Dawn delivery companies are getting more competitive

 There is a saying in Korea that early birds catch bugs. As the saying goes, there are diligent birds in Korea who have been working hard since dawn. However, it is said that the birds have not yet eaten their fill. Some birds have declared that they oversleep. On the other hand, there are birds that have now declared that we will wake up early. The stories of these birds are actually stories of dawn delivery companies. Now, let's look at what a dawn delivery company is and why some dawn delivery companies have announced their abandonment of business.

 

What is Dawn Delivery Service?

 The dawn delivery service is a service that delivers goods ordered by the consumer the night before to the front of their house the next morning by the delivery company. In Korea, Market Curly first started in 2014, and the related market has grown rapidly over the past few years, intensifying the competition in the dawn delivery service market. According to an April 2020 survey by Victor News, an Internet newspaper company, the number of dawn deliveries on SNS such as Instagram and Twitter has gradually increased, and the amount of delivery has also increased steadily. The reason for the increase in interest and order volume is that it is popular with modern people who do not have enough time  and because goods can be delivered quickly with a few clicks from home. In particular, office workers who prefer convenience, single-person households, and multi-family households that have a need a lot of luggage when shopping are strong customers of the service. In addition, the increase in the number of people who are reluctant to go out due to COVID-19 can be said to be a factor in the rapid growth of dawn delivery services. However, the choice of dawn delivery service has recently been divided between companies. Large companies such as Lotte are giving up dawn delivery, saying, "We can't do it anymore due to intensifying bleeding from competition," and companies that have newly started their businesses are emerging. Next, we will look at the perceptual fluctuations in which some large companies have withdrawn from the dawn delivery market and new companies that have entered.

 

Lotte and BGF's early morning delivery withdrawal

 Lotte On, Lotte Shopping's integrated online shopping mall, has decided to no longer provide dawn delivery services after April 18, 2022. Lotte On started its dawn delivery service in May 2020 and closed its business after less than two years. BGF, known for its convenience store CU operation, is delivering early in the morning through "Hello Nature," a fresh food vendor. BGF Group also announced plans to withdraw from the dawn delivery market in May 2022

 The reason why large companies stopped dawn delivering is simple. The reason is that dawn delivery is a structure that is currently not profitable, that is, a high-cost, low-efficiency structure. On the surface, it seems like a promising market, so large companies entered the dawn delivery service market with huge investment costs, but they continue to lose money. The reasons why the dawn delivery service continues to suffer losses can be divided into four categories.

 The first reason is that dawn delivery service needs a large number of refrigerators. In order to deliver products to various parts of the country, logistics centers that cost more than tens of billions of won in construction cost must be established. In the case of the dawn delivery distribution center, it is more expensive than the existing distribution center because fresh food, such as vegetables, milk, fruits, and salads, is the main product. According to a survey by the Rural Development Administration in 2020, office workers and single-person households, which mainly use dawn delivery services, spent 11.7% more on fresh foods than the previous year, and 17.5% more on vegetables. As more and more households buy fresh food, the industry has no choice but to strengthen the fresh food sector. Therefore, the logistics center of dawn delivery costs more because it has to build cold chain logistics centers that are completely equipped with refrigeration and refrigeration facilities to ensure freshness.

 The second reason is that the labor cost of workers is higher than that of other workplaces. Night work, which is an essential requirement for the dawn delivery business, is more tiring and difficult than day work, so it is necessary to give an average salary of 4.1 million won, which is more than the average monthly salary of 2 million won. That's why dawn delivery companies have twice the labor cost of regular delivery companies. In addition, as delivery and delivery services increase, the shortage of workers in the delivery industry continues to rise, causing more labor costs in the dawn delivery business.

 The third reason is that the ability to predict the volume of orders from consumers is necessary to do well in the dawn delivery service. It is not possible to go around looking for merchandise to complete a delivery to the consumer in the time between when the order is placed and sunrise. The product may be out of stock and the time when the order comes in may be later than expected and so the delivery time may not be available at dawn. Therefore, dawn delivery companies should secure products by predicting orders from consumers. For example, people order a lot of tomatoes in May, so let's secure a lot of tomatoes in May this year, but if these predictions are wrong and there's inventory left, the dawn delivery companies will lose that cost.

 The last and fourth reason is because supermarkets cannot open at night. Large retailers such as Lotte have favorable conditions for dawn delivery. This is because large marts in various parts of the country can be used as warehouses and bases for dawn delivery. However, large supermarkets are not open between midnight and 10 a.m. in Korea, because of regulations that protect traditional markets. During this time, large supermarkets are not allowed to be used for dawn delivery business. Therefore, companies like Lotte had no choice but to build new distribution centers, leaving existing large discount stores, which resulted in additional costs.

 

Why are the remaining early morning delivery companies continuing?

 For the reasons already mentioned, most of the dawn delivery companies are now in the red. Business is good, but they are only losing money for structural reasons. In addition, the deficit is growing as companies scramble to provide discount services due to fierce competition. So why do dawn delivery companies continue their business at a loss? The reason is that even if it is a deficit now, if a company endures and if competitors fail, the company will be able to make a profit someday.

 Let's take a look at Market Kurly, the first company to start its dawn delivery business in Korea. Market Kurly posted a deficit of 210 billion won last year. Market Kurly's deficit last year was double the 110 billion won deficit the year before. Market Kurly is preparing for an IPO this year to withstand the early morning delivery service market. IPO is an acronym for Initial Public Offering, which literally means disclosing the management details of a company. An IPO is a process that must go through for listing, where listing is to designate a company as an item that can be bought and sold in the stock market. In other words, Market Curly is trying to increase its power in the dawn delivery market competition by preparing to publicly sell shares issued by the company to outside investors after disclosing the company's management details. There is a reason for selling stocks to outside investors in this way when a company needs money. This is because there is no need to pay interest and pay back the principal later, as in borrowing money from a bank. In other words, Market Curly can be seen as pushing for listing to succeed. It plans to become a listed company, raise necessary funds by selling stocks, invest with the funds raised, and secure operating costs to endure. Usually, a company must have a stable track record to be listed. However, since Market Kurly is not listed, it will use the Tesla requirements to promote the listing. Here, the Tesla requirements refer to a system that gives companies with growth potential the right to be listed even if they do not meet the listing requirements. It is a company that is in the red right now, but it has potential, so it is asking to be listed. Market Kurly also announced on April 18, 2022 that it will change the mission of its delivery subsidiary Fresh Solution to Curly Nextmile and expand its logistics business in earnest. Curly Next Mile's goal is to provide high-quality delivery services to businesses that require dawn delivery, which means that although consumer transactions alone do not make a profit, it can be seen as a "three-way delivery" that acts as a proxy for delivery of other services.

 Along with Market Curly, Shinsegae subsidiaries SSG Dotcom, and Coupang, called the "three strogers" of dawn delivery, are also in the red. Last year, SSG Dotcom. and Coupang recorded losses of 100 billion won and 1.8 trillion won, respectively. Market Kurly, SSG Dotcom, and Coupang, the three leading companies in the dawn delivery market in Korea, occupy about 80% of the dawn delivery market based on the number of orders per day. Since most of the performance of the dawn delivery market is participating, each company believes in its own recognition and demand and wants to endure until other companies give up.

 SSG Dotcom plans to remodel its dawn delivery service to expand customers' choices based on next-day delivery and daytime delivery services to utilize its subsidiary E-Mart. In addition, SSG Dotcom launched Smile Club in collaboration with Gmarket on May 12, 2022. The two companies emphasize that they can enjoy the accumulation and discount benefits of SSG Dotcom, Gmarket, and Auction at the same time through Smile Club, and that they can receive free shipping benefits from Gmarket along with SSG Dotcom's delivery. Smile Club held a promotion that provided two months of free use until June, showing the effect of attracting new customers, with the average daily number of subscribers soaring by more than 50% year-on-year.

 Coupang is also trying to lower the purchase prices by negotiating directly with manufacturers without going through intermediate distributors, and is aiming to increase sales of Coupang Eats, Coupang Play, Coupang Pay and overseas businesses. In particular, Coupang is planning to increase the number of loyal customers through Wow memberships available by combining its services. Coupang Play, the most preferred OTT among Wow membership, continues to increase its subscription base by winning SNL Korea, exclusive broadcast rights of the U.S. professional football league NFL, and exclusive broadcast rights of Korean professional football. In addition, Coupang's PB business also played a role in improving its performance. CLB, a subsidiary in charge of the PB business, posted a net profit of 20.9 billion won on sales of 1.586 trillion won last year. Coupang plans to continue its dawn delivery service and will induce a surplus in connection with other businesses. As a result of the plan,  average sales to single-person customers of early morning delivery services were 360,000 won this year, up from 330,000 won to single-person customer sales in the previous year.

 

Responses to the early morning delivery service

 On March 23, 2022, Coupang raised the monthly fee of Wow membership, which covers free rocket delivery, dawn delivery, and free return, from 2,900 won to 4,990 won.

 In general, if the fare increases, the backlash will increase, but most of the public say that Coupang Wow membership increases are "still full of cost-effectiveness." According to an interview with AsiaA in March 2022, most of the people who have Coupang Wow memberships responded positively. Coupang Wow membership users said, "Other Internet shopping malls have also accelerated, but customers still pay for return shipping costs or waste time due to complicated return procedures” They were showing reactions such as "Use it even if it costs 10,000 won" and "There is no good impression." In addition, according to  November 2021 Newsis interviews, users of the early morning delivery service responded, "I'm happy to receive it quickly," and "It arrived the day after I ordered it," recognizing the early morning delivery service as a good service to increase convenience and satisfaction.

 However, there are not only people who look at the dawn delivery service positively. In addition to the topic of Coupang Distribution Center, people who refuse to use dawn delivery services as they often hear news of incidents and accidents caused by accumulated fatigue of dawn delivery workers. According to an investigation by Media in March 2022, there was also a citizen who called the company that provided the dawn delivery service and asked to "get rid of the dawn delivery." "To deliver early in the morning, you have to go to work between 9 p.m. to 10 p.m. and deliver boxs from 11 a.m. to 7 a.m. If you calculate the total working hours as 10 hours, you have to deal with 34 boxes an hour, but you have to process one every two minutes," said a Coupang dawn delivery worker. In addition, Coupang's dawn delivery worker said, "The physical and mental fatigue caused by this labor structure is considerable." Due to the structure of the dawn delivery service, bleeding competition is inevitable, so each company is trying to reduce labor cost to the minimum to lower the unit price. Also, since the dawn delivery service mainly delivers fresh food, ice packs and dry ice are often used to maintain freshness. In addition, more and more users do not use dawn delivery due to environmental problems such as boxes for goods to be delivered, increased amount of disposable packaging due to the use of subsidiary materials to prevent damage and shaking, and unnecessary overpackaging. In an interview with Hankyoreh in April 2022, an office worker in Gyeonggido said, "I changed my habit to stopping by a supermarket on my way home from work to shop rather than pile up trash from fresh food delivered in the dawn on the porch."

 

Examples of various overseas dawn delivery services

 Amazon, the largest e-commerce company in the United States, established Amazon Fresh, a fresh food delivery company in 2007, and acquired Whole Foods, the largest organic supermarket in the United States, for 15.5 trillion won in June 2021. Since the U.S. does not have laws related to operating hours of large discount stores like Korea does, this action was a strategy to dominate the food distribution market through online and offline synergy. Accordingly, Shopify, a U.S. e-commerce company, acquired a logistics company in 2019 and created its own platform as Amazon continued to rise with delivery services. As demand increased, Shopify tried to fight against Amazon by expanding its businesses by renting a logistics center in Georgia in August 2021. Following the lease of the logistics center, Shopify is discussing the acquisition of a delivery company, and its rival Amazon has built more than 130 automated logistics warehouses in the U.S. alone and hired 950,000 people for logistics. In response, Shopify's strength in the U.S. was the provision of software-oriented services that it had, but it is expected to be no match if it competes with Amazon through physical investment. This is because the early morning delivery service itself cannot easily generate profits and the investment is huge, so the larger the company, the more advantageous it is. Watching this situation, local citizens in the U.S. are worried about rising service prices and falling quality because Amazon, which has strong capital, has no rival if it takes sole control of the delivery service market.

 Meanwhile, drone delivery services have officially been launched in China, not dawn delivery services. Yoonghwi Winchanker company and ehang drone company, which are affiliated with the distribution chain system "Super Spicies," introduced a service that delivers by drone to consumers within 4.5km of the mart. When a consumer orders through a mobile app, a mart manager mounts the product on the drone and presses the take-off button to fly the drone to its scheduled route and deliver it to its destination. It was officially approved by the Guangzhou government in May 2022. If you order fresh food within a 4.5km radius of the Guangzhou Tianhe area, you can receive it in less than 20 minutes. Users say it is a good delivery time to maintain freshness of fresh food. In China, drone delivery services may be the most efficient compared to labor force, so it is evaluated as being a better delivery service than in other countries. Some criticize the early morning delivery services, saying that the excessive early morning delivery services operated by human labor has a negative impact on people's lives.

 

Forecasts for the dawn Delivery Service Market

 Even in this situation, companies that want to enter the dawn delivery business will not shut down the dawn delivery. Since it seems to be an important market, the company has a strategy to reduce losses by working with other companies. In collaboration with CJ Korea Express, Naver started a pilot operation of the same-day delivery of the products ordered on the morning of May 2, 2022. It said that it had started the pilot operation only with some items that have entered Naver Shopping, including daily necessities, and will also start dawn delivery in the second half of this year. Around the same time, Interpark entered the dawn delivery business and Timon is also preparing to offer the service.

 Companies that opted out of dawn delivery turned to "quick commerce," which means immediately to delivery. Quick commerce refers to a service that delivers within 1 to 2 hours of the order. Since it is an early market, there is no absolute power yet, so many companies are paying attention. BGF, which operates CU, plans to use convenience stores nationwide as delivery bases. Lotte also set up a strategy to secure a competitive edge in quick commerce by using large discount stores that could not be used for dawn delivery. According to a Newswalker article on May 16, 2022, the response to such quick commerce delivery varies. "Even if you order one hour in advance, it can be delivered at the time you want," and "a service to save time." There is a positive view of the convenient lifestyle. However, many people were worried about it and criticized the current society for taking other things for convenience, saying, "We have achieved competitive growth due to a culture that emphasizes speed."

 As discussed earlier, the pandemic situation raised consumers' needs and intensified competition for dawn delivery services. However, in the dawn delivery service sector, market growth is expected to slow down due to the easing distancing rules. The dawn delivery market, which was around 4 trillion won last year, is expected to grow to 9 trillion won this year, but growth is expected to slow to around 12 trillion won next year. However, since the growth rate is small and the growth rate is unchanged, companies that dominate the dawn delivery market are expected to hold out for the time being. In addition, according to the National Statistical Office announcement in January 2022, the total transaction amount of dawn delivery services was 16.5438 trillion won, up by 1.7076 trillion won from a year earlier. Jung Ji-yeon, head of the Seoul e-commerce center, said, "We were satisfied with dawn delivery as we sold a lot of food through online delivery due to COVID-19," adding that the growth of the food-oriented non-face-to-face shopping market could continue for the time being. The acceleration of competition among dawn delivery service companies is spreading to many household goods including cosmetics and clothing. The distribution industry said that securing marketability and stable service operations are emerging as issues amid fierce competition.

 

 In the dawn delivery market, only a few winners are expected to survive. This expectation is because it is such a costly business that sharing the market will inevitably make it more difficult. In the current situation where efficiency is inevitably reduced as several companies make their own logistics warehouses and deliver them separately, leading companies are expected to fill up the vacancy after the companies that were unable to withstand the loss fail first. In the case of such a long-term competition race between companies, large companies with sufficient capital are bound to be advantageous. Shouldn't we look back at the current economic and social structure, in which it is difficult for start-ups to compete with large companies that join the industry later?