Why Deliveroo is now probably the smartest food delivery business in Australia

The news that Deliveroo ceased operations and went into Voluntary Administration on the 16th November was well covered in Australian media recently. They cited job losses and stories of businesses losing money and managed to find people to stand in front of a camera and tell their hard luck story caused by this decision. A typical media reaction to a high-profile business failure. Even the unions got involved.

I suggest that the Decision by Deliveroo’s owners shows better commercial judgement than we see by their rivals in Australia who are now battling to fill the gap. Let me explain.

First, let’s look at what harm is really caused by Deliveroo’s departures from Australia.

Employees

The administrators have advised that all Deliveroo’s 120 employees had already been paid up until November 13th, so any amounts outstanding will relate to leave liability and notice period payouts. It won’t be huge amounts and the administrators, KordaMentha, have made a clear statement about the process they are going through to finalise employee liabilities. In today’s labour market I doubt it will take long for any of those employees to find a new workplace.

Riders

Deliveroo Australia is said to have had 15,000 riders. Not all will have been totally reliant on Deliveroo, as gig economy riders and drivers can work for multiple companies at the same time, and it will be relatively easy for them to move to a new gig or even choose a normal employment contract in the hospitality industry. If any of these ex-Deliveroo riders can’t find new employment within weeks with the current staff shortages, then they can’t be trying very hard. There has been mention of two weeks compensation to riders, but the final details won’t be available until after more information is provided by the Administrators.

Naturally, being forced to make a job change like this is inconvenient and may have some financial impacts on employees and riders alike, but I believe this is a short-term problem, and in fact might be likely to open the door to new higher paid positions for some.

Restaurants

Compared to the challenges that the foodservice sector has just been through during the pandemic, this is a tiny glitch in comparison. If a restaurant only used Deliveroo as their delivery service, then they will have learnt a lesson about not relying on a single service provider. Many restaurants use multiple services. It probably doesn’t take more than a week to sign up to one of them, and in the meantime, there are many riders looking for a gig. If delivery is an important part of your offering, then why not organize your own? The delivery apps do help bring in more orders, but Menulog, for example, allows you to do your own deliveries. One media report presented a restaurant that had 30% of his orders through Deliveroo. So what? If delivery of his menu in that area was so popular, that isn’t going to change if someone else delivers it tomorrow. You know that diners are prepared to order your food using delivery services, just use another one.?

The majority of the 12,000 Deliveroo partner restaurants used multiple delivery options. Any of the diners who previously ordered via Deliveroo, and still want that service, can immediately switch to an alternative ordering app.

What harm has really been done to restaurants? I would classify any harm as short-term, inconvenient, and quickly rectified. In a couple of months’ time, we will wonder what the fuss was about. Now you see them, now you don’t, and the hospitality sector will have seen it as a minor speed bump, especially compared to what we went through during the pandemic.

Tony Green, CEO of the Australian Foodservice Advocacy Body observed “As long as the Deliveroo Administrators pay out any moneys owing to restaurants, the impact on our industry will be negligible. We have over 100,000 job vacancies in hospitality alone, so employees and riders can easily gain employment if they want to, and there are alternative ordering apps that will quickly fill the gap”.

Despite a large increase in usage and revenue spurred on by the pandemic, the main food delivery apps are still not profitable and still aren’t forecasting a profit soon. Has their recent enormous pandemic-based growth spurts made them overconfident? Their transaction volumes peaked during 2021 and have declined since. We are all enjoying actually going out to eat again.

All major food delivery services are losing money and won’t make a profit in 2023.

Is the Deliveroo exit the only one we will see in Australia?

Deliveroo wasn’t the first exit.?FOODORA departed Australia back in 2018.

Putting it into perspective

Total meals served by Commercial Foodservice Operators in Australia per year equate to approximately 6 billion including breakfast, brunch, lunch, snack meals and dinner. Even if you do a generous estimate of meals served via these 3rd party delivery apps, they still represent under 3-4% of volume in Australia. So, they are a very small part of the foodservice industry even though publicity suggests otherwise.

Fuel, labour and other costs will continue to increase in the short term, so these delivery services will not be lowering prices anytime soon or are likely to become profitable.

So, in 2023, the only major food delivery company that will not be losing money from operations in Australia will be Deliveroo!