Delivery Nation: Challenging the Food Delivery Monopoly in South Korea

Jihyun Kim | Aug. 18, 2020

If you take Seoul metro across the Han River anytime between spring and autumn, you’d see the long green strips along the waterfront filled with families on picnic blankets and camping tents. Streaming right through Seoul, the river has long represented a source of freshwater and a breath of nature in one of the most densely populated urban areas in the world. Cars and motorcycles must be parked in designated areas to keep this urban sanctuary reserved for pedestrians, with one exception: food delivery. In this delivery nation, you can order fried chicken or Chinese food to be delivered within half an hour to any grass patch in the Han River parks that span 41 kilometers.

The prevalence of food delivery in South Korea is not a recent innovation. It has a long history, with the earliest record dating back to July 1768. Hwang Yun-seok, a Joseon dynasty (1392–1910) scholar, has written in his book that he ordered naengmyeon, a cold buckwheat noodle dish, for a lunch with his colleagues after the annual civil service state examination. As early as 1906, there were newspaper advertisements for food delivery by the finest restaurants in Seoul. Throughout the twentieth century, as South Korea went through Japanese colonization (1910–1945), the Korean War (1950–1953), and the turns of democratization movements that led to the founding of today’s republic, the course of its history left a mark on its culinary preferences. For example, jjajangmyeon, a Chinese-Korean noodle dish topped with black bean sauce, is a quintessential delivery item with a long history. It was first brought to Korea by the influx of Chinese immigrants from the Northern province of Shandong, but was only made widely available by the surplus wheat from US military aid post the Korean War in the 1950s. As the country experienced a rapid economic development from the 1960s onwards, the Seoul metropolitan area experienced a rapid influx of the population and large-scale apartment complexes began to fill the city. Most households are within 30 minutes of delivery zones, making food delivery both scalable and affordable.

Korean food delivery advertisements from 1906

As the country entered the digital age, food delivery also adapted. Pamphlets and fridge magnets of delivery menus were soon replaced by mobile applications catering to the rapidly digitizing population. By 2019, more than 95% of the population owned smartphones — the highest percentage per country in the world. The online food delivery market in the country is now worth over $2.5 billion.

99% of this market is dominated by three major players:

Hover over the apps to see their shares...

The most popular and largest platform by size is Baemin. Baemin actually translates to “Delivery Nation” and is a pun on the country-wide addiction to its incredibly fast and affordable delivery services. Baemin, led by a CEO with a design background, became popular with its viral marketing flyers and flashy motorcycles painted in an iconic turquoise. Some of the most famous slogans, including “let photoshop do the diets for you” and “eat well, live well”, went viral among the millennial consumers that most frequently encountered them on subways and buses. Baemin’s ingenious marketing and low commissions quickly led the company to its current majority market share and eventually to the recent $4 billion mergera combination of two things, especially companies, into one with Delivery Hero, the Berlin-based delivery parent company of many regional companies such as foodpanda, foodora and Talabat. The merger is currently pending approval from The Korea Fair Trade Commission (KFTC), South Korea’s regulatory authority for economic competition. If approved, the merger would be the largest delivery app deal yet, and leave Delivery Hero, which currently owns Yogiyo and Baedaltong, in control of 99% of the Korean food delivery market. Delivery Hero currently operates in over 40 countries. The different countries and the brands they own can be seen in figure 1.

Figure 1. Delivery Hero’s coverage and monopoly

While the antitrust review is ongoing, Baemin caught itself in a large public technology (tech) backlash after announcing a new pricing mechanism to charge participating restaurants a 5.8% fee. As COVID-19 ravaged many F&B (food and beverage) businesses, the app that once appealed to the national identity of its customers was now met with a visceral response berating its monopolistic exploitation. Users and regulators alike criticized Baemin for being the greedy intermediary exploiting the simple value exchange between small businesses and consumers, especially in a pandemic-inflicted economic downturn. The announcement was met immediately with a boycott of the app and a subsequent consumer push for direct orders bypassing the app. Restaurant owners had mixed reactions as some preferred the newly proposed fee schedule that was based on order volume and/or the ease of managing orders through the app.

The most decisive and outspoken criticism came from policymakers who used the Baemin announcement to highlight their stance on small businesses just weeks before the parliamentary election. In particular, among this criticism, Lee Jae-myeong, the Governor of Gyeonggi province, which is inhabited by a quarter of Korea’s population, stood out in his response. He criticized the delivery app by characterizing it as an exploitative “monopolistic tyranny” and proposed a public food delivery app as a solution to regulate such misconduct.

Governor Lee’s strong response came from his belief that digital platforms are social overhead capital (SOC). Highways, schools, and hospitals are widely accepted to be SOC, thus it is the government’s assumed duty to build, maintain, and regulate them.

What is Social Overhead Capital (SOC)?




Hover over the markers to learn about SOC...

While being outside of the traditional definition of SOC, digital platforms draw a surprisingly similar parallel. Technology companies have leveraged network effects and massive upfront venture capital investments to build and grow platforms that are risky investments with unconventional business models. Social media, ride sharing, and e-commerce platforms have gone through a decade of iterations, competitions, and hefty investments to be made universally available. These digital platforms, like any other economic infrastructure, have enabled new income generation for gig economy workers and small businesses around the world. Just as public transport isn’t priced by the number of rides, the usage of these digital platforms is not priced per additional consumption. Rather, they are priced at a discount on the assumption that the scale of the network will eventually generate massive secondary or tertiary value to be enjoyed explicitly by a monopoly that has endured the risky investments made at a cosmic scale. Facebook and Google, despite offering the most sophisticated services for free to billions of users, still generate billions of advertising revenue at a great profit margin.

Private capital creating irreplaceable social and economic infrastructure in the digital space in place of the government is a new phenomenon with unexpected consequences that we only recently started to grapple with. One could argue that only nimble startups with high-risk venture capital and a technical edge could develop such innovative digital services to scale. Taxis and hotels are not new, but only with the wide enough distribution of mobile phones, fast mobile data, and accurate GPS were digital platforms able to become the intermediary that congregates the segmented offerings to a dramatically open market. Each digital platform iterated and built faster than its competitors to become an unrivaled winner, which a public sector initiative couldn’t have supplanted. Some of these technology platforms have since turned massively profitable. Others, such as Uber or Lyft, are still far from it, losing billions each quarter. As stated on Uber’s S-1 document when filing for IPO, these companies “may not achieve profitability” ever. Who then is paying a fair price?

Public delivery platforms, as proposed by Governor Lee, have already launched some experiments. The idea first started in Gunsan city, which already operates its own public delivery app that charges less than 3% in commission without advertising or subscription fees. It’s been used by more than 31,400 people in a population of 270,000 with mixed reviews. While some citizens praised it for protecting the bottomline of struggling small businesses, others voiced concerns for clumsy user experiences and wasted taxpayer money. While the public app struggles to compete on app usability, it has one timely competitive advantage over private ones: the provincial governments now allow the app users to pay with “regional currency” — a COVID-19 cash payout that encourages local spending at limited small businesses. Other cities have also rolled out similar initiatives for public apps.

This public app’s adoption rate, as well as its success in dismantling the monopoly, is yet to prove itself against the benefits proposed pre-elections, but also shows promise as a proactive prevention measure against a blanket acceptance of technology monopoly. The South Korean government’s strong protectionist policies are not new; Google Maps, for instance, lists South Korea as one of few countries in which navigation is not supported due to a long-standing disagreement between policymakers and Google on the possession of map data without local data centers. Ride hailing apps, including Uber and Tada, a local counterpart that recently got shut down in a lawsuit, have never been fully operational. Naver, a local tech giant, still precedes Google as the most popular search engine. With the newly announced Korean New Deal that focuses on digital, green and social safety, the current government reaffirmed its commitment to lead, not follow, the private sector in digitizing SOC.

Table 1. Google Maps coverage in various countries

In the midst of worldwide attempts to reactively regulate the negative externalities of the digital economy, this push to offer fairly priced digital services via a public alternative could prove to be an interesting policy experiment. Some argue that strong government involvement will crowd out private sector innovation. However, regulation is not the only threat to long-term innovation. The real challenge for the next decade of founders and makers is devising a technology solution that holistically benefits all of its providers — including consumers and the environment — thus improving on the unduly simplistic definitions of profit and productivity. If South Korea can provide a new example of regulation that drives local technology companies to strike a better balance for all of their stakeholders, not just shareholders, the definition of success for consumer technology can divert from that of Silicon Valley as we know it. As a young democracy trying to progress into a digital era from its old manufacturing-based export economy, Korea can offer a testing ground for novel policy experiments in regulating “Big Tech the largest and most dominant companies in the information technology industry” before it’s too late.

We believe in furthering the conversation on tech monopolies beyond this article. Here are a few resources from Jihyun to get that started:

1. Lyft’s I.P.O. Is Making the Same Circle of Men Rich, Again | Margaret O'Mara, Jessica Ma, & Ash Ngu

2. Recode Decode Podcast, Best of: Margrethe Vestager | Recode and the Vox Media Podcast Network

3. Chinese Food Delivery Apps Face a Backlash from Restaurants | Elaine Yau

4. Restaurants in Singapore Petition for Lower Commissions on Delivery Platforms | Tan Hsueh Yun

5. Brief History of Antitrust Laws in the US | Maurice E. Stucke and Ariel Ezrachi

6. How to Regulate Big Tech Without Breaking it Up | Angela Chenarchive

7. Fire & Fawning: Visualizations of Big Tech’s Dominance in Numerous Markets | Scott Galloway