Vietnamese delivery app on the brink of turning profitable

By Tat Dat   February 5, 2023 | 11:10 pm PT
Delivery startup Loship is confident it will make profits this year, something most of its competitors have yet to achieve.

Nguyen Hoang Trung, CEO of one of only two delivery startups in Vietnam, told VnExpress that Loship suffers "very little" loss.

Last year its revenues increased by 500% thanks to business optimization with 250,000 locations and more than five million customers.

It expects to turn profitable this year.

Losing money is the norm in the food delivery and ride-hailing industry.

As of 2021, Grab Vietnam had chalked up cumulative losses of VND4.365 trillion (US$186 million). Gojek is also VND4 trillion in the red.

Both incur huge selling expenses running ino trillions of dong.

Nguyen Hoang Trung, CEO of Loship. Photo by VnExpress/Quynh Nhu

Nguyen Hoang Trung, CEO of Loship. Photo by VnExpress/Quynh Nhu

This year the industry faces pressure from rising fuel prices.

Trung said all other apps are also affected by Regarding the increase in gasoline price, this but "honestly not too much". When the Russia-Ukraine war took place, it was a nightmare in the beginning. But so far, the gas price has not changed too much and it’s even cheaper than at the beginning of the crisis. It shows that gas price will continue to increase and then decrease. In the short term, this affects the income of shippers, but not in the long term.

He said gasoline price increases have a knock-on effect on all prices, including restaurants’. But when they go down, other prices do not follow suit and remain high, and this causes people to gradually stop ordering food, which affects shippers, he said.

Over time many shippers decide to stop working for apps, as is happening in places like China, Europe, the U.S., and India.

In 2021 and 2022 Loship spent a lot of money on acquiring new customers, and so marketing costs accounted for over 60% of its expenses. This led to some differences of Loship from others in the market that weren’t "properly recognized" by the customers. One of these differences is that Loship offers free delivery within a certain distance.

Trung and his team wondered if Loship would be any different from its competitors if they continued to do this. Existing users are still Loship users but they can also be using other apps. Realizing the problem, Loship began to cut its promotions, reducing costs.

Trung explained: "No matter how big you are, there is always a limit. Money doesn't fall from the sky.

"Each company has a long-term strategy for the amount of money it has. The better their strategy, the more money in in their account. Then, even during difficult times they can afford to be generous to their customers."

To achieve the goal of breaking even this year Loship is prioritizing cash flows. Last year the company cut 50% of its payroll. Besides, from the second quarter all marketing activities essential ones were frozen.

Loship shippers in Dong Nai Province. Photo by VnExpress/Quynh Nhu

Loship shippers in Dong Nai Province. Photo by VnExpress/Quynh Nhu

Trung thinks the reason Loship is approaching breakeven is that it has found the balance between customers, shippers and restaurant partners, something he admitted was not easy to achieve. Any increase in price could drive customers into the arms of another platform, and any cut in payments to shippers could cause them to take out their frustration on customers, he pointed out.

In the next three years food delivery and supermarkets would still be the markets that have great competition. Apps would also offer additional services like their own e-wallets to increase convenience for users, he said.

But he made it clear Loship has no intention of entering the fintech industry since that would require a big investment. Instead, they want to exploit the number of restaurant partners for raw materials supply.

A recent report by iPOS, a platform that provides sales, operations, and human resource solutions for more than 100,000 restaurants and coffee shops, shows that the food delivery market in Vietnam grew three-fold since the Covid outbreak to VND29.9 trillion last year.

More than 12 million people ordered food delivery through online platforms, with the number growing annually at 17.5%.

But the market is dominated by foreign enterprises with 58% of consumers choosing to order on ShopeeFood. It was followed by GrabFood, Baemin and Gojek.

The only two homegrown players in the market, Loship and beFood, accounted for around 7%. The market still has a lot of room for competition when most of the big applications on the market recorded a reduction in percentage of users.

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