Invest1 publisher2 min readPublished
A three-point cap would remove 38% of Korean delivery apps' 7.8% brokerage fee
Bills before the National Assembly's National Policy Committee would cap food delivery commissions. The Seoul Economic Daily puts brokerage at about 7.8% of an order and calls riders' delivery charges the bigger cost to owners.
The Investor · Invest desk
What happened
- Bills to regulate the commissions charged by South Korea's food delivery apps were introduced late last year, and the National Assembly's National Policy Committee is set to begin full discussions on them.
- According to the Seoul Economic Daily, brokerage commissions at the country's major delivery apps run at about 7.8%, and the main burden on restaurant owners is the delivery charge that pays riders.
- More than 75% of chicken orders and more than 50% of hamburger orders in South Korea come through delivery apps.
- Apart from Baemin, most Korean delivery apps are barely turning a profit, the paper says.
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Why it matters
- constraint Whatever rate a cap removes comes out of the fee that funds free delivery, and the Seoul Economic Daily expects those promotions to be suspended or scaled back first, cutting the order volumes the owners depend on.
- decision Sponsors have to decide whether to bind franchise headquarters as well, because the paper says a lower platform commission is not guaranteed to reach the individual outlet owner.
- precedent The committee deliberates against a US record where city fee caps cut incomes for riders and owners and were mostly repealed or eased, so sponsors carry the burden of saying why Korea is different.
- contradiction The editorial warns a cap would entrench dominant players by raising entry barriers, while describing a market where barriers are not high and publicly run apps hold a meaningful share.
Take the editorial's own example, a bowl priced at 10,000 won [3]. Brokerage at 7.8% on that order is 780 won [4]. Trim the rate by three points and the platform keeps 480 won, the owner gets 300 won back, and 38% of the brokerage fee is gone at unchanged order volume [5][6].
The Seoul Economic Daily calls the delivery charge, the payment for riders' labor, the main burden on owners, without putting a figure on that charge or on individual apps' profits [2][14]. So the argument that these bills cap the smaller of a restaurant's two platform costs rests on the paper's assertion, and the 300 won is 3% of the ticket [7].
Platform spending on artificial intelligence, cloud computing and cybersecurity comes out of the same fee, and the editorial expects tailored services for users to arrive later once that capacity shrinks [10]. A capped platform cuts the promotion it funds voluntarily first. The AI, cloud and security spending is the next thing to go.
The counter-thesis is that margins are wider than the paper allows, in which case three points is a transfer from platform to restaurant and promotions survive because a platform would rather hold order volume than defend a rate. It rests on the same missing numbers, and the one profitability marker in the editorial is that Baemin is the exception [8].
Many of the outlets most dependent on delivery are franchise stores already paying franchise fees and logistics margins to their headquarters [12]. A cap on the platform commission does not reach those payments.
Dual pricing is establishing itself, with discounts for customers who order direct through a franchise's own website or app, and platforms such as CatchTable are gaining users [13]. Those orders already bypass the brokerage line, ahead of any bill.
What would break the case against a cap is a per-order split showing brokerage close to everything a restaurant pays the platform; three points would then bite on most of the cost. The paper says Korean commissions are not high by advanced-economy standards [11], and it attributes restaurants' trouble to rising labor costs, higher raw material prices, a slump in the real economy and shifts in demand [15]. A cap on the commission would not touch any of those.
What to watch
- Whether the National Policy Committee's bills name a cap rate, and how far below 7.8% it is set.
- Any per-order disclosure from Baemin or its rivals splitting brokerage, delivery charge and advertising.
- Whether publicly run delivery apps gain share if a cap applies to private platforms only.