The easing of the pandemic combined with the cost of living crisis is testing the sustainability of food and grocery delivery platforms
The Gig Economy Project, led by Ben Wray, was initiated by BRAVE NEW EUROPE enabling us to provide analysis, updates, ideas, and reports from all across Europe on the Gig Economy. If you have information or ideas to share, please contact Ben on GEP@Braveneweurope.com.
This series of articles concerning the Gig Economy in Europe is made possible thanks to the generous support of the Andrew Wainwright Reform Trust.
The pandemic crisis was boom time for food and grocery delivery platforms, not just in terms of revenue but also in attracting billions from investors. Flush with cash, the platforms pushed for rapid geographical expansion, deeper market penetration and, in some cases, started buying out their rivals in lavish takeovers.
All of this was based on the theory that the growth in home-delivery would persist when the worst of the pandemic crisis passed. Not only is that now starting to look increasingly doubtful, but a new problem has arisen which could turn people away from food delivery in their millions.
The cost of living crisis, spurred on by the economic dislocations in global supply chains during the peak of the pandemic crisis and intensified by the Ukraine war, might make food delivery a luxury that many can no longer afford.
In this analysis, The Gig Economy Project takes a deep dive into the strains facing food and grocery delivery platforms to find out if the party’s over.
Food delivery stocks falling like a stone
“Love this place. So many to celebrate with during good times, and so many people who can help kick you when your down. $44bn feels like a bargain,” Niklas Oestberg, Delivery Hero CEO, tweeted sardonically on Wednesday in relation to Elon Musk’s takeover of the social media platform.
Oestberg certainly has a lot to be feeling down about. Delivery Hero’s stock value is down 74% in just six months, in what has been a catastrophic first third of the year for the German multinational, which owns titles all over the world including FoodPanda, Glovo and PedidosYa.
Investors are increasingly questioning when the profits are going to finally come in, with the company’s New Year’s Eve acquisition of Spanish food delivery platform Glovo pushing the company close to a liquidity crisis and generating dismay among analysts. One HSBC bank analysis of Delivery Hero in February downgraded its recommendation to clients from ‘buy’ to ‘hold’, finding that they were “baffled” by the acquisition of Glovo due to its €330 million in losses, adding that “it’s looking more and more like a bailout”. The report added that the company’s “obsession with growth is a concern”.
“Credibility is undermined and we now wait to see if Delivery Hero can deliver on its promises in the second half and if pushing to break even has any negative impact on market share,” the report concluded.
Since then, the company has opted to re-finance, taking out over €1 billion in loans. On Thursday, in its Q1 2022 financial report, it reported that it is on a “clear path” to “break-even” in 2023 across its whole business, including Glovo. The immediate response from investors to this update was negative – the stock fell another 5% in morning trading.
In 2020, Just Eat was riding a wave. The company’s merger with takeaway.com was approved by the regulators, revenue was booming and it announced in its annual report that they would now employ all of its riders, the first of the big food delivery platforms to make such a clear commitment.
Two years later, things aren’t so rosy in the garden. Earlier this month, Just Eat announced a new round of job cuts which have become commonplace over the past few months, but this time it came with a twist. Just Eat France would not only axe 269 riders, it would also move to a mixed-model of food delivery, with riders in the big cities like Paris, Lyon and Marseille continuing to have permanent contracts, while for riders in 20 other cities they plan “to switch from an employee model to an alternative mode of delivery”. Meleyne Rabot, Just Eat France’s general manager, denied that they were “going to abandon the employment model”, but the implication of the decision seems clear.
The company appears to be making significant cutbacks to pay and employment – moves which have stirred rider strikes in Belfast and other cities – in an attempt to appease angry shareholders, with the stock falling 64% in the past six months. The FT has reported that its three biggest shareholders are “thought to be deep underwater on their investments”, with one of those, Cat Rock Capital, publishing an open letter on Monday calling on fellow investors to vote against the re-election of finance chief Brent Wissink and most of Just Eat’s Supervisory Board in a meeting on 4 May. The open letter states that Just Eat’s management have “failed all stakeholders” due to a “catastrophic destruction of equity value in the past two years”, caused by “a misleading outlook on the company’s profitability in advance of the Grubhub” takeover.
The 2020 acquisition of the US food delivery platform GrubHub now looks to be a disaster, with the CEO Jitse Groen admitting that they are already looking at whether to sell-off part or all of GrubHub. Whether Groen and his management team survive is probably of little concern to Just Eat’s riders, but that the company could be abandoning its commitment to employment rights for its riders as a result of the pressure it is under will be of much greater interest.
The British food delivery platform only floated on the stock exchange for the first time last year, in what the FT described as “the worst IPO in London’s history”. Since then, things have not got a lot better, with Deliveroo’s stock down over 60% in the past six months. The company is now valued at less than a third of its initial share offering of 390p a share.
Deliveroo issued a financial update on 12 April, with the company’s average users in the UK and Ireland – which makes up half of the company’s revenue – flat-lining in the final quarter of 2021. The firm remains a long way off profitability.
It’s CEO, Will Shu, has set himself against employment status for riders, arguing that the EU Commission’s draft platform work directive does not enforce such a status. Deliveroo also ostensibly exited the Spanish market last year due to the introduction of the Rider’s Law which made the default legal position for riders an employment relationship.
However, there’s reason to believe that Shu left Spain because the company had been failing to make inroads against his competitors. An annual financial report has revealed that the company had lost €27 million on its Spanish operations in the the two years before it ceased operations in the southern European country. The company, part-owned by Amazon, exited the German market in 2019 because it had been ceding ground to rivals. Deliveroo appears to be struggling to get a foothold outside of Britain and Ireland.
The company has responded to a bruising defeat in a criminal trial last week in France over failing to employ its riders by hiring a new chief operating officer, Eric French, who previously worked at Amazon and will run the company’s day-to-day business operations and over-see it’s international markets, leaving Shu to focus more “on product and tech”. Whether the management shake-up can turnaround Deliveroo’s ailing performance, only time will tell.
Super-fast grocery delivery – a flash in the pan?
Super-fast grocery delivery was one of the investment stars of the pandemic crisis, with firms like Gorillas and Getir and their ‘dark stores’ springing up all over Europe in no-time at all. Many of us will have seen billboards or metro ads plastered with Gorillas or Getir promotions. All of this was financed by a nearly $4 billion investment in super-fast grocery delivery in 2021 alone.
Getir has been valued at an astonishing €11.8 billion and as of late January said it had 4,000 staff in the UK and was planning on employing 6,000 more. But there are signs that as covid-19 fears ease in Europe and the cost of living crisis bites, such spectacular growth plans may have been misguided. The company announced that it was sacking 200 riders and ‘pickers’ (those who work in the dark stores) in Milan earlier this month, just a year after taking on 800 staff, in what is said to be a cost-cutting measure.
Getir may be flush with cash, and thus able to offer extremely low prices to customers to beat the competition, but is that sustainable, especially when it is not close to turning a profit?
“The current level of funding is unlikely to be sustainable given how unprofitable these companies are,” says Jamie Blewitt from the Finncap Group.
In the US, which Getir moved into in December, many firms are starting to go under. Buyk, 1520 and Fridge No More have all filed for bankruptcy. Instacart, the biggest player in the US super-fast grocery delivery market, cut its valuation by almost 40% recently.
“All these businesses…whether they’re prepared or not, similarly started in this low interest rate environment, high valuations, disruptive business models, many of which are starting to fail today. You’re just seeing the cracks in them now,” Hans Taparia, a professor at New York University, told QZ.
Europe is equally competitive with multiple firms vying for market share, and already mergers and acquisitions are underway. US firm GoPuff (which is also cutting back on staff) has bought up UK firms Dija and Fancy, Getir has acquired Weezy’ and Gorillas has bought French firm Frichti. The market is already consolidating, but there is a bigger question over whether it will survive at all.
Not only do all these firms have questionable paths to profitability, they are also increasingly garnering the attention of regulators as people complain about noisy dark stores setting up in old shop fronts in their neighbourhood. Amsterdam and Rotterdam have banned any new dark stores in their cities for a year, while Paris and Barcelona are taking action to limit where and how many of these mini-warehouses can be set-up.
Whether super-fast grocery delivery was a business just for Covid-times or has a genuine future beyond that is very much an open question.
The final factor affecting all of these platforms is the ability of their riders to get improved terms and conditions, through both union organisation and political reforms. For many riders struggling with rising fuel costs, securing higher pay is now a necessity to continue in the job – if they can’t get it they may well look elsewhere. Food and grocery delivery platforms face potential staffing issues if they do not raise pay.
Food delivery platforms disrupted the restaurant industry on the basis that everything (debt, labour) was cheap and customers had plenty of cash to spare. Super-fast grocery delivery disrupted local newsagents on the same basis. While restaurants and newsagents may be struggling, there’s a good chance they will long outlive their disruptors.
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