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The Korea Fair Trade Commission (led by Chairperson Sungwook Joh, hereinafter the “KFTC”) has approved Delivery Hero SE* (hereinafter “DH”)’s acquisition of around 88 % of shares in Woowa Brothers Corp.** (hereinafter “Woowa”) subject to conditions.

* Delivery Hero SE, headquartered in Germany, operates a global food ordering platform with South Korean subsidiaries of Delivery Hero Korea (hereinafter “DHK”, operating Korea’s No. 2 food ordering app “Yogiyo”) and Baedaltong (operating Korea’s No. 3 food ordering app “Baedaltong”).

** Woowa Brothers operates Korea’s No. 1 food ordering app “Baedal Minjok (hereinafter “Baemin”).

After its merger review, the KFTC concluded that there are competition concerns that could affect various interested parties including restaurants, consumers and delivery men. In an effort not only to address the concerns but also to achieve synergetic effects attainable through the merger, the KFTC ordered DH to divest all shares in DHK and maintain the status quo of the competitiveness of “Yogiyo” until the completion of the divestiture.

To be more specific, the KFTC took into consideration factors such as product’s functions, usefulness, and substitutability on the consumer and restaurant sides, and defined the product market as the “food ordering app” market which can be distinguished from direct ordering via calling, applications run by franchise restaurants and internet search services, etc. The geographic market was defined as national considering that major food ordering app operators are running their business across the country.
The proposed transaction is presumed to cause anti-competitive effects according to Article 7 (4) of the Monopoly Regulation and Fair Trade Act. Based on the transaction value in 2019, the merging parties have the highest combined market share of 99.2 % in the relevant market, and the market share gap between the merging parties and the 2nd largest business (referring to a company with the largest market share besides the merging parties) is 25 % or more of the market share of the merging parties.

Baemin and Yogiyo have firmly maintained their market shares for the last 5 years and there has been no new player which succeeded in achieving market share of 5 % or more despite many new entrants’ attempts. Although there is a new competitor which has recently shown a growth in some regions, there is no sufficient evidence that the company would be able to become a comparable competitor that can exert enough competitive pressure on the merging parties across the country.

In addition, the food ordering app business requires significant efforts and capital to secure consumers and restaurants at the early stage. Therefore, it is not clear whether there would be other new entrants that are able to put sufficient competitive pressure on the merging parties in the near future.

Considering all these aspects, the KFTC concluded that there is a high risk of anti-competitive effects such as a reduction in consumer benefits and increase in restaurant fees if head-to-head competition between No. 1 and No. 2 players in the food ordering app industry is removed as a result of the merger.

The KFTC also took into account potential anti-competitive effects on the food delivery market and cloud kitchen* market which are closely related to food ordering apps.

* A rental service for commercial kitchen space, equipment and business know-how optimized for delivery-only restaurants.

When it comes to the food delivery market in Seoul, Incheon and Gyeongi province where the merging parties provide their own delivery services* as well as ordering services, if the merging parties intend to dominate the food delivery market in addition to the food ordering app market, then there are possibilities that they give advantages to restaurants that use the merging parties’ delivery services. This can harm competitiveness of rival food delivery service providers**.

* The merging parties operate both ordering and logistics services in some regions (OD: Own Delivery model).

** Refer to those who manage the delivery function only on behalf of restaurants without operating food ordering apps.

In the case of cloud kitchen market in Seoul where cloud kitchen facilities are concentrated, if the merging parties favor restaurants that use the merging parties’ cloud kitchen services by giving the restaurants advantages in ranking on the search results page and restaurant fees, etc., with a purpose of creating profit in the cloud kitchen market in addition to the food ordering app market, there is a risk of hurting fair competition.

The KFTC’s decision is meaningful in that it has not only protected competition and consumer welfare in the relevant market by maintaining the competitive relations between Baemin and Yogiyo, but also allowed the merging parties to achieve synergetic effects through the combination of DH’s technology and Woowa’s marketing capabilities.

The KFTC will continue to make efforts to prevent anti-competitive harm to business users and end users in the platform industry.

*The Korean text of the documents is confirmed to be authentic and English version is only for reference

[M&A Division / Market Structure Policy Bureau, December 28, 2020]