After entering the daily lives of city dwellers with the Covid-19 pandemic, startups are fighting for home delivery today. Inflation, heavy investment, their economic sustainability remains fragile.
Is the era of meals delivered in 15 minutes already coming to an end? Just Eat, Deliveroo, Gorillas, Getir… In recent months, layoffs in home delivery start-ups have multiplied. Some even come to downgrade their growth.
7,000 delivery people were laid off in six months
On 20 July, Just Eat thus announced that it is getting rid of 350 takeaways instead of the 269 that were planned in April last year, after poor quarterly results, as the trade magazine pointed out. LSA. The delivery giant then observed a “difficult dynamic” in France. The day before, it was the Deliveroo group that revised the increase in its activity to a range of 4 to 12% at constant exchange rates, against an expectation of 15-25%.
Same difficulty in May for Gorillas: The German delivery platform faces funding problems and had to lay off 300 employees due to lack of profitability. Gorillaer even had to stop its activity in Belgium last month and in Italy this month to focus on other countries, including France.
As for Deliveroo’s departure in Spain, the number of redundancies for deliveries in France, Italy and the Iberian Peninsula has stood at around 7,000 since the end of 2021. It should be noted that the majority of startups that have been laid off are platforms that resorted to wage labor.
Difficult profitability and complications in the stock market
However, home delivery of meals and shopping has gradually entered the mores of urban populations in France and Europe, especially with the Covid-19 pandemic. Meal delivery had generated 5.5 billion euros in 2020 in France, representing a growth of 47% between 2018 and 2020, according to the expert firm Food Service Vision.
But the billions generated struggle to convert into profit. In the world of fast delivery, only UberEats has managed to turn a profit. In the fourth quarter of 2021, the group had achieved a profit of $25 million for the first time since its debut. No other platform has yet achieved this feat. Despite still high orders in France and massive investments.
Despite its strong growth, the Anglo-Dutch platform Just Eat thus experienced a loss of more than one billion euros in 2021. And the economic conditions are felt all the more as the players are in full growth.
In a market where competition is strong, the techniques and strategies to conquer it – marketing campaigns or takeovers of competitors – are very expensive. Among the latest acquisitions in the sector figure Friichti bought by the German Gorillas or even Flink, which seized the tricolor platform Cajoo. And Just Eat, in difficulties after the takeover of American Grubhub in June 2020, is already considering getting rid of it.
The funds collected through commissions on deliveries are mainly used to finance said marketing strategies, but also administrative and marketing costs and to pay for the deliveries. Any increase in the suppliers’ wages will lead to an increase in the restaurateurs’ commissions, which are already high (generally around 30% of the order value). This risks diverting some restaurateurs from the platforms and thereby reducing the supply and attractiveness.
The second difficulty for the profitability of the platforms is due to promotional offers. In order to attract new customers, they have often invested heavily in campaigns. But their disappearance could also lead to an air pocket in the customer base, in search of low prices in a context of generalized inflation.
Massive investments in the construction of “darkstores” also limit profits. These warehouses scattered in the cities allow quick delivery of groceries at home. But while some big cities like Paris are threatening to regulate them more strictly, some are not yet running at full speed to make the investments profitable.
The multitude of actors in play during the delivery system demonstrates a complex management of the actors involved. The platform must manage restaurateurs, couriers and the consumer, therefore three actors must be mobilized with the need to take care of value management on all sides.
The instability of the platforms has begun to reduce the confidence of investors, who less and less dare to bet on fast home delivery.
The two giants Just Eat and Deliveroo have chained negative months on the stock market. Over the course of a year, Deliveroo’s action dropped by 70%. In August 2021 the share price was around 390 pence at a record high, today it is worth just 92.
“Everyone understands that they have to achieve profitability”
Is the meal delivery and home shopping sector going through its first growth crisis? Or is the business model simply not sustainable in a deteriorating economic context? Faced with inflation, the war in Ukraine, the rise in the price of hydrocarbons, and even the tech stock market collapse, the platforms are trying to adjust and adapt. Last 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 are increasing our commission rates for the first time in five years in certain European markets,” the group’s spokesman said in a statement. Reuters press release.
In addition to the increase in the commission, with the increase in the price of the products, the restaurateurs are forced to increase their prices, which in turn increases the cost of delivery. In a note, Morgan Stanley Bank points to the restaurant sector as one of the first to suffer cuts from customers seeking to reduce their spending in the event of a recession.
“Food delivery also stands out as only risk … given that it tends to be expensive on a per-person basis and is likely to be viewed as indulgent by some consumer groups,” the bank’s note continues as quoted by ZoneBourse.
The result of these gloomy prospects: according to Business Insider Spain, other delivery platforms are likely to have to repeat the same pattern as Just Eat in the future, in the face of pressure from investors asking the platforms to upgrade.
Analyst firm JP Morgan warned last June that delivery companies, in light of inflationary trends, will have to revise their outlook downwards. And it is clear, according to some analysts, apart from the leaders, not all of them will succeed.
“Everybody is reducing its workforce, everybody understands that now it has to achieve profitability,” explains Monique Pollard, an analyst at Citi.
Labor law, the new challenge
The working model is also establishing itself among the most important construction sites in the home delivery sector.
In recent months, the working conditions of self-employed delivery people have been called into question on many occasions. This is especially the case with Deliveroo, which was convicted of hidden work in April last year.
The European Commission can become the great enemy of platforms that do not pay their suppliers. Last December, the Commission announced a directive plan to overhaul the economic model for platforms and change the status of delivery people by establishing a “presumption of employment”. This means that deliveries automatically switch from self-employed to employees.
If these changes were to be made, it would be a blow to the platforms whose economic model is mainly based on the independent status of delivery people.
Alongside the European Commission, some countries such as Spain and Italy have changed their legislation on the status of delivery people. On the Iberian Peninsula it was the “Rytterloven” – consisting in giving employee status to delivery people – which partly led to Deliveroo’s departure.
In France, working conditions in this sector are being discussed, but they are not the subject of new legislation to date. Although directives have been put on the table within the EU, there is no indication of a sweeping change to the platform system at the moment. The providers point to increasingly difficult working conditions.
Deliveries up by 35% over a year
Despite the increase in prices and the weight of inflation, the delivery of meals at home remains a consumption practice engraved in the new habits of the French.
According to a study by the NPD Group, shipments rose 35% year-over-year in the first quarter, following an 85% increase in 2021 compared to the pre-pandemic period. According to the Federation of e-commerce and distance sales (Fevad), 12% of food purchases are now made via quick trade. What validates the reorganization strategies in the sector?