Is the era of meals delivered in 15 minutes already coming to an end? Just Eat, Deliveroo, Gorillas, Getir… Layoffs within home delivery start-ups have multiplied in recent months. Some even go so far as to revise their growth downwards.
7,000 delivery drivers fired in six months
Thus, on July 20, Just Eat announced that it was saying goodbye to 350 delivery men instead of the 269 expected last April, after mediocre quarterly results, as the specialized magazine points 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 in a range of 4 to 12% at constant exchange rates, compared to an anticipation at origin of 15-25%.
Same difficulty in May for Gorillas: the German delivery platform is facing financing difficulties and has had to lay off 300 employees due to lack of profitability. Gorillas even had to cease their activity 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 layoffs of delivery people in France, Italy and the Peninsula has been 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 salaried work.
Difficult profitability and complications in the stock market
However, home delivery of meals and purchases has been gradually incorporated into the customs of urbanites in France and Europe, in particular with the Covid-19 pandemic. Meal delivery had generated 5,500 million euros in 2020 in France, that is, a growth of 47% between 2018 and 2020 according to the expert firm Food Service Vision.
But the billions generated are struggling to turn 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 recorded, for the first time since their debut, a profit of 25 million dollars. No other platform has yet achieved this feat. Despite still high orders in France and massive investments.
Thus, 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 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 acquisitions of competitors – are very expensive. Among the latest acquisitions in the sector is Frichti, bought by the German Gorilas or Flink, which acquired the Cajoo tricolor platform. And Just Eat, struggling after its acquisition of American Grubhub in June 2020, is already considering parting ways with it.
Funds raised through delivery fees are used primarily to fund such marketing strategies, but also management and marketing costs, and to pay delivery drivers. A possible increase in the wages of delivery men would mean an increase in commissions for restaurateurs, which are already high (generally around 30% of the value of the order). This runs the risk of diverting some restaurateurs from the platforms and therefore reducing the offer and the attractiveness.
The other difficulty for the profitability of the platforms is due to promotional offers. To attract new customers, they have often relied heavily on promotions. However, its disappearance could also create a weakness among customers, who are looking for low prices in a context of generalized inflation.
Massive investments in the construction of “dark warehouses” also limit profits. These scattered warehouses in the cities allow fast delivery of groceries to homes. But while some big cities like Paris are threatening to regulate them more harshly, some are not yet running at full speed to make a return on investment.
The multitude of actors in play during the delivery system demonstrates a complex management of the actors involved. The platform must manage the restaurateurs, the delivery men and the consumer, therefore three actors to be mobilized with the need to undertake value management everywhere.
The instability of the platforms is beginning to undermine the confidence of investors who are less and less daring to bet on fast home delivery.
The two giants Just Eat and Deliveroo have chained negative months on the Stock Market. Within a year, Deliveroo’s stock fell 70%. In August 2021, its share price was around 390 pence at its all-time high, today it is only worth 92.
“Everyone understands that you have to achieve profitability”
Is the food delivery and home shopping sector going through its first growth crisis? Or is the business model simply not sustainable in a degraded economic context? Faced with inflation, the war in Ukraine, the increase in the price of hydrocarbons, and even the stock market crash of the Tech, the platforms try to adjust and adapt. Last June, Just Eat announced that it was going to increase the commission it charges restaurants.
In addition to the increased commission, with the rising cost of products, 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 by customers seeking to reduce their expenses in the event of a recession.
The result of these gloomy prospects: according to the Business Insider Spain, other delivery platforms will likely have to replicate the same pattern as Just Eat in the future, under pressure from investors calling for platforms to upgrade.
The analysis firm JP Morgan warned last June that, given inflationary trends, delivery companies will have to lower their development prospects. And of course, according to some analysts, apart from the leaders, not everyone will make it.
Labor regulations, the new challenge
The work model is also consolidating among the main works in the home delivery sector.
In recent months, the working conditions of self-employed delivery people have been questioned on many occasions. This is particularly the case for Deliveroo, which was sentenced last April for undercover work.
The European Commission could become the great enemy of the platforms that do not pay their couriers. Last December, the Commission announced a plan of guidelines to review the economic model of the platforms and modify the status of delivery people by establishing a “presumption of employment”. This means that delivery drivers would automatically switch from self-employed to salaried.
If these changes materialize, it would represent a severe blow to the platforms whose economic model is based mainly on the autonomous condition of the delivery men.
Together with the European Commission, some countries such as Spain and Italy have changed their legislation on the status of delivery people. In the Iberian Peninsula, it was the “Riders law”, consisting of granting employee status to delivery men, which partly caused the departure of Deliveroo.
In France, working conditions in this sector are discussed but are not the subject of new legislation to date. Even if directives have been put on the table within the European Union, nothing indicates a profound modification of the platform system at the moment. Delivery men point to increasingly difficult working conditions.
Deliveries increased 35% in one year
Despite the rise in prices and the weight of inflation, the delivery of meals at home continues to be a consumption practice engraved in the new habits of the French.
According to a study by the NPD Group, deliveries increased 35% year-on-year in the first quarter, following an 85% increase in 2021 compared to the pre-pandemic period. According to the Federation of Electronic Commerce and Distance Sales (Fevad), 12% of food purchases are already made through fast trade. What do the strategies for reorganizing work in the sector validate?
Source: BFM TV
