'Not good for consumers': Deliveroo's demise pushes takeout delivery towards monopoly

‘Not good for consumers’: Deliveroo’s demise pushes takeout delivery towards monopoly

The collapse of Deliveroo in Australia is bringing the country’s food delivery sector closer to a monopoly – which could ultimately impact restaurants, gig economy workers and consumers.

Deliveroo’s UK parent company announced this week that it is exiting the Australian market.

His subsidiary here has already been put into administration and orders have ceased with immediate effect.

The tech app was an intermediary between consumers and hospitality businesses to organize food, drink and grocery delivery.

The owner of Flaming Kebabs in Melbourne’s western suburbs described Deliveroo as a distant competitor in the market, such as Uber Eats.

“I don’t know why people used it [Deliveroo]’ Vulent Gulson told ABC News.

“The drivers were always late and the food gets cold.”

Like Uber Eats, Deliveroo employed so-called gig economy drivers who made deliveries on a contract basis without typical employment entitlements.

Deliveroo made money by taking a portion of the order price as a commission from food outlets like bars, corner shops, and restaurants.

It is estimated that 12,000 venues have used it for deliveries.

Vulent Gulson said his kebab shop received only $300 worth of orders a week from Deliveroo, compared to around $8,000 worth of orders from Uber Eats.

This kebab shop owner said he wasn’t sad that Deliveroo was closing. (ABC News: Rhiana Whitson)

Mr Gulson said Deliveroo paid businesses a large sum for orders on Wednesdays.

He has not yet heard whether the company will pay him for the orders processed in the last few days.

“I don’t know yet, we’ll just have to wait and see,” he said.

A spokesman for Deliveroo in Australia told ABC News that it is up to the company’s administrators to decide how hospitality events receive money owed.

The company going into administration means creditors will now have to vote on winding up the company, which administrators KordaMentha say is their priority.

Any companies that still owe money are treated as creditors, which could lengthen the process for them to receive payouts when the subsidiary’s financial condition is assessed.

“The administrators had no choice but to immediately halt operations for lack of financial support,” KordaMentha said in a statement.

Man stands near coffee machine with glasses in a cafe.
Hamed Allahyari stopped using Deliveroo because it wasn’t generating enough orders.(ABC News: Rhiana Whitson)

Not far from Flaming Kebabs, another store owner said Deliveroo performed so poorly that he stopped using the app for takeout delivery a few months ago.

“When you come to our cafe, we make the food fresh, they deliver it cold,” said Hamed Allahyari, who owns Cafe Sunshine.

“Not many customers came from Deliveroo. In a week we had maybe two customers.”

Deliveroo exited the German market in 2019 and left the Netherlands and Spain earlier this year.

The speed of his breakup decision surprised some in the room.

Ultimately, however, the decision to leave Australia was understandable for those concerned with the takeaway gig economy.

In addition to Uber Eats, Deliveroo also competed in Australia with Doordash and MenuLog.

“Ultimately, the sector is a difficult sector where getting on the scale is very important,” said Rob Nicholls, associate professor at UNSW Business School.

“Deliveroo was fourth in a very competitive sector.”

In a statement to the media, Deliveroo’s parent company acknowledged this situation.

“In Australia, the market is highly competitive with four global players and Deliveroo does not have a broad base of strong local positions,” the UK parent company said.

It added that overall Australian revenue accounted for just 3 percent of the global company’s total revenue.

“This was a difficult decision that we did not take lightly,” Chief Operating Officer Eric French said in the statement.

What will happen to compete now?

dr Rob Nicholls said the takeaway sector is competitive because it works at high volume to make a profit.

In a small market like Australia, securing a piece of the pie can be difficult for multinational companies that need to justify investments and operations.

“They’re all competing for two things. Restaurants. And drivers,” said Dr. Nicholls.

“It’s one of those sectors where a winner takes all or the winner takes most of the space. And you expect few to survive. In this case, Deliveroo was the first to fall.”

dr Nicholls said it’s still unclear whether sector three — Doordash, Uber Eats and MenuLog — can sustain itself, or whether it will continue to consolidate toward a duopoly or even a monopoly.

The concern about less competition is that companies that remain in the market after what is known as consolidation could be chasing higher profits through rising prices or margins.

This could mean increasing the amount of cash they charge restaurants for using the app, adding additional delivery fees or subscription fees for consumers, or lowering contract driver pay.

“The move from four to three (companies) means consumers have less choice,” said Dr. Nicholls to ABC News.

“It’s not good for consumers. It’s not good for restaurants. And it’s not good for drivers.”

Uber Eats declined to comment on the Deliveroo collapse.

In a statement, Doordash and MenuLog said they encouraged Deliveroo drivers who lost their jobs to switch to their apps.

“Our team is also working to contact restaurants and retailers that lost business overnight,” Doordash said.

What happens to Deliveroo drivers?

Rodrigo Burgos is one of the estimated 15,000 drivers Deliveroo uses in Australia.

He said the app suddenly stopped working on November 15, when the company announced it was leaving Australia.

“I’m quite upset and sad,” he told ABC News.

“I’m quite disappointed with how they managed to do that.

“The way they handled that was rude.

“They should have given us at least two weeks notice to help us find another job.”

a man on a bicycle in a branded outfit
Rodrigo was a delivery driver for Deliveroo until the company suddenly announced that it would be wound up in Australia in November 2022.(ABC News: Daniel Irvine)

A spokesman for Deliveroo in Australia told ABC News that it would immediately give its contract drivers a two-week payout.

The customized payout each driver receives is an average of how much they worked each week for the past 12 months.

Deliveroo’s spokesman said it also advised administrators at the failed subsidiary to give drivers another two weeks’ salary – but that decision will eventually come down to a vote by secured creditors.

Mr Burgos said driving for Deliveroo was his main source of income and he spent 30 to 40 hours a week making deliveries for it.

The Argentine migrant said Deliveroo’s exit from Australia has “put suddenly out of work” many drivers like him.

Mr Burgos said he subsidized driving for Deliveroo with work for other takeaway delivery apps.

“I’ll have to spend more time on the other apps,” he said.

“It will hit us all massively.”

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