Home food deliveries aren't a bargain anymore

Restaurant deliveries are a big part of life in urban Korea, and became only moreso during the pandemic. Spiking demand is leading to higher fees, along with an increase in labor cost and a one-order-per-delivery system.

Delivery fees are going up as demand for restaurant deliveries outpaces the labor supply. [NEWS1]

The cost of getting restaurant meals motorcycled to your home is hitting new highs — forcing some families to get in the car and pick up meals on their own.

Ms. Kim, 34, was about to order a 20,000-won ($16.7) dinner for her eight-year-old son on a food delivery app when she noticed a shocking fact: it would cost an extra 6,000 won to have it delivered.

Reluctant to pay almost 30 percent of the price of the meal, she ended up driving to the restaurant to pick it up herself.

“If my husband wasn’t there to look after my kid, I would have no choice but to pay that extra money,” rues Kim.

“I've heard that some neighbors are putting their order together and then splitting expensive delivery charges," she says. "I want to join them!”

Restaurant deliveries are a big part of life in urban Korea, and became only moreso during the pandemic. Spiking demand is leading to higher fees, along with an increase in labor cost and a one-order-per-delivery system.

In Seoul, those fees have been fairly uniform and were around 2,500 won per delivery two years ago. Since the pandemic and the rise of new delivery services, the fees have risen to between 4,000 to 5,000 won.

That goes even higher when a customer chooses the one-order-per-delivery system, an option on some apps, where a delivery guy carries only one order at a time. Other factors, such as the distance of the delivery, the backlog of orders or the weather, also come into play. Delivery charges sometimes reach 10,000 won for single-order deliveries.

Food delivery app Coupang Eats entered the market in May 2019 and introduced the first one-order-per-delivery service, which promises greater speed. Baedal Minjok followed suit with its Baemin One system.

Riders normally deliver three to four orders at the same time. If they only do one delivery per trip, the price naturally goes up.

Over the last few years, Coupang Eats and Baedal Minjok aggressively cut prices to get market share. They offered the one-order-per-delivery service at a significant discount, or even for free.

But now they're charging more.

An increase in labor cost is another factor. Occupational health and safety insurance became mandatory for delivery workers last July, and employment insurance in January. That gives some protection to workers in a notoriously dangerous occupation — but also leads to higher costs, which get passed onto customers.

A driver and an employer need to pay some 30,000 won in total as occupational health and safety insurance fee every month, and 0.7 percent of their monthly revenue for employment insurance.

The biggest contributor to the price hikes is a shortage of manpower.

Explosive growth in demand for food deliveries is outpacing the labor supply. According to a Statistics Korea report released Jan. 4, the total transaction volume for the online food service market amounted to 21.17 trillion won from January to October 2021, double 2019's 9.73 trillion won and a tenfold increase compared to 2017.

Online food service involves deliveries almost all the time.

As complaints start to grow about the hikes in food delivery charges, the government announced that data on delivery fees, such as calculation methods, will be disclosed on the Korea Consumer Agency website and updated every month.

Starting next month, the delivery fee data disclosures will be adopted in some regions including Seoul.

Analysts say the real problem lies in the manpower shortage.

"If price increases put too much pressure on consumers, the demand in food deliveries might drop, affecting the whole market negatively," said Lee Jung-hee, an economics professor at Chung-Ang University.

Lee said that the sustainability of the business is more important than winning the competition.

"So food delivery service platforms should focus on solving the fundamental problem instead of being preoccupied with the competition."

BY CHOI HYUN-JU [shin.hanee@joongang.co.kr]