Food delivery biz stuck in conundrum?

Both consumers and riders will suffer if fees are capped as companies would have to recover cost of paying more to the riders by recommission or passing it back to the customers


FOOD and beverage (F&B) operators have called out the food delivery services to reduce their commission charge as the industry has been devastated by the Covid-19 pandemic.

The commission rates of 25% to 30% per order seem to be extremely profitable, said Consumers Association of Subang and Shah Alam (CASSA) president Datuk Dr Jacob George.

“They are not only profiteering, but also monopolising the business with those fees. Restaurants could no longer be open for dine-in, making it extremely difficult for them to survive, and charging them up to 30% is just unfair,” George told The Malaysian Reserve (TMR).

The CASSA president also questioned the parameter used by the food delivery companies to charge that amount of commission fees.

“I think this needs to be measured in order to confront the high fees. If there are hidden fees, it is clearly illegal and unethical. I believe the party who decided on the fees did not take into consideration or collaborate with any stakeholders.”

Last week, Malaysia Competition Commission said it is closely monitoring and assessing food delivery companies on whether their conduct is in contravention of the Competition Act 2010.

The Ministry of Domestic Trade and Consumer Affairs subsequently requested the companies to submit proposals for services improvement, including lowering commission charge rates.

According to George, F&B operators and restaurants are always transparent about their costs and charging fees.

“They are very open when it comes to the charging fees as well as the final cost. Based on our extensive discussion, they told us that the service charge was high after taking into account the rental, salary, amenities and utilities.”

He believes that capping food delivery fees will allow control over the price on the platforms.

“Capping commission fees from food delivery companies should be the guidance or controller for the price to satisfy the consumer as well as F&B operators. The price should be fair and reasonable for both parties. We should not allow these companies to monopolise the industry.

“If this issue is not addressed properly, F&B operators will be forced to close their doors as they are already struggling to sustain their business during this hard time. The government needs to decide on this matter or we will face a price-control problem in our country,” George added.

Hann Partnership consultant Khairil Ahmad said capping food delivery commissions will have unintended consequences.

“I realised that there is a lack of understanding on how the food delivery business works. The commission charges’ figures look as if the food platforms are reaping robust revenue, but unfortunately, it does not necessarily translate to profitability as the business operates at negative margins.”

Khairil, who is also former Foodpanda Malaysia head of public affairs, said the revenue earned from the food delivery platforms is channelled immediately as costs to delivery partners, which includes insurance, marketing, customer acquisition, salaries, product development and other variables.

“I believe we want to find the balance where everyone can be happy. However, if we cap the fees, the consumers and the riders will suffer. If the food delivery company wants to pay more to the riders, they have to make up for the cost either by recommission or going back to the consumer.”

Khairil said food delivery companies will see an increase in their revenue as the delivery platforms have become more important during the pandemic.

“More people are ordering takeout during the lockdown which will (translate into) surge in revenue, however, the costs remain high to post any sustained profit as (they are) operating at a loss.”

He noted that some food delivery companies have expanded their services to groceries and convenience stores to cushion their profits as food delivery alone is not very profitable.