Regulatory decision on delivery platforms confuses the e-commerce market

While Minister of Commerce and Industry Osama Al-Boudi affirmed that the issuance of the new bylaw regulating the sector of intermediary electronic platforms and applications for displaying, ordering, and delivering products to consumers represents a qualitative leap in the regulation of e-commerce in the State of Kuwait, sources monitoring the sector noted that the decision conflates various consumer sectors in the market by unifying delivery margins despite the differences in their goods.

Sources told "Al-Jarida" that restaurants, flower shops, perfume stores, and gift shops do not operate with similar margins, nor do they share a single average order value, spoilage rate, or seasonal purchasing patterns. Therefore, an equal percentage does not yield an equal impact; one sector may be labor-intensive and prone to waste, while another enjoys a wider margin between direct costs and selling price.

The sources raised the question: Were separate sectoral studies conducted for restaurants, flowers, perfumes, gifts, and others? Were the average order value, waste, seasonality, and customer acquisition costs calculated for each sector? Or was a single figure applied to a market with multiple models? Digital equality in the percentage does not imply economic justice in its impact.

Al-Boudi stated that the bylaw is based on a single equation: balancing the interests of consumers, small and medium-sized enterprise (SME) owners, and electronic platforms, thereby establishing a stable and clear investment environment.

He added that the Ministry is aware of the profound role played by intermediary electronic platforms in supporting the digital economy, generating employment opportunities, and facilitating access to products and services for consumers. He emphasized that the bylaw does not aim to stifle the growth of this sector or diminish its investment attractiveness, but rather to regulate it with clear and fair rules that allow each party to know its rights and obligations in advance.

He further stated, "We are not against electronic platforms; rather, we consider them genuine partners in economic development. Their success matters to us as much as the success of the business owner and the consumer’s ability to obtain goods at a fair price and with reliable service. This bylaw establishes a clear relationship that is fair to all parties."

The minister clarified that "small and medium-sized enterprises are a fundamental pillar of the national economy, and entrepreneurs rely on electronic platforms to reach their customers. However, the rise in certain commercial costs in recent years may be reflected in product and service prices. Thus, the bylaw was introduced to establish a balanced regulatory framework that ensures justice and provides these enterprises with a broader scope for growth and expansion."

He added, "When business owners find a more fair and transparent working environment, they feel confident in investing in and developing their businesses, improving service quality, and offering more competitive prices. The fruit of all this ultimately benefits the consumer, who will find greater variety in options, higher service quality, and price stability."

He confirmed that the bylaw regulated the contractual relationship between platforms and customers on clear bases, setting specific controls for commissions and delivery fees, and obligating platforms to disclose paid advertisements and offers to consumers so that purchasing decisions are based on clear information and prior knowledge. All of this is done without impairing the platforms' ability to continue, grow, and develop their services.

He pointed out that a clear regulatory framework is an asset for any economic sector, as it provides investors with confidence and stability. Citing international experiences, he noted that more regulated markets are more attractive to investment because they are built on justice and equal opportunity. He added, "True competition is achieved through service quality, innovation, and operational efficiency, not through burdens that weigh down business owners and are ultimately paid for by consumers."

He emphasized that the door to dialogue would remain open with all relevant parties during the implementation phase of the regulation, and that the Ministry would listen to any comments or suggestions that contribute to its effective implementation. He affirmed that the success of platforms and the success of small and medium-sized enterprises (SMEs) are not conflicting goals, but rather together form the cornerstone of a strong and sustainable digital economy.

Concluding his statement, the minister said, “This regulation is not designed to benefit one party at the expense of another, but to serve the public interest. The consumer deserves a fair price and distinguished service; the business owner deserves a fair environment that enables growth; and platforms deserve a clear framework that ensures the sustainability of their operations. When this equation is achieved, the greatest winner will be the Kuwaiti economy as a whole.”

For her part, sources stated that despite the clear objectives and their positive impact on consumers, certain operational and economic effects may arise upon the implementation of the decision, particularly affecting intermediary delivery companies and delivery service providers working with those applications. These challenges can be summarized in the issues surrounding the delivery price cap.

The sources, speaking to Al-Jarida, noted that there are 2,000 registered delivery companies in Kuwait, of which 900 are active. They pointed out that setting the delivery price at just one Kuwaiti dinar poses significant economic challenges for intermediary platforms and applications that display products and arrange delivery to consumers through delivery companies, especially if the former change their business model, particularly when considering long distances.

They added that the regulation does not distinguish between standard orders and those requiring greater effort, such as pickups from multiple locations for a single delivery or large-sized orders, such as meals for large groups or monthly household supplies, which may require more than one vehicle.

The sources expressed concern over potential changes in agreements between platforms, intermediary applications for product display, delivery companies, and their service providers. If costs are adjusted and fees are disrupted, delivery companies might resort to reducing their fleet size, as they rely on operational profit margins and would thus incur losses.

They indicated that the cost of a single delivery is approximately 850 fils for a distance not exceeding 20 kilometers. Delivery companies provide drivers and vehicles to platforms for amounts ranging between 0.950 and 1.350 Kuwaiti dinars per order. Consequently, the profit margin for service providers becomes extremely narrow under the one-dinar cap.

The sources feared the impact on the future of small and medium-sized delivery companies in a market that requires substantial capital. They warned that lowering delivery fees threatens the survival of SMEs operating as delivery service providers, noting that these companies are already facing significant pressures to maintain their continuity.

They explained that platforms and applications do not own any vehicles or drivers at all, relying entirely on delivery service providers to operate their services. Although the regulation is fair to restaurants, it may impose immense pressure on primary service providers who bear the largest operational costs.

Sources told Al-Jarida that there are differences between the restaurant sector and sectors such as flower delivery, particularly because logistics differ between sectors. For example, the latter requires refrigerated vehicles, specialized equipment, and transportation. They questioned whether these differences had been taken into account.

She explained to Al-Jarida that the most common assumption in public discourse is that every percentage point the platform earns represents direct profit. In reality, however, the commission constitutes operational revenue that the platform uses to fund app development, servers, cybersecurity, customer service, settlements and chargebacks, payment provider fees, salaries, rent, and a crucial item such as marketing and customer acquisition.

According to operational estimates circulating in the Kuwaiti market, the cost of acquiring a new customer starts at around three dollars and may rise to four, five, or six dollars, even exceeding three dinars during certain seasons, depending on competition in social media advertising auctions. This cost is paid before the customer completes their first purchase, and the platform may not recoup it until the customer places repeat orders.

Operational estimates also suggest that some platforms may incur direct and operational costs ranging between 7% and 13% of the transaction value, depending on marketing spend, payment fees, and operational nature, before accounting for financing or loan costs, if any.

These figures are not official statistics, but they are sufficient to raise a legitimate question: If the 10% cap approaches or falls below costs in some models, what remains for investment, risk, and return on capital?

Sources at one of the platforms wondered how much the platform actually takes, or rather, how much is left for it after paying the cost of acquiring a customer and completing the transaction.

In that case, a store owner might receive a higher percentage from each order, but would receive fewer orders. Therefore, comparing the commission before and after the decision is insufficient; one must measure the decision’s impact on the store’s total sales volume and the order volume generated by the platform.