Having entered the everyday life of city dwellers with the Covid-19 pandemic, home delivery startups are struggling today. Inflation, high investments, their economic sustainability remains fragile.
Is the meal delivery time coming to an end in 15 minutes? Just Eat, Deliveroo, Gorillas, Getir… Layoffs at home delivery startups have multiplied in recent months. Some even manage to correct their growth downwards.
7,000 mail carriers were laid off in six months
On July 20, Just Eat announced that it would part with 350 deliverers instead of the 269 planned in April after lackluster quarterly results, as the trade magazine announced. LSA. The delivery giant then observed “difficult dynamics” in France. The day before, it was the Deliveroo group that corrected the increase in its activity in a range of 4% to 12% at constant exchange rates, against an expectation of 15% to 25% at the beginning.
Same difficulty in May for gorillas: the German delivery platform is facing financing difficulties and had to lay off 300 employees due to a lack of profitability. Gorillas was even forced to halt its operations in Belgium last month and Italy this month to focus on other countries, including France.
Taking into account the departure of Deliveroo in Spain, the number of layoffs of couriers in France, Italy and the Iberian Peninsula has stood at around 7,000 since the end of 2021. It should be noted that most of the startups that have laid off are platforms resorted to wage labor.
Difficult profitability and complications in the stock market
However, meal delivery and home shopping have gradually entered the mores of urbanites in France and Europe, especially with the Covid-19 pandemic. Food delivery had generated 5.5 billion euros in France in 2020, a 47% growth between 2018 and 2020, according to the expert company Food Service Vision.
But the billions generated are finding it difficult to convert them into profit. In the world of fast delivery, only UberEats has managed to turn a profit. In the fourth quarter of 2021, the company posted a profit of $25 million for the first time since its debut. No other platform has managed this feat so far. Despite the continued high order situation in France and massive investments.
The British-Dutch platform Just Eat, for example, recorded a loss of more than one billion euros in 2021, despite its strong growth. And the underlying economic conditions are all the more noticeable as the players are in full growth.
In a highly competitive market, the techniques and strategies to conquer it – marketing campaigns or acquisitions of competitors – are very expensive. Recent acquisitions in the industry have included Frichti, which was bought by the German Gorillas, or even Flink, which seized the tricolor platform Cajoo. And Just Eat, in trouble after the takeover of the American Grubhub in June 2020, is already thinking about a separation.
The funds raised through commissions on deliveries are mainly used to finance the marketing strategies mentioned, but also administrative and marketing costs and to pay the delivery staff. A possible increase in the wages of the deliverers would lead to an increase in the already high commissions for the restaurateurs (usually around 30% of the order value). As a result, there is a risk of distracting some restaurateurs from the platforms and thus reducing the range and attractiveness.
The other difficulty for the platforms’ profitability comes from promotional offers. To attract new customers, they have often relied heavily on promotions. However, their disappearance could also lead to weakness in customers looking for low prices in the face of general inflation.
Massive investments in the construction of “dark stores” also limit profits. These warehouses, distributed throughout the cities, allow for quick home delivery of groceries. But while some big cities like Paris are threatening to regulate them more tightly, others are not yet in full swing to make the investment profitable.
The multitude of actors involved during the delivery system shows a complex management of the actors involved. The platform has to manage restaurateurs, suppliers and the consumer, therefore three actors have to be mobilized who have to carry out value management on all sides.
The instability of the platforms is beginning to undermine the confidence of investors, who are increasingly reluctant to rely on fast home delivery.
The two giants Just Eat and Deliveroo have chained negative months in the stock market. Within a year, Deliveroo’s promotion dropped by 70%. In August 2021, the share price was at an all-time high of around 390 pence, today it is worth just 92.
“Everyone understands that they have to be profitable”
Is the food delivery and home shopping industry in its first growth crisis? Or is the business model simply not viable in a deteriorated economic context? In the face of inflation, the war in Ukraine, the rise in hydrocarbon prices and even the collapse of tech stock markets, platforms are trying to adapt and adapt. Last June, Just Eat announced that it was increasing the commission it charges restaurants.
“I can confirm that in response to rising inflation and rising operating costs, we are raising our commission rates in certain European markets for the first time in five years,” the group’s spokesman said in a statement to Reuters.
In addition to increasing the commission, with the increase in the cost of the product, restaurateurs are forced to increase their prices, which in turn increases the cost of delivery. In a note, Morgan Stanley Bank notes that the restaurant sector was one of the first to suffer cuts from customers looking to scale back spending in the event of a recession.
“Grocery delivery also stands out as purely risky … as it tends to be expensive per person and is likely to be seen as lenient by some consumer groups,” the bank’s memo continued, as quoted by ZoneExchange.
The result of this bleak outlook: noisy Business Insider Spain, Other delivery platforms will likely have to emulate the same pattern as Just Eat in the future given pressure from investors asking the platforms to upgrade.
The analyst firm JP Morgan warned last June that delivery companies would have to revise their development prospects downwards in view of inflationary tendencies. And it’s clear that not all of the leaders, according to some analysts, will be successful.
“Everyone is reducing their workforce, everyone understands that it has to be profitable now,” explains Monique Pollard, an analyst at Citi.
Labor law, the new challenge
In the home delivery sector, too, the working model is establishing itself on the main construction sites.
In recent months, the working conditions of self-employed mail carriers have been questioned several times. This is particularly true of Deliveroo, which was convicted of undercover labor last April.
The European Commission could become the big enemy of platforms that do not pay their providers. Last December, the Commission announced a policy plan to review the economic model of platforms and change the status of couriers by introducing an “employment presumption”. This would automatically switch the delivery staff from self-employed to employed.
If these changes were made, it would be a blow to the platforms, whose economic model is mainly based on the independence of couriers.
In addition to the European Commission, some countries such as Spain and Italy have changed their legislation on the status of couriers. In the Iberian Peninsula, it was the “Riders Law” which consists of giving delivery workers employee status – which in part led to the departure of Deliveroo.
In France, working conditions in this sector are being discussed but have not yet been the subject of new legislation. Even though guidelines have been put on the table within the European Union, there is currently nothing to suggest that the platform system will be fundamentally changed. The deliverers refer to increasingly difficult working conditions.
Deliveries up 35% over a year
Despite rising prices and inflation, home delivery of meals remains a consumption practice etched into the new habits of the French.
According to a study by the NPD Group, first-quarter deliveries rose 35% year over year, after an 85% increase in 2021 compared to the pre-pandemic period. According to the Federation of E-Commerce and Distance Selling (Fevad), 12% of grocery purchases are now made via quick trade. What confirms the reorganization strategies in the industry?