Delivery Hero-Woowa deal may be postponed
Fair Trade Commission Chairwoman Joh Sung-wook speaks during a presentation of the antitrust regulator's plans at the Government Complex in Sejong, March 5. / Yonhap
By Kim Jae-heun
Woowa Brothers CEO Kim Bom-jun
German online food delivery service Delivery Hero's $4 billion acquisition of Woowa Brothers, the operator of Korea's leading food delivery application Baedal Minjok (Baemin), may be postponed indefinitely after the country's top antitrust regulator said it will comprehensively review the proposed acquisition.
“In this corporate mergers and acquisitions (M&As) evaluation, we will not only clarify the market situation, but also take a detailed look at whether Baemin's new fee system will pose a burden on customers,” Korea Fair Trade Commission (KFTC) Secretary General Kim Jae-sin told The Korea Times, Wednesday.
On Monday, the antitrust agency's Vice Chairman Ji Chul-ho said the regulator would make a “thorough review” of the possibility of Woowa having an “information monopoly,” in which the delivery service application utilizes its 25 million annual subscribers' data. “We will look closely into how Baemin is accumulating user data in the normal course of business and whether it is disclosing this to outside parties,” Ji said.
According to recent data from analytics firm App Annie, Woowa's Baemin is the biggest food delivery service in Korea, followed by Delivery Hero's Yogiyo. Data from Statista showed that revenue in the segment here amounted to $2 billion in 2019 and is expected to rise to a little over $3 billion by 2023.
The remarks come after Woowa issued a public apology over its controversial decision to introduce a “new fee system” for Baemin that allegedly charged restaurants a heftier commission. Gyeonggi Province Governor Lee Jae-myung strongly blasted the move.
Regarding the comments by the KFTC officials, Woowa said the firm had “no comment” about the regulator's review over the proposed acquisition and added it will only wait for the results and abide by any ruling.
“As you know, the main character in this M&A investigation is Delivery Hero. We cannot speak for them. Nothing has been decided except that we will return 50 percent of the commission for what we will charge shopkeepers this month. Next month, we don't know if we will stick to the new fee system imposing 5.8 percent commission per delivery or come up with a new system. We are in preparation for something but we cannot comment until it has been decided for adaptation,” a Woowa Brothers official said.
Delivery Hero recently acquired Woowa Brothers in a deal valued at $4 billion, and was forming a Singapore-based joint venture. The transaction resulted in Delivery Hero owning up to 88 percent of Woowa's shares with the remaining 12 percent to be exchanged over the next four years.
According to the Monopoly Regulation and Fair Trade Act, if one of the two firms has a total amount of assets or sales exceeding 300 billion won ($246 million) and the other with over 30 billion won ($24.6 million), any acquisition is subject to KFTC approval. The KFTC's decision to whether or not to approve Delivery Hero's deal with Woowa was scheduled to be announced April 28.
A KFTC official admitted that it will take longer than expected. The KFTC was weighing in on granting a possible conditional okay for the proposed acquisition. Woowa was asked to present the specifics of its strategies on how to look after the best interests of small- and medium-sized enterprises (SMEs) affected by the deal, if it goes through. Woowa was facing stiff competition from other players in South Korea, including the SoftBank-backed ecommerce firm Coupang and Uber which both recently decided to pull out of the business.
Even after Woowa introduced the new fee system, an earlier assessment by the KFTC was that the fee restructuring was not an abusive act by a monopoly. It said the commission imposed by Woowa had been agreed to between the food delivery player and restaurant owners in their contracts and it didn't see any compulsion in this.
Despite an apology, customers and restaurant owners are starting to boycott the online food delivery service by canceling their memberships.
The movement is particularly active on social media and internet communities. People are uploading posts of them deleting the Baemin application on their mobile phones and some are advising people to call restaurants directly instead of ordering food through the delivery service platform.
One of the netizens wrote that a shopkeeper gave him 1,000 won discount after he had told him that he only searched for the restaurant and called directly to order food.
A number of restaurant owners are now starting to post requests on Baemin's platform for customers to call them directly and not make orders online.
Woowa said this is only temporary and the company cannot do anything to stop it. “It is customers' choice and we cannot stop them from not using our platform,” a company official said. Woowa is also under criticism for paying 1,000 won less per order to delivery drivers starting this year.
The online food delivery player paid extra money to entice delivery drivers as a promotion last year and they received an average 5,500 won last November.
However, after the promotion ended, the payment per delivery declined below 5,000 won. The average payment made per delivery this year has been lower than 4,342 won.
The delivery drivers' union argued that they made as much as 6,500 won per delivery last year but the commission has decreased this sharply, almost by half.