Entering the daily life of city dwellers with the Covid-19 pandemic, home delivery startups are struggling now. Inflation, heavy investment, their economic sustainability remains weak.
Is the era of meals delivered in 15 minutes coming to an end? Just Eat, Deliveroo, Gorillas, Getir… In recent months, layoffs within home delivery start-ups have increased. Some even come to change their growth downwards.
7,000 people in the delivery has been more than six months
So on July 20, Just Eat announced that it was parting with 350 deliverers instead of the 269 planned in April, after disappointing quarterly results, as pointed out by the specialist magazine. LSA. The shipping giant then observed a “difficult dynamic” in France. The previous day, the Deliveroo group had revised its activity increase in the range of 4 to 12% at constant exchange rates, against an expectation of the origin of 15-25%.
Same difficulty in May for Gorillas: the German delivery platform faced funding difficulties and had to lay off 300 employees due to lack of profitability. The Gorillas still had to stop their activities in Belgium last month and in Italy this month to focus on other countries including France.
Taking into account the departure of Deliveroo in Spain, the number of dismissals of deliverymen in France, Italy and the Iberian Peninsula is close to 7,000 since the end of 2021. It is worth noting that the majority of startups that have been dismissed are platforms who resorted to wage labor.
Hard profit and stock market complications
However, food delivery and home shopping are gradually entering the habits of cities in France and Europe, especially with the Covid-19 pandemic. Food delivery generated 5.5 billion euros in 2020 in France, i.e. a growth of 47% between 2018 and 2020 according to the expert company Food Service Perspective.
But the billions generated are difficult to convert into profit. In the world of fast delivery, only UberEats has managed to make a profit. In the fourth quarter of 2021, the group recorded, for the first time since their debut, a profit of 25 million dollars. No other platform has yet achieved this feat. Despite high orders in France and large investments.
Therefore, despite its strong growth, the Anglo-Dutch platform Just Eat experienced a loss of more than one billion euros in 2021. And the economic conditions are more felt while the players are in full growth.
In a market where competition is strong, the techniques and strategies to overcome it – marketing campaigns or acquisition of competitors – are very expensive. Among the recent acquisitions in the sector figure that Frichti bought the German Gorillas or Flink that seized the tricolor platform Cajoo. And Just Eat, in trouble after taking over American Grubhub in June 2020, is already thinking of parting ways with it.
Funds collected through commissions on deliveries are used primarily to finance said marketing strategies, but also to manage and sell costs, and pay deliverers. A possible increase in the wages of the delivery people will result in an increase in the restaurateurs’ commissions which are already high (usually around 30% of the order value). This risks displacing some restaurateurs from the platforms and therefore reducing popularity and attractiveness.
Another difficulty for the profit of the platforms is due to the promotional offers. To attract new customers, they always rely on promotions. However, their absence can also lead to a soft spot for customers, who are looking for low prices in the context of general inflation.
The huge investment in building “darkstores” also limits profits. These warehouses scattered in the towns allow fast delivery of groceries at home. But while some big cities like Paris are threatening to regulate them more severely, others are not yet running at full speed to make the investments profitable.
The many actors at play during the delivery system show a complex management of the actors involved. The platform must manage the restaurateurs, the delivery people and the consumers, therefore three actors that can be mobilized with the need to make management of the value in all areas.
The instability of the platforms began to reduce the confidence of investors who did not dare to bet on the fast delivery of the house.
The two giants Just Eat and Deliveroo have been chained to negative months on the stock market. Over a year, Deliveroo’s stock has fallen by 70%. In August 2021, its share price was around 390 pence for a long time, now it is worth only 92.
“Everybody understands that they have to make a profit”
Is the food delivery and home shopping sector going through its first growth crisis? Or is the business model unsustainable in a damaged economic context? Faced with inflation, the war in Ukraine, the increase in the price of hydrocarbons, and even the stock market collapse in Tech, the platforms are trying to adjust and adapt. In June, Just Eat announced it was increasing the commission it charges restaurants.
“I can confirm that in response to rising inflation and rising operating costs, we have increased our commission rates for the first time in five years in some European markets,” the group’s spokesperson said in a statement. statement. Reuters press release.
In addition to the increase in commission, with the increase in the cost of products, restaurateurs are forced to increase their prices, which, in turn, increase the cost of delivery. In a note, Morgan Stanley Bank pointed to the restaurant sector as one of the first to suffer cuts from customers seeking to reduce their costs in the event of a recession.
“Food delivery also stands as a risk alone … given that it tends to be expensive on a per person basis and is likely to be considered indulgent by some consumer groups,” continued the bank’s memo quoted in ZoneBourse.
The result of these gloomy prospects: according to Business Insider in Spain, Other delivery platforms will likely have to emulate the same standard as Just Eat in the future, in the face of pressure from investors asking the platforms to upgrade.
Research firm JP Morgan warned in June that, in the face of inflationary trends, delivery companies should revise their growth prospects downward. And clearly, according to some analysts, except for the leaders, not all of them will succeed.
“Everyone is reducing their workforce, everyone understands that it is necessary to achieve profitability,” explained Monique Pollard, analyst at Citi.
Labor regulations, the new challenge
The working model has also established itself among the main construction sites in the home delivery sector.
In recent months, the working conditions of self-employed delivery people have been questioned on several occasions. This is particularly the case of Deliveroo, which was sentenced in April for undercover work.
The European Commission will be a big enemy of platforms that do not pay their suppliers. Last December, the Commission announced a plan of directives to review the economic model of platforms and change the situation of people who deliver by establishing a “presumption of employment”. This means that the delivery people will automatically switch from self-employed to salaried.
If these changes are made, it will represent an explosion for platforms whose economic model is mainly based on the independent status of the people who deliver.
Together with the European Commission, some countries such as Spain and Italy have changed their legislation regarding the status of people who deliver. In the Iberian Peninsula, it is the “Riders’ law” – which consists of giving employee status to people who deliver – which in part led to the departure of Deliveroo.
In France, working conditions in this sector are debated but not the subject of new legislation so far. Although directives have been put on the table within the European Union, nothing indicates a deep change in the platform system at the moment. The deliverers pointed out the extremely difficult working conditions.
Deliver 35% a year
Despite the rise in prices and the weight of inflation, the delivery of food at home remains a consumption practice that has been carved into the new habits of the French.
According to a study by the NPD Group, deliveries increased by 35% annually in the first quarter, after an increase of 85% in 2021 compared to the period before the pandemic. According to the Federation of e-commerce and distance selling (Fevad), 12% of food purchases are now made through quick commerce. What confirms the strategies of organizing work in the sector?