Grab allegedly pocketed 50% of the cost of a food order made over GrabFood. What happened here?

Mothership Explains: Many have called for platforms like Grab to reduce its commission rate and pay restaurants more. Here's where the extra $$ could come from.

Nigel Chua | April 16, 2020, 01:34 PM

Singapore's food and beverage (F&B) outlets, already affected by lower footfalls and revenues due to safe distancing measures earlier this year, had their dine-in revenue wiped out after stricter circuit breaker (CB) measures kicked in from Apr. 7.

Many outlets that previously did not deliver are turning to it now to boost earnings. An Apr. 11 GrabFood press release reveals that since the CB started on Apr. 7, it has seen "a rise of more than 20 per cent in food orders" (emphasis ours).

However, the experience has been — for some restaurateurs — not quite the silver bullet they had hoped for.

Facebook post & accompanying infographic go viral

Colin Chen, who runs a "small little F&B business" called The Refinery, took to Facebook on Apr. 14, to explain the challenges faced by F&B outlets on delivery apps.

His acerbic post went viral, with close to 2,000 shares in just over a day, seeming to expose the exorbitant commissions taken in by GrabFood and other delivery apps — with one instance involving a whopping 45 to 50 per cent commission, according to his calculations.

Chen's post became the subject of a nifty infographic by one Desmond Chua, which has garnered around 4,000 shares since it was published on Wednesday (Apr. 15).

Chen's sentiments were also echoed by local poet Joshua Ip, who urged diners to "cut out the middleman", saying that "Grab has grabbed enough of my money, and is actively screwing honest business owners over during a period of crisis" (emphasis ours).

Breaking down the total amount a person pays for their food, and where it goes

We thought we'd dig into the details of how it was that Grab ended up allegedly pocketing an amount that is worth almost half the cost of the customer's actual meal, because that breakdown looked quite stunning to us as well.

Chen's criticism of food delivery apps like GrabFood, Deliveroo and foodpanda boiled down to his belief that "the commission rates have been too detrimental (and always increasing since their inception)".

This is also very much what groups of restaurateurs have said repeatedly, including in a latest salvo a group of more than 500 F&B owners calling themselves #savefnbsg issued them.

To illustrate this, Chen used an example of an actual order he received on GrabFood, to illustrate the problem with high commission rates.

Here's the screenshot of the order Chen shared:

A S$41.50 order. Image via Colin Chen on FB.

The order of "2 Signature Bowls + 1 Free Side" is priced at S$30.00, with a discount of S$3.00 applied at the end.

Adding a S$14.50 service fee, the order total that the customer pays is S$41.50.

Chen's calculations: Grab takes 52.6 per cent

The S$41.50 paid by the customer for this order would split as such, adjusting Chen's calculations to reflect the 30 per cent service fee Grab says it charges merchants (Chen had used a 35 per cent service fee instead):

  • S$8.50 for the rider (based on Chen's estimations for a 8.5km trip)
  • S$18.90 for the restaurant (which is 70 per cent of the S$27.00 order amount)
  • S$14.20 for Grab (which works out to 52.6 per cent of the original S$27.00 order.)

And indeed, this whopping 52.6 per cent commission that appears to be taken by Grab is certainly a significant departure from Grab's public claim that it charges its merchants a 30 per cent service fee.

Working out how much the rider collected from the delivery

One thing worth noting is Chen's estimation of the rider's fee for delivery of the meal. Chen had written:

"let’s just assume for a moment that the delivery app driver can get S$8.50 from this 8.5km delivery, pretty fair right?"

And indeed, the distance between the customer and the restaurant was shown as 8.5km, which in this case is kind of extraordinary because it happens to be around four times the typical distance for food delivery.

An 8.5km distance order. Image via Colin Chen on FB.

Distance actually covered: around 11km (based on customer's likely location in Ang Mo Kio)

From the thumbnail in Chen's screenshot, the delivery location was somewhere near ____nderson ____ary School, and a bus stop labelled "Opposite C____e Gree-":

Screenshot from Colin Chen on FB.

This matches up nicely to a spot in Ang Mo Kio, near Anderson Primary School, and a bus stop labelled "Opposite Castle Green".

If the spot we've pinpointed from the screenshot is accurate, the actual distance travelled by the rider is likely closer to 11km, from Lavender, where Chen's eatery is, to Ang Mo Kio — even though the straight-line distance is indeed 8.5km.

The actual distance was at least 10.8km, assuming of course, that the rider did not fly. Image and measurements via Google Maps.

Why did the rider travel so far? Because of the new islandwide delivery scheme for restaurants in S'pore.

This distance is far outside the typical GrabFood order range, which, in a usual case, is limited to a radius around the customer's location.

This exceptionally long-distance delivery happened only because Chen's restaurant, The Refinery, is under GrabFood's new islandwide delivery scheme, which allows customers to order food from hundreds of restaurants from anywhere in Singapore (with circuit breaker in mind).

But, of course, the further away the restaurant is that you order from, the higher your delivery fee is going to be.

Which is only fair to riders, who incur higher petrol costs and have to work that much harder for these longer trips — each of which cuts the total number of deliveries they're able to make.

But how much of this service fee actually goes to the rider?

A Grab spokesperson told Mothership that 100 per cent of delivery fees the customer pays (and any tips) is passed in full to the rider. This is the case, Grab says, for all deliveries — those around the typical smaller radius or islandwide ones.

In the example above, the full S$18.40 in delivery fees would go to the rider. Screenshot via Grab app.

A Grab spokesperson told Mothership: "the example that has been circulating makes up only a small portion of our total volume orders per day."

How the amount might be split, in view of this

With all the above in mind, here's how the S$41.50 order is more likely to have been split:

(As above) Chen's calculations: Grab takes 52.6 per cent of food order amount

  • S$8.50 for the rider
  • S$18.90 for the restaurant
  • S$14.20 for Grab

Where the rider takes the full delivery fee:

  • S$14.30 for the rider
  • S$0.20 GrabFood platform fees, which, together with the rider's $14.30 delivery fee, adds up to S$14.50
  • S$18.90 for the restaurant (which is 70 per cent of the S$27.00 order amount), which would leave
  • S$8.10 for Grab, as 30 per cent commission of the S$27.00 order, from which it also pays riders additional incentives (where applicable), and cover its own costs.

Based on this, Grab takes a total of S$8.30, which works out to what looks more like 30 per cent of the S$27 order total, which to be fair is what they said.

And there's also that Food Delivery Booster Package.

Chen also flagged the Enterprise Singapore (ESG) Food Delivery Booster Package, which helps to cover 5 per cent of the commission charged by apps like delivery apps like GrabFood.

This means that Chen would have received S$20.25 (75 per cent of the S$27.00 order) instead of the earlier figure of S$18.90.

So that's cleared up, and it might be encouraging to know that the rider does get the full sum of the delivery fee you pay.

Do merchants have to pay the full sum of the promotions they offer?

Another thing Chen mentioned in his post is that F&B businesses "have to bear the full value of the promotion or discount" that they extend to customers.

"When you look at the printed order ticket, it shows S$30 worth of food ordered, S$3 discount enjoyed by the customer, and so a net sale of S$27. Well, that’s right as promised. So basically, the outlet will receive S$27 minus 30-35% commission which works out to be a grand total of S$17.55, for 2 mains and 1 side (for this case illustration)."

If it were indeed the case that Chen's restaurant bore the full cost of the "S$3 off" promotion, he should have received S$3.00 less than 70 per cent of the original S$30.00 bill, which is (S$30.00 x 70%) - S$3.00, or, S$18.00 before credit card fees.

Instead, as Chen's calculations show, Grab does actually share 30 per cent of the cost of the promotion (in proportion to its commission rate), which is why he received (S$30.00 - S$3.00) x 70%, or, S$18.90 before credit card fees.

All that being said, though, could Grab lower its 30 per cent commission rates?

A Grab spokesperson told Mothership that "we have not made any adjustments to the cost structure during this period", meaning that GrabFood commission rates are not increasing.

BUT, at the same time, Grab isn't exactly decreasing its share of commissions, despite clarion calls for them to do so.

If Grab wanted to lower its commission rates, here are 3 ways it could be done:

According to Grab, the current cost structure "is meant to balance out various factors that can affect demand and supply, and more importantly to keep the ecosystem running" — in other words, it would not be able to give merchants more, without compromising these other three players:

  1. The payouts for its delivery riders
  2. The current price levels paid by customers, and
  3. The sustainability of the GrabFood platform

1. Riders

Paying riders less would leave more available for Grab to allocate to restaurants.

However, many riders are already having issues with incentives.

47 out of 58 riders who The New Paper (TNP) spoke to said they are earning less in the CB period than before, despite Grab seeing "a rise of more than 20 per cent in food orders".

This, as one rider explained to TNP, has to do with the increased competition among delivery riders for trips, as the past weeks saw a massive influx of new riders that even required crowd control assistance from the police on one occasion.




Also competing for trips are GrabCar drivers, who are now allowed to deliver goods and food under a limited trial.




2. Customers

Food delivery customers here have grown to rely on, and even expect promo codes and in-app rewards to offset the costs of delivery orders, which is understandable.

Evidently, it has proved difficult to wean customers off of promotional pricing, as seen by the outcry that followed Grab devaluing its rewards points back in 2018, and once again in February 2020.

3. GrabFood platform

A typical GrabFood delivery fee ranges from S$3 to S$5,

But, Grab's base rate for each trip that riders complete is S$5, and that excludes additional incentives.

Therefore, even though 100 per cent of delivery fees charged goes to riders, "most of the time, the amount of delivery fee paid by consumers currently is not enough to compensate our delivery-partners for their efforts", Grab said.

So Grab uses its 30 per cent commissions to top up the delivery fees paid to riders.

The remainder of the commissions are kept by Grab, and are used to cover:

  • Operating costs (including insurance for GrabFood riders);
  • Marketing costs;
  • Credit card charges for payments made by consumers; and,
  • Backend manpower and resources (including Grab's customer service team, which comprises almost 300 after-sales service staff, Grab said, as well as digital platform maintenance and tech updates to the three apps which GrabFood utilises)

Thus, unless these three players (riders, customers, and Grab itself) are willing to make do with less, it will be impossible for merchants to earn more.

How can GrabFood do better?

So, while Grab is not exactly the villain pocketing over 50 per cent of the revenue in Chen's example above, it is also not entirely the hero in this story.

Chen's post, and the discussion it has generated, reveals much to be improved on Grab's end.

Should Grab waive onboarding fees, like Deliveroo and foodpanda?

foodpanda and Deliveroo are both waiving some fees for new merchants.

foodpanda is waiving the first month of commissions for new vendors who sign up during the CB period, as well as on-boarding fees of up to S$160, while Deliveroo is waiving up to S$360 in onboarding fees, according to CNA.

New GrabFood merchants, however, have to pay either S$100 or S$300 in activation fees, (depending on whether they have their own Android device to receive orders), although they can opt to cover that cost using their earnings from the app, so they don't have to pay upfront.

If there was ever a time to gain market share by incurring losses to get into the good books of merchants (by matching the other delivery companies' in waiving these fees), it'd probably be now, when F&B outlets face imminent closure and would likely appreciate all the help they can get.

Nonetheless, we can only infer that Grab is not keen to adopt a cash-burning strategy in this specific area.

Grab's zero per cent commission for "self pick up" is a good deal, but doesn't always work

Grab currently waives its usual 30 per cent commission for orders that customers opt to pick up themselves — this basically means that Grab relays these orders, through its app, to the restaurants, for free.

While the initiative sounds good in theory, it does not always work out so well in reality. This was the case for French bistro Summer Hill, whose owner-chef Anthony Yeoh weighed in about the issue on Facebook as well.

In his note, Yeoh encouraged diners to "do a pickup" by calling ahead to place their orders, which is the exact same thing Grab offers, except over the phone.

When asked about why this was preferable over GrabFood's "self pick up" option, Yeoh shared with Mothership:

"We haven't used it [GrabFood] as most of our customers have contacted us directly.

In addition it's also hard to cut through the noise of so many brands on the app unless you offer some kind of deal or discount that will be highlighted."

Furthermore, Yeoh explained, signing up for GrabFood makes a restaurant ineligible for the alternative form of ESG's Food Delivery Booster Package, which funds 20 per cent of the delivery cost for orders made through third-party logistics players.

Markups allowed, but not a viable strategy for some

Here's another reason why GrabFood isn't attractive to some F&B outlets: they would prefer not to set different prices just for online orders.

Deanna's Kitchen, a popular halal prawn noodle stall, put it this way:

"We have the option to increase the price on some platforms. But to do that, it will create the perception that our food is even more unaffordable than it actually is. For example, if I mark up the seafood platter to $48 (to cover the commission levied) will you buy? You will think twice because it is only $39 at the stalls. Hence we are against setting different price points online and at stalls."

Alternatives to delivery apps

Directly hiring drivers and couriers

With neither markups nor a 30 per cent loss of revenue being viable options, restaurants like Deanna's Kitchen and Summer Hill have chosen to opt out of using food delivery apps, and are instead using couriers, or hiring drivers directly.

F&B outlets who are keen on this are able to tap on DABAO DASH, which helps with "matching freelance, independent delivery folks with hawkers & small-medium F&B shops"

Recent listings on the DABAO DASH website.

Crowdsourced marketing

On the marketing front, Facebook groups such as Singapore Restaurant Rescue and Hawkers United - Dabao 2020, and the KOPI-19 website, allow restaurants and hawkers to get some much-needed publicity at no cost.

Screenshot of the KOPI-19 website. Recent listings on the KOPI-19 website.

More established platforms such as Carousell serve this function too, albeit for snacks rather than hot meals.

Grab continues to enlist new merchants

It is ultimately perhaps worth noting as well that all of this — the hubbub over commissions, and the existence of alternatives — has not stopped Grab from enlisting new merchants, who have (hopefully) done their own calculations too.

A Grab spokesperson told Mothership:

“Grab has onboarded hundreds of F&B businesses on our GrabFood and GrabMart platform in the past month. We are working hard to bring more businesses onto our platform so that they can start receiving orders within a shortened time-frame.”

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Mothership Explains is a series where we dig deep into the important, interesting, and confusing going-ons in our world and try to, well, explain them.

This series aims to provide in-depth, easy-to-understand explanations to keep our readers up to date on not just what is going on in the world, but also the "why's".

Top photos via Colin Chen, The Refinery, and Desmond Chua on Facebook