The fast growth of the food delivery market in Asia is attracting reorganization of the market players and attracting foreign companies to set foot in the market.
This was the reason that the Germany’s Delivery Hero decided to acquire the top food delivery app operator of South Korea – Woowa Brothers, in a deal worth $4 billion. The resultant entity that would be formed by the merger would be large enough to take on the industry heavyweights such as Uber Eats.
This deal is the largest so far in the food delivery app segment in the world and this deal was announced by Woowa on Friday. The food delivery app segment is one of the fastest growing industries in the world as a whole too.
This deal was described as a “survival strategy” by Woowa because of the intense competition it was facing in the market and was the largest deal ever involving an internet based company in South Korea.
The market for online food orders of South Korea is the fourth largest in the world because of the very densely populated cities and very high internet and smartphone penetration. Another driver of the online food industry in South Korea is the stiff increase in the number of single people living on their own and hence in requirement of readymade food from restaurants.
Woowa’s Baedal Minjok is the market leader followed by Delivery Hero’s Yogiyo app. However even as the market leader Baedal Minjok app was facing stiff competition from rivals such as e-commerce firm Coupang which has the backing of Japan’s deep-pocketed SoftBank Group. Competition in the market forced the restaurant delivery business of Uber Technologies Inc, UberEats, to pull out of the South Korean market earlier this year which reflects the severity of the competition in the market.
“The (food) delivery market has been flooded with gigantic Japan-backed capital and influential online platforms, leading Woowa to factor in partnership as a survival strategy,” said a spokesman at Woowa Brothers.
Over the past five years, the market for online food delivery and pickup in South Korea has increased by more than 100 per cent to touch $5.9 billion which makes it larger than the markets of Japan and Germany combined. The only three markets that are bigger in this segment are those of China the United States and the United Kingdom, according to Euromonitor data. It is expected that by 2023, the value of the South Korean market will increase to reach $9 billion, says Euromonitor.
Reports however could not confirm whether the deal would have to pass through antitrust scrutiny.
87 per cent stake held by Woowa investors such as Goldman Sachs, Singapore fund GIC, Hillhouse Capital and Sequoia Capital will be taken over by Delivery Hero under terms of the deal. A Woowa spokesperson said that the rest 13 per cent of the stocks of the company would be acquired by Delivery Hero at a later stage.
(Adapted from Bloomberg,com)