Travel Insurance)
Tickets
Hotels

Despite the possible increment in demand for food, mart and delivery services, Grab’s transport, insurance, tickets and hotels services took a hit during this period of time.

Source of Income for Some Singaporeans

We probably can never satisfy everyone.

By reducing our orders on Grab will affect the income of GrabFood’s delivery partners. Grab as a company has many Singaporeans under their paycheque too.


In This Case, Nobody Wins

There can never be a true winner from crisis such as COVID-19.

The point we are trying to drive that, while we believe in supporting local hawkers, we also believe in trying to help Grab sustain the income of Singaporeans under them. By taking either side can result in the other party not doing well.

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About Ming Feng
A stint in Bloomberg gifted me with a beer belly, which only grew larger when I moved on to become a Professional Trader. Now I turn caffeine into digestible finance-related content.
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