Meals takeaway firm Foodpanda wants a slice of the competitive market of grocery delivery services, a fledgling industry in Hong Kong which has seen an established name lose money and a Singaporean rival struggle to survive.
The company plans to offer the new services by the end of June in collaboration with about 100 city stores, promising to allow users to have daily products, ranging from frozen meat to bottles of wine, delivered to their doors in 30 minutes.
Arun Makhija, Foodpanda’s CEO in Hong Kong, revealed the details over its move to join the evolving industry just days before its Singapore-based competitor Honestbee, a food and grocery delivery start-up, halted services locally on Saturday following reports of funding issues.
Makhija admitted his business was running in a competitive environment, but wants to use the firm’s more than 2,000 drivers and couriers across the city, to provide more than just restaurant delicacies.
“Our grocery offering has nothing to do with whether or not we are doing well in food [delivery sector],” he told the Post, adding the monthly growth in its existing business had been “exceptional”.
Hong Kong’s online shopping market for groceries is very competitive, with an academic pointing out that many residents still lack a strong incentive to use the services. For example, four-year-old incumbent HKTVmall, run by veteran entrepreneur Ricky Wong Wai-kay, lost HK$133 million last year.
Honestbee suspended services on Saturday after more than three years of operations in the city following reports it was seeking funds and cutting its global headcount by 10 per cent.
Makhija said Foodpanda, launched in Hong Kong in 2014, had the financial support of its German parent company, Delivery Hero, which is listed on the Frankfurt Stock Exchange and runs businesses in more than 45 countries.
The global network allowed it to learn from the experiences of sister operations and decide how much to invest, he said.
“I don’t necessarily put Honestbee’s failure down to strategy or anything like that,” he said.
“We take a very different approach. We are focusing on convenience … and that has allowed us to understand very clearly what are the cost implications of the business that we are running.”
The CEO brushed off competition concerns with existing major players in the field, such as HKTVmall and Ztore.
“There is a huge demand in Hong Kong for a wide range of services or goods that can be delivered in under 30 minutes,” he said. “So, we don’t see ourselves as direct competitors to the bigger shops. They don’t offer this kind of immediate need.”
Makhija declined to say how much had been invested in the new initiative, and only added that significant additional investment was not needed because the firm would just use the same group of riders and couriers on delivery.
Despite its financial losses, HKTVmall is gearing up to boost its business. The online shopping platform, which launched in 2015 and works with 2,800 retailers, hopes to expand its warehousing system by the end of 2020 to increase daily capacity to take about 35,000 orders.
The firm also aims to have 100 physical shops this year, up from 55 at the present, partly because the locations can serve as new pick up points, reducing some door-to-door delivery costs.
The proposals came as the company improved its deficit, after posting an 84 per cent growth in turnover in 2018 from the previous year. In the first three months of 2019 it recorded HK$634 million in order value, an increase of 74 per cent from the same period a year before.
A spokeswoman noted there were new entrants for online grocery shopping and some retail chains which dominate the city’s grocery market were tapping into the e-commerce world.
“However, compared to neighbouring areas, e-commerce development in Hong Kong is still lagging behind,” she said.
Another business finding competition fierce was Ztore. Its spokeswoman said customers were always looking for new products and were sensitive to prices.
This year, the firm will launch a mobile application to enhance the customer experience by offering deals that suit them, she added.
Vincent Cho Wing-sing, associate professor at the management and marketing department of Polytechnic University, said conditions were not ripe for online grocery shopping platforms to become lucrative, because the city was too convenient and its e-payment systems were not mature enough.
He said to excel in Hong Kong’s online market place, companies would need to secure market share by launching promotions to attract customers, but that would reduce profits. That could only change after firms influenced consumer behaviour.
The scholar said even Amazon had suffered losses in its early years of existence.
“Despite this, entering the market now can give companies an advantage to become a leader,” he said. “Maybe later, when people get used to it and take it as part of their habits in daily life, then they can start earning money.”