S. Korea's Baedal Minjok raises $36M from Goldman Sachs to become the GrubHub of Asia

By Michael Carney , written on November 27, 2014

From The News Desk

As American prepare for their Thanksgiving feast, South Korea’s dining industry is making headlines of its own. Woowa Brothers, the company behind hit mobile food delivery service Baedal Minjok – Korean for “Delivery Nation” – has raised 40 billion Korean won ($36 million) in Series D funding via a round led by Goldman Sachs. The round follows closely on the heels of a 12 billion won ($11 million) funding round in March.

Seoul, which resembles New York in many ways, has a late night food delivery culture largely centered around fried chicken. (I know, because I lived there in 2005-2006 – pre-smartphones, sadly.) With most restaurants being small, family-owned businesses, ecommerce and online marketing have been slow to catch on. This is despite the country's reputation as a world-leader in internet speeds and smartphone penetration. As a result, until recently, most food delivery was arranged by telephone and customers were relegated to the same few nearby options whose number they had memorized (or emblazoned on a magnet on their fridge).

This all started to change with the emergence of Baedal, and its two local competitors Yogiyo and Baedaltong. Collectively, the three companies represent 90 percent of the mobile app food delivery market, which is estimated to be worth $1 billion per year today.

At four-years-old, Baedal has grown into the country’s largest mobile food delivery service, with 145,000 registered restaurants and 4 million orders processed last month. The company’s app is installed approximately 10 million devices, representing approximately 20 percent of the South Korean population. Unlike the majority of early-stage Western startups, that notoriously pursue growth at the expense of profitability, Baedal generated $424,000 in net income on $9.7 million in revenue, figures that the company is on track to more than double in 2014.

The prototype for this business is Chicago-based GrubHub, which went public in April of this year and today commands a $2.9 billion market cap, while covering 30,000 restaurants across 700 US cities and London. The company generated $6.45 million in net profit on $61.9 million in Q3 revenue. Notably, Goldman Sachs was an investor in New York-based seamless, which merged with GrubHub prior to its IPO, and continues to hold a stake in the combined company.

Unlike many of its international competitors, Baedal doesn’t rely solely on order commissions (roughly 12.5 percent per order) to generate revenue. The platform also generates considerable advertising income by offering promoted listings to its restaurant partners – a controvercial practice, at times. The company has also introduced a suite of tools and analytics aimed at assisting small restauranteurs measure the performance of their online and offline advertising and marketing initiatives. One further advantage of working with Baedal is the company’s partnership with Kakao Pay, which significantly reduces the friction associated with mobile ordering.

“Korea is one of the most attractive e-commerce markets in the world,” says Goldman Sachs head of private equity investments in Asia, Stephanie Hui. “This investment in Baedal’s innovation and talented management team exemplifies Goldman Sachs’ aim to partner with Korean corporate leaders who are able to expand globally.”

As Goldman’s Hui hints, granting Baedal’ success in Korea, it’s the opportunity outside the country which appears to have attracted the bank’s attention attention. Asia is a wide open market for food delivery, save for Singapore’s FoodPanda. Baedal launched a joint venture with Line, the Japanese messaging juggernaut, last month to create a similar delivery service in Japan under the name Line Wow. Line has 54 million registered users in Japan alone, offering Baedal an enormous head start in the market.

As the so-called “GrubHub of Asia,” the company has a lofty standard to meet. But, with partners like Goldman Sachs and Line, Baedal Minjok appears exceptionally well-positioned to extend its early success beyond Korea.