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Grab and Gojek Square Off in an International Food Fight

Yoolim Lee and Harry Suhartono
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Grab and Gojek Square Off in an International Food Fight

(Bloomberg) -- Nanik Soelistiowati, the owner of a banana fritter stall in West Jakarta, is the unlikely prize in a battle between two of the most valuable technology startups in Asia.

The 64-year-old woman signed up for Gojek’s nascent food delivery service in 2015 after hearing about it from her children. Delivery motorbikes slalomed through traffic jams to deliver her delicious snack, which uses honey for a caramelized flavor, to all parts of congestion-choked Jakarta. Sales took off.

Then in 2017, rival Grab Holdings Inc. approached her with an offer to undercut Gojek’s take of 15%. It was too good to refuse, and when Grab pushed aggressive discounts to consumers, demand spiked so much that Soelistiowati ran out of bananas to fry.

Grab and Gojek became Southeast Asia’s two hottest startups largely on the strength of their ride-hailing businesses. But now they are in the midst of an international food fight. In the space of just four years, Jakarta-based Gojek has grown to have 400,000 food merchants like Soelistiowati cooking up 50 million orders a month (or about 1.7 million orders per day) across locations in Indonesia, Vietnam and Thailand.

The company’s food delivery business has already surpassed that of ride-hailing, Gojek President Andre Soelistyo said at Bloomberg’s Sooner Than You Think tech conference in Singapore on Thursday. “It’s almost double the size of the transportation business,” he said. “It’s already happening.”

Singapore’s Grab came in later, but it’s catching up fast with the help of massive funding from SoftBank Group Corp. and the acquisition of Uber Technologies Inc.’s local ride-hailing and food delivery business in 2018. This year, the company says it has tripled sales and doubled its roster of merchants.

The two companies are led by a pair who met while studying at Harvard Business School, with Gojek co-founder and Chief Executive Officer Nadiem Makarim and Grab co-founder and CEO Anthony Tan finding common ground in their shared background.

They also concur in seeing a bright spot in the food delivery market because it offers much more attractive margins than the more established ride-hailing business, said Florian Hoppe, a Singapore-based partner at Bain & Co. “Today, the food delivery market is significantly smaller than transport in Southeast Asia,” he said. “But it’s expected to be on par or bigger than on-demand transport by revenue over the next five years.”

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Globally, the online food order industry has grown into a hyper-competitive field, which has led to consolidation as companies claw for a bigger slice of more than $300 billion in restaurant deliveries. In Indonesia, however, online food deliveries account for just 1.3% of the total food market, compared with 8% in the U.S. and about 12% in China, according to data from Euromonitor.

“We are only scratching the surface in terms of penetration in this part of the world,” said Catherine Sutjahyo, Gojek’s chief food officer. “We truly believe that this is a big opportunity.”

Elsewhere in the world, companies like Uber are also aggressively moving into the food delivery business in search for higher profit margins, having identified the same opening as Grab and Gojek. The Southeast Asian duo offer digital payments and sundry other services on top of their ride and food delivery staples, aiming to be the WeChat-like super app in the region.

Gojek, which processed $2 billion of food delivery transactions in 2018, isn’t content just riding a rising tide. The company employs data and machine learning to study patterns of consumption, driver behavior and traffic. So when a user opens its app, the company takes into account their location, the time of day, and their past behavior to predict their most likely desire. The GoFood app offers personalized recommendations based on what the user typically orders and food they have already rated.

Since Gojek embarked on international expansion late last year, GoFood has become available in Hanoi, Ho Chi Minh City and Bangkok, intensifying competition with Grab.

Another successful Gojek strategy has been to organize food stall feasts at the Gelora Bung Karno Stadium in central Jakarta -– where Guns N’ Roses and Linkin Park have staged performances. One Friday evening in July, some 50 stalls outside the sprawling stadium offer crispy chicken topped with crushed chili paste, spice-filled beef soup and shaved ice in sweet coconut milk. People can eat in beanbag chairs or at tables nearby.

This carnival-like open-air space is called the GoFood Festival, and it’s been so popular that Gojek has set up 30 such venues across the Indonesian archipelago. People visit the places to dine in, but they can also use the Gojek app to order meals for delivery. The company plans to open 10 more festival locations this year.

For participating restaurateurs and food stall owners, the GoFood Festival is attractive because of its low cost of entry. All they have to do is bring a cook, with no upfront cash required to rent a space, and Gojek takes a slice of the revenue. Anggit Budi Setiawan and Felix Suryadi, two 38-year-old friends in the food business, say their monthly revenue has almost quadrupled to 300 million rupiah ($21,000). “People know our brand now,” said Setiawan. “That’s very exciting.”

Grab is racing to catch up. GrabFood was still in beta when Soelistiowati brought her banana fritters to the service two years ago, but it has since expanded from one city in January 2018 to almost 200 Indonesian cities today. It has also opened eight delivery-only kitchens, said Demi Yu, head of GrabFood Indonesia. The scale of the service now “allows us to use data to provide insights on cuisine gaps,” Yu said. “So we can bring in specialty foods not found in a particular area.”

GrabFood, which is available in six Southeast Asian nations, saw its daily delivery volume double in the first six months of the year, the company said. In Vietnam, it has about 300,000 daily orders, while it posted 4 million orders in the first four months of this year in Thailand, more than 3 million in all of 2018.

The savvy use of technology and data is a hallmark of the two startups’ prodigious growth, but both stumbled upon food delivery almost by accident. In its early days, Gojek didn’t have the resources to integrate restaurant orders into its app, so anytime a Gojek driver got a delivery order, they would have to drive to a restaurant, place an order, pay out of their own pocket and then get paid in cash upon delivery. The sea of Gojek drivers in green jackets queuing up at popular stalls to pick up orders was a hint that the food delivery business might be something to take seriously.

Jeff Perlman, Singapore-based managing director at Warburg Pincus, said the demand for food delivery was what stood out when his firm decided to invest three years ago.

“We felt that this would eventually be a multibillion-dollar business,” he said.

To contact the reporters on this story: Yoolim Lee in Singapore at yoolim@bloomberg.net;Harry Suhartono in Jakarta at hsuhartono@bloomberg.net

To contact the editors responsible for this story: Peter Elstrom at pelstrom@bloomberg.net, Vlad Savov, Colum Murphy

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