Platform consolidation raises risks for independent restaurants

Two-thirds of Singapore outlets are independent as delivery growth slows and checkout costs deter consumers.

Singapore’s food delivery market is consolidating around GrabFood and foodpanda, increasing the importance of the two platforms for smaller restaurants as order growth slows.

About 92% of users default to either platform, according to GlobalData. Anuran Dhar, Practice Head, Foodservice, Wisdom Sectors, Agribusiness at GlobalData, said consumers still retain some choice because many use both apps and delivery accounts for only about a fifth of foodservice spending.

Restaurants face a tighter position. Around two-thirds of outlets are independent, and smaller operators have less ability than large chains to build direct ordering channels or negotiate terms.

“If you're a small operator, you really can't afford to be off either of the apps,” Dhar said.

Pricing is another issue. About 69% of consumers have abandoned orders because of unexpected checkout costs, including delivery, service, small-order and surge fees.

Dhar said this is primarily a transparency problem, but could become a trust issue if the full price remains unclear until checkout.

GlobalData said delivery orders grew around 8% annually up to 2023 but have since flattened. It forecasts growth of around 2.5% a year to 2030.

That limits the scope for volume-led expansion and shifts attention to other profit levers.

Dhar said there is not yet enough evidence to conclude that restaurants have already lost bargaining power because contract terms are private and changes may emerge gradually. Signs to watch include higher promotional contributions, paid search visibility and more restaurants encouraging direct orders.

Platforms can also pursue subscriptions, advertising, better rider routing, order batching and larger grocery and convenience baskets.

“The volume alone won't really do it,” Dhar said.

For merchants, the key issue is whether greater scale lowers operating costs or increases the cost of reaching customers.