Strategic Investment in Food Apps: Avoid Getting Overwhelmed by Competitive Pricing Battles
The surge of Xanh SM in Vietnam's food delivery app market heightens competition, prompting caution from shop owners. Profiting from online food stalls is no longer a whimsical endeavor; it now requires strategic investments and operational discipline.
As indicated by industry experts, newcomers to food delivery platforms encounter escalating expenses that threaten profitability. Commission rates, on average, range from 25%, with the largest players still facing fees of up to 18%. Combined with a 4.5% tax burden—including VAT and personal income tax—and additional advertising costs of 10-15%, these expenses can potentially consume 40-45% of a restaurant's revenue on the platform.
"Control over customer reach via search rankings and display priority is entirely held by the platform," says Managing Director of FnB Đỗ Duy Thanh. This reality necessitates restaurants to essentially purchase back their old customers through advertising spend.
According to food app expert Trần Quang Sang, platforms such as ShopeeFood and GrabFood currently charge commission rates averaging 20-25%. These rates are expected to rise, with many vendors potentially facing charges of 25-30% in the near future. As costs are projected to increase another 5% in 2025, profit margins could continue to diminish unless restaurants adjust pricing and optimize cost structures.
Vietnam's commission rates, however, remain lower compared to regional peers such as Thailand and Singapore (both at 30%) and the Philippines (at 25%), suggesting an inevitable trend towards higher platform commissions.
Delivery riders waiting to pick up food ordered via food apps. Photo thesaigontimes.vn
New tax regulations have raised concerns among restaurant owners. From early June, F&B businesses are required to issue electronic invoices and pay a 4.5% tax per transaction. Although platforms like ShopeeFood and GrabFood already deduct this tax before transferring funds to sellers, businesses are still obliged to pay an additional 4.5% when issuing invoices.
With mounting costs and shrinking margins, some shop owners fear they'll need to raise prices, leading to potential customer alienation. Consequently, a few are opting to exit delivery platforms, focusing on traditional retail channels and self-managed marketing efforts instead.
Despite these challenges, the food delivery market in Vietnam is projected to reach US$3 billion in revenue by 2032, as indicated by a report by Ipos. With a growth rate of 14.9%, the market could have up to 17.8 million food app users by 2025.
New entrants into the market, such as Xanh SM's Xanh Ngon Merchant platform, are heavily investing in marketing to attract businesses and offering a 'golden period' of increased revenue, orders, and product testing. However, this initial advantage may only last if sellers proactively guide customers back to their own channels.
A delivery rider hands food to a customer. Photo sapo.vn
In an expanding market, platforms may offer temporary reductions in commission rates or more value-added services to attract and retain restaurant partners. Bundling and additional services could become more common, justifying higher rates or better deals.
As an alternative strategy for reducing reliance on third-party apps, some restaurants and food trucks are opting for direct ordering via their own websites and social media, leveraging tactics like QR codes and exclusive discounts to drive customer loyalty. Meanwhile, platforms emphasizing sustainability and customer service are differentiating themselves, appealing to restaurants that value brand alignment and offering more equitable terms.
In conclusion, restaurants using food delivery apps in Vietnam can anticipate commission rates ranging from 15% to 30%. Additional service fees and marketing costs could bring the total cost per order to 40-45%. As the market grows and competition intensifies, platforms may offer better terms or more value to restaurants or see increasing pressure to do so. Direct ordering and sustainability initiatives are emerging as potential strategies for reducing reliance on third-party apps.
- The Managing Director of FnB Đỗ Duy Thanh notes that control over customer reach is effectively held by the platform, necessitating restaurants to advertise spend to get back their old customers.
- Food app expert Trần Quang Sang predicts that commission rates for platforms like ShopeeFood and GrabFood could rise to 25-30%, potentially consuming more of a restaurant's revenue on the platform.
- With the implementation of new tax regulations, restaurant owners are concerned about the increased costs and potential need to raise prices, which could lead to customer alienation.
- In an attempt to attract businesses, new entrants like Xanh SM's Xanh Ngon Merchant platform are offering a 'golden period' of increased revenue, orders, and product testing, but sellers must proactively guide customers to their own channels to sustain this advantage.
