Food Delivery Startup
In 2014 November, ‘Woowa Brothers’ attracted $36 million investment from Goldman Sachs. Woowa Brothers is a startup located in Seoul, Korea, which operates popular Korean food delivery application, ‘Baedalui Minjok’. Since its inception in 2010, ‘Baedalui Minjok’, which means “Delivery Nation”, has been a leader in O2O(online to offline) food delivery market in Korea. Accumulated number of downloads of this application is over 20 million and it has more than 150,000 restaurants registered on the platform and its monthly order transaction is 5 million and the monthly turnover is $80 million.
Its Business Model
Its business model was to link restaurants with customers and it charged 13.4% fee of transaction amount to a restaurant. The market size of food delivery industry is estimated to $9-10 billion. Previously, customers were heavily relied on food delivery flyers. Customers looked to flyers and called restaurants to make delivery orders. Now these food delivery apps such as Baedalui Minjok and Baedal-tong are rapidly replacing food delivery flyer market. From the point of view of restaurants, they used to pay $500 per month for flyers, which they weren’t able to know effectiveness such as ROI. However, restaurants which adopt food delivery apps are now able to see their ROI and pay fees according to their actual sales volume.
Its Operating Model
The operating model of Woowa Brothers was tightly focused on connecting restauranteurs, most of whom are small owner-operators, with customers and well-aligned with its business model. The company first started with developing a mobile application, Baedalui Minjok with several developers. Then, it began to hire salespeople to contact and build relationships with restaurants, build a PR and a marketing team to publicize and promote its service. As it grew, Woowa Brothers intensified its corporate strategy organization to cope with other two big competitors. The company has been building and growing its organization, improving and consolidating its operating model by aligning itself with its business model and aspiration.
It deliberately applies its kitsch look-and-feel design to its application, in order to resonate with its core target – single households.
In 2012 November, it launched ‘direct payment’ in order to provide customers with easy, one-click payment method as well as to improve its profit margin. Followed by the introduction of direct payment, Woowa Brothers’ transaction fee revenue was increased by 7 times. To provide more various payment methods, it cooperated with ‘OK Cashbag’, Korea’s largest integrated loyalty program. This program has more than 37 million members and customers use its points like cash.(1 point = 1 Korean Won) In 2014, Woowa Brothers also added ‘Culture voucher’ as an additional payment method, which is extensively used by children and students.
To pull away itself from two biggest competitors, Baedal-tong and Yogiyo, Woowa Brothers started nation-wide TV commercials and ads in 2014. Even though the company was still relatively small and financially constrained, it aggressively got through its budget and spent on advertising. It hired a hotshot movie star and aired movie-like commercials. (https://www.youtube.com/watch?v=3fmRVvo8UR0&list=PLgSkoTs-Wq6Clou3QSZ_hTkJlSbtGxauI&index=10) These commercials made big hits and helped Baedalui Minjok consolidate its market leadership.
Backlashes from restauranteurs and Woowa Brothers’ new moves
While Woowa Brothers had been leading the mobile app food delivery market, restaurants of small owner-operators started complaining about the high fee structure. Even though its business model was designed to help restaurants spend their marketing expenses more efficiently and track outcomes, small restaurant owners thought that the fee was excessive. They admitted that their revenues grew once they adopted Baedalui Minjok system but at the same they grudged growing expenses. In that sense, they began to discriminate customers from mobile order apps. Customers using mobile apps were delivered less portion of food, compared to those who ordered via phone. To handle this trend, Woowa Brothers tried to strengthen its relationships with restaurants by providing safety training to delivery people of restaurants, know-hows for successful restaurant operation, and sanitation consulting for restaurants. At the same time, they introduced a money-back guarantee policy, for the first time in food delivery industry, to customers who were not satisfied with the quality of delivered food.
Finally, in 2015 July, Brothers decided to abolish its charge for direct payment. Many people questioned its profitability and sustainability without revenue stream from transaction fees. However, after it abolished the fee, the number of new registered restaurants was increased by 13.4% within two weeks. Now the company is aiming to grow its user base, rather than revenue growth. Also, it has been consolidating its core business through vertical integration of related business by acquiring companies and launching new businesses. It acquired a delivery company, fresh food company, and meal ticket company with the fund from various investors including Goldman Sachs.
Obviously, it aims beyond food delivery service and is becoming an O2O platform that links off-line businesses with online businesses and customers.
Source 1. company homepage <http://www.woowahan.com/>
2. Money Times <http://osen.mt.co.kr/article/G1110086843>
3. ZDNet <http://www.zdnet.co.kr/news/news_view.asp?artice_id=20150225095749>
4. Hankyung News <http://www.hankyung.com/news/app/newsview.php?aid=2015072033971>
5. Consumer Times <http://www.cstimes.com/news/articleView.html?idxno=185280>
6. News Tomato <http://www.newstomato.com/ReadNews.aspx?no=605705>
7. Digital Times <http://www.dt.co.kr/contents.html?article_no=2015112602101531746001>
8. YouTube https://www.youtube.com/results?search_query=%EB%B0%B0%EB%8B%AC%EC%9D%98+%EB%AF%BC%EC%A1%B1&spfreload=1