(Aug 28): The kitchen of the Bali Thai restaurant at Ngee Ann City is bustling with activity.

As chefs whip up a fusion of Thai and Indonesian cuisine, waiters slip in with orders and out with steaming dishes of phad thai with prawns and nasi goreng.

Not all that food ends up on the tables of diners, though.

At the restaurant’s entrance, several delivery riders are waiting. They will deliver the takeaway boxes of food to customers at home or in their offices.

Food delivery services offered by companies such as foodpanda, Deliveroo, UberEATS and online grocer honestbee are gaining in popularity.

And the likes of Bali Thai, which is owned by restaurant operator Katrina Group, are reaping the rewards.

In 1HFY2017 ended June 30, Katrina recorded revenue of $2.8 million from online food ordering and delivery services. This was equivalent to 5% of its total revenue of $56.8 million. Last year, this segment contributed $2.5 million.

Alan Goh, CEO and executive chairman of Katrina, says moving into the food delivery space allows the company to expand its reach. “It’s all about [accessing] different channels to reach out [to them]. Some people may not know that we exist,” he tells The Edge Singapore. “If customers don’t come to us, we go to them.”

The company is confident this segment will go into “full swing” in 2HFY2017. “We are on the right track,” says Goh. “We want to expand aggressively into online. It may or may not cannibalise retail sales. But we want to reach out to as many customers as possible.”

Growing opportunities for restaurateurs
Once upon a time, food delivery was synonymous with pizzas and burgers. Only the large fast food chains — such as Domino’s Pizza and McDonald’s — had the economies of scale to sustain the fleet of motorcycles and riders necessary for island-wide all-day delivery. The entry of companies such as foodpanda and Deliveroo, however, has changed that.

These days, you can get anything from a gourmet meal to chicken rice sent to your doorstep — sometimes within 30 minutes. By tapping a network of freelance delivery riders, these companies have managed to cover a huge area without significant capital expenditure. It is not clear if their business models are profitable, but they seem to be raising enough money from investors to keep them afloat.

Meanwhile, an opportunity is presenting itself for F&B players to enlarge their sales beyond the capacity of their restaurants and outrun sky-high rents. Most locally listed restaurant operators have begun putting some of their menus on food delivery apps.

Tung Lok Restaurants 2000, which operates high-end Chinese restaurant chains such as Tung Lok Signatures, Tung Lok Seafood and Dancing Crab, has a “majority” of its F&B brands available on Deliveroo and foodpanda. Japan Foods Holding has five brands available on Deliveroo and honestbee: Ajisen Ramen, Kazokutei, Keika Ramen, Menya Musashi and Osaka Ohsho.

Consumers can buy their favourite curry puffs from Old Chang Kee through foodpanda. Over at JUMBO Group, the company’s JUMBO Seafood, Chui Huay Lim Teochew Cuisine and NG AH SIO Bak Kut Teh brands are available for delivery via foodpanda, Deliveroo and honestbee.

JUMBO says it has seen rising delivery demand. Its NG AH SIO Bak Kut Teh outlet in Tanjong Katong, for instance, has garnered stronger sales on the back of food delivery.

“Food delivery is a strong emerging trend and we see an increasing pool of customers opting for this option,” says JUMBO. “The tie-ups [with food delivery companies] will serve as a further source of revenue without the need for additional cost or resources.”

At Tung Lok, president and CEO Andrew Tjioe says partnering with food delivery companies allows it to serve more customers. The company already has its own fleet of vehicles to deliver ready-to-cook food items for its online order platform Home Fiesta.

However, this is insufficient to cater for its restaurant business. “We cannot handle too many orders. So, the best thing to do is partner food delivery companies.”

New revenue opportunities may be emerging, too. Old Chang Kee says it is considering offering party packs or snack platters for corporate clients through food delivery companies.

“We think [the food delivery business] is growing because consumers are getting more used to buying food online. That is something we think has potential to grow,” says Song Yeow Chung, chief financial officer (CFO) of Old Chang Kee.

Impact still small
It may be a while before food delivery begins to make an impact on bottom lines, though. Japan Foods, which began offering its meals for delivery only in May this year, says food delivery contributes just 1% to 2% of monthly revenue.

JUMBO, which started its food delivery partnership in 1H2017, says revenue contribution is currently “small”.

There are several hurdles in getting restaurant-quality food to homes.

Old Chang Kee's Song points out that some dishes, such as the signature fish head curry dish at the company’s Curry Times restaurant, are just not suitable for delivery. At Japan Foods, non-executive vice-chairman Eugene Wong says the company continues to experiment with the optimum delivery method for ramen: the noodles cannot be immersed in the broth for too long, and the broth needs to be of the right temperature when the noodles are eaten.

BreadTalk Group has chosen to eschew the food delivery business altogether.

The company operates the franchise for Din Tai Fung, a Taiwanese restaurant chain, in Singapore, Thailand and the UK. It also runs ramen restaurant chains San Pou Tei and Sō.

“Din Tai Fung is a product [for which] quality is very important. I cannot afford to have the xiao long bao (dumpling) arriving at the table cold,” BreadTalk CFO Chan Ying Jian says at the company’s recent results briefing. “I also want a queue [at the outlets].”

Food delivery sees growth amid competition
In spite of these difficulties, most market watchers think the food delivery business is likely to keep growing.

Aparna Bharadwaj, principal at Boston Consulting Group (BCG), says high rental differentials between central Singapore and the outskirts will likely push more F&B players to work with food delivery companies.

Also, consumers increasingly have less time to have a sit-down meal.

And the affordability of a delivered meal — at about $15 on average — makes it an attractive option.

Market research firm Mintel sees a higher take-up rate among young, newly married couples and urban working professionals who are time-pressed.

“In [the next] one to two years, delivery services here should see an even greater growth rate as consumers look upon them as a convenient alternative to their day-to-day meals,” says Delon Wang, Mintel’s manager of trends.

Still, competition is intense. foodpanda entered the Singapore market in 2012. This was followed by Deliveroo in 2015. Uber, which is known for its private car sharing app, launched UberEATS last year. This year, honestbee launched its food delivery service arm.

“Food delivery from restaurants is one of our latest delivery services, and we have seen phenomenal growth to date. We do not expect it to stop anytime soon,” says Joel Sng, CEO of honestbee.

Many of the industry players are employing a “burn” strategy to win market share and active users, says foodpanda Singapore managing director Luc Andreani. However, he is aware that this is not a sustainable business model.

“foodpanda Singapore is going to be here for the long term, so we are working to perfect the art of profitability,” he says.

BCG’s Bharadwaj says the food delivery industry may consolidate down to two or three players, with the winners being those with a solid logistics network, rather than those with the most F&B brands on their platforms.

“In the end, whoever has the most efficient logistics solution will be the one that prevails,” she says. “Because if you are able to provide short delivery times and break even on your network, then automatically you will get F&B players on your network.”

This article first appeared in Issue 794 (Aug 28) of The Edge Singapore