Delivery service companies face hardships securing riders

A delivery man stops to check an order on his mobile phone in the middle of a road in Jongro, central Seoul in this 2018 file photo. / Korea Times file

By Kim Jae-heun

Despite the prolonged COVID-19 pandemic that is producing a high demand for delivery services, companies such as Barogo and Vroong are facing difficulty in attracting investments due to their business structure, leading them to accumulate deficits.

The local delivery service market has grown rapidly and sales of firms in the business have increased, but the cost of securing delivery workers to cope with the demand that the pandemic produced remains high.

“Delivery fees are dictated by market logic and if a firm fails to secure enough delivery men, restaurant owners can choose another firm. From the perspective of the No. 2 and No. 3 players, they have no choice but to spend more money on hiring delivery men,” an industry source said.

Spending more does not solve the issue as workers can move to different firms if they offer more money.

This business structure has accumulated deficits for delivery service firms at the same time as they are failing to attract investments.

The No.1 player Logiall, operated by Insung Data, managed to get Naver to invest 40 billion won in it last month. Insung Data's value is estimated at 380 billion won and it operates the only delivery firm that is said to be at its break-even point.

Barogo and Mesh Korea, the No. 2 and No. 3 players, have failed to attract any further investment.

Barogo attracted 12 billion won last year, but failed to get a follow-up investment this year. NH Bank reviewed providing capital to Barogo but decided against it due to the deficit structure.

Mesh Korea's case is even worse. It already has a large accumulated operating loss and some of its founding members have resigned, making funding more difficult.

However, there has been an improvement in the outlook for delivery service providers as major franchises such as Starbucks and Olive Young have started partnering their online businesses with them.

Starbucks Korea began delivery-only operations from a store in Gangnam, last month, with Barogo. The coffee house chain is planning to start delivery-only operations from another outlet this month and gradually expand this nationwide.

Other franchise firms such as Olive Young, Aritaum and Daiso have signed partnerships with Vroong and Barogo to provide deliveries from newly launched online malls. The industry predicts that as franchise companies speed up opening online businesses, delivery services' performance is expected to improve.