War of attrition: Grab and Gojek burn cash to keep gig drivers afloat

JAKARTA/SINGAPORE — Grab and Gojek, the biggest on-demand mobility startups in Southeast Asia, face competing financial crosswinds as they navigate the coronavirus outbreak, spending millions of dollars to support their drivers with an eye toward the ensuing recovery.

Demand for rides has spiraled downward by double-digit rates, leaving drivers struggling to make a living.

Amir, who drives a motorcycle for Gojek in Indonesia, is having trouble paying rent, and he is considering moving or skimping on food.

“My daily pay has fallen to 30,000 rupiah ($1.91),” he said. “It’s a third of what I made before the coronavirus epidemic.”

Both Singapore, where Grab is based, and Malaysia have imposed stay-at-home orders. In Gojek’s home country of Indonesia, President Joko Widodo urged residents to remain indoors. The capital, Jakarta, enacted stronger social restrictions last week, including a ban against ferrying riders on motorbikes.

The number of people ordering rides on Grab plunged 24% during the week ending March 26 compared with Feb. 22-28, data from Indonesia’s Statqo Analytics show. Gojek fell 11% for the same period.

But instead of cutting costs and employees, the two companies are providing assistance to drivers.

Grab is offering drivers in Singapore a 30% discount on vehicle rental fees through May 4. Throughout Southeast Asia, the company is providing cash stipends to drivers infected with COVID-19 or who are forced into quarantine. The startup has spent nearly $40 million on such financial support.

Gojek in late March established a relief fund of 100 billion rupiah, or $6.38 million, financed in part by executives donating one-quarter of their annual pay. The fund will subsidize drivers in areas such as medical care and supplies.

The Indonesian company said April 7 that it will give 1 million coupons weekly, each worth 5,000 rupiah, to drivers in Jakarta for use at participating restaurants.

Grab and Gojek are going to these lengths to support drivers because they form the backbone of the services offered by the two startups, which span ride-hailing to home deliveries and digital payments.

A checkpoint in Jakarta: The Indonesian capital has banned ferrying riders on motorbikes amid the pandemic.

  © AP

Drivers often are the ones who convert cash into credit added to online account balances. Gojek drivers transport masseuses and cleaners to the homes of clients.

Gojek and Grab risk losing drivers if these workers do not receive sufficient relief during the downturn. Without drivers, the companies have no growth prospects.

In Singapore and elsewhere, Grab rents out vehicles to many of its drivers. If these drivers ceased business, the company would be saddled with fleets that are nonperforming assets.

Another factor at play is the heavy social pressure typical among Southeast Asian startups to maintain jobs. Gojek hires 2 million drivers in the region while Grab has a few million.

Both companies built their names on being job creators. Gig driving was already an unstable trade before the pandemic. Neither Grab nor Gojek can afford to turn their backs on drivers now.

Political considerations also seem involved. Gojek co-founder Nadiem Makarim joined Widodo’s cabinet last fall as the minister of education and culture.

Gojek co-CEO Andre Soelistyo told Reuters in late March that the company can expect a recovery “in the next few months.” Supporting drivers puts the startup in strong position to capture the bounce in mobility demand. But current conditions render long-term projections uncertain.

Neither Grab nor Gojek discloses earnings, but their copious investments weigh against achieving profitability. The extra spending to deal with the coronavirus fallout hampers earnings further.

The two startups are classified as “decacorns” — worth more than $10 billion. Last year, Grab raised $2.1 billion in additional funding from investors such as Japanese tech giant SoftBank Group, Singaporean news outlet DealStreetAsia reported. Gojek brought in $1.6 billion from the likes of Google parent Alphabet.

That qualifies Grab and Gojek as the top two startups in Southeast Asia in terms of fundraising. But the pandemic has upended the venture capital landscape. After realizing massive valuation losses for its targets, SoftBank decided to put a freeze on new investments.

With doubts swirling over Grab and Gojek’s growth prospects, opportunities to raise funds could fade the longer the epidemic persists. Rumors of a merger also have emerged, though both companies deny it.

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