From left, Woowa Brothers founder Kim Bong-jin and Delivery Hero CEO Niklas Oestberg / Korea Times file

By Kim Jae-heun

Woowa Brothers, the operator of the country's No. 1 food delivery service, Baedal Minjok (Baemin), has come under increasing pressure to improve its profitability, as its parent company, Delivery Hero, which has exited from Germany and Japan, depends more on the platform. The German firm plans to close other unprofitable businesses across the globe to bolster its bottom line.

Delivery Hero has been showing continuous losses for a while. Its operating loss in the first half of 2021 reached 918 million euros (1.26 trillion won), which has more than doubled from 448 million euros a year ago. Its sales also increased twofold to 2,680 million euros (3.68 trillion won) in the same period.

Woowa Brothers has nearly doubled its sales too, from 565.4 billion won in 2019 to 1.09 trillion won in 2020, but it lost money for two consecutive years. In 2019 and 2020, the Korean company's operating loss was marked at 36.4 billion won and 11.2 billion won, respectively, as it had to spend more on marketing to compete with other platforms.

Woowa Brothers founder Kim Bong-jin has been leading Delivery Hero's business in Southeast Asia to improve its profitability, but the results have been unsatisfactory.

"Half of Delivery Hero's sales comes from the Asian market and Woowa Brothers is in the frontline. There is a huge pressure on Woowa Brothers to help Delivery Hero convince its investors that the company will achieve a turnaround this year," said an industry official, who declined to be named.

Nevertheless, Woowa Brothers is not in a favorable situation either. There have been newcomers in the Korean market, like Coupang Eats, that took away Baemin's customers. Woowa Brothers has been spending big money giving out discount promotions to keep its customers from leaving for Coupang Eats.

Woowa Brothers' delivery scooters are parked in front of the local branch's office in Seoul on March 30, 2021. Korea Times file

Woowa Brothers also launched the Baemin 1 service last June in order to offer a quicker delivery service, similar to Coupang Eats. Here in Korea, the company is losing 1,500 won to 2,000 won per order, due to the overall increased cost from delivering each order separately.

The competition among Woowa brothers, Combined Delivery Platform Investment, formerly known as Yogiyo, and Coupang Eats to secure delivery drivers has led to soaring labor costs.

"Increasing demand for food delivery services amid the ongoing COVID-19 pandemic has raised labor costs here by 30 percent in 2021 alone. Government regulations also required platform operators to adopt occupational health insurance and employment insurance for delivery drivers, and that increased their operating loss," the official said.

"Nonetheless, Woowa Brothers has been making decent margins from the growing number of restaurant owners using the platform and advertising on it. Delivery Hero is expecting this to help it profit in 2022."

Baemin's online food orders surpassed 100 million per month at their peak last August.

Woowa Brothers also launched the quick-commerce service, called B Mart, which is expected to improve its cash flow. The company's sales with B Mart reached 107 million euros (144.7 billion won) in 2020, more than tripling what it had achieved in 2019.

Woowa Brothers said that it cannot comment on the issue, as it has yet to reveal its business records for the fourth quarter of 2021.

Meanwhile, Delivery Hero decided to withdraw its food delivery service from six cities, including Frankfurt, Munich and Stuttgart, and in Japan, last month. It was no longer able to cope with the ever-increasing marketing and labor costs incurred from intensifying competition in the market. Delivery Hero runs the food delivery service in 50 countries around the world.