How Social Reality Impacts the Future for Businesses and Consumers

“We are profitable in our mature verticals like transport in many of our mature markets, and in markets where we haven’t yet reached profitability, we have a clear path on how to get there,” a company spokesperson told us via email.

Importantly, the company is seeing a significant uptick in users transacting across the apps multiple verticals. “Today, more than 40% of Grab users use multiple services on the Grab platform,” the person added.

Promoting this behaviour will be vital to grab, as the company’s optimism about profitability stems significantly from its food delivery and financial services verticals.

Introduction: What is Social Reality and What Does it Mean for The Future?

The food delivery opportunity in the region is huge, forecast to be worth $20 billion annually by 2025, according to a new report co-authored by Google. That’s up from just $400 million in 2015 and an estimated $5.2 billion in 2019. If that estimate comes true, it would see the revenue generated from food delivery match that of ride-hailing in Southeast Asia for the first time.

While Grab was a relatively late-comer to food, it has staked its claim to the food delivery pie in Southeast Asia. It quickly set-up and scaled Grab Food across Southeast Asia after acquiring Uber’s Southeast Asia business in 2018—including its food delivery service, Eats. Executives inside the company believe Grab Food could become an important channel to engage users beyond transportation. Moreover, it’s seen as a key weapon to make inroads into market leader Gojek’s home turf.

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Gojek is looking to launch food delivery in Singapore according to job vacancies it has advertised. Regulatory concerns halted its planned entry into the Philippines, while, most recently, the company met with politicians in Malaysia over a potential expansion to the country. These expansions would see Gojek cover Grab’s six core markets

While the company claims its food delivery business is the market leader in a number of countries, Grab has not given revenue figures to support this. For comparison, Uber Eats is growing at 50% year-on-year for Uber, which is far more rapid than the company’s overall 4% net revenue growth. In the quarter ended June 2019, Eats accounted for 12% of Uber’s total adjusted net revenue worldwide, and that looks set to keep growing.

But it isn’t quite so simple. Food delivery is a subsidy-fuelled business, which hardly lends itself to sound unit economics. “Food delivery has many of the same characteristics as ride-hailing,” Dr Julian Wright, a professor of economics at the National University of Singapore (NUS), told us in an interview. “There are no huge economies of scale and it’s basically about price. It doesn’t seem like a business that can be extremely profitable.”

 

Financial services—which has emerged as the great new hope for Southeast Asia’s startups—throws up similar problems for Grab. Indeed, among the region’s many startups vying to offer services like small loans, Grab and Gojek may be the best positioned to cater to the small loans side of the fintech business.