Michele Caprini
In brief
"In our sector we are led to understand and decide in a two-way approach: the retailer on the one hand, consumers on the other. Those who create the value on the chain that binds these two subjects are not usually considered part of the model measure. The methodological gap is evident and severely limits the relationship between company and market." (Retex, 30 October 2017)

In recent days, Deliveroo’s IPO on the London stock exchange has seen the value of shares plummet by 30% in the first twenty minutes of its listing.

Deliver… oooh!

The final loss then settled at 26%; enough to be called, by many analysts, the worst IPO in the history of the British financial institution. A bad result for Deliveroo, which sees the company’s valuation now between £7.6bn and £7.85bn, against its target of £8.8bn. Serious consequences also for the London Stock Exchange; this operation, in fact, was part of the expected relaunch as a global financial hub of post-Brexit. The last-minute decision to propose shares at a lower price than budgeted (£3.90 versus £4.60) was not enough to prevent the disaster.

The great flight of investment funds explains much of the failure and gives many broader considerations. Deliveroo, defined by the Evening Standard as “the deliver of loss-making meals” (it’s not a new thing, it makes you think of a very large and only seemingly invincible market leader) asked easy-to-answer questions. Why should a much smaller company than Just Eat Takeaway be worth just a little less? Why invest in a lockdown champion just when mass vaccination suggests a different future? The conviction, in short, is clear: if  the emergency ends, the bubble bursts.

Retail gig? No, better not

Last year, when the health emergency brought businesses and entire sectors of activity to their knees, food delivery apps exploded. Worldwide, total revenues grew to $71 billion (+31% on 2019, +72% on 2017, Statista);those at Uber Eats outpaced the traditional taxi service business in volume. The fragility of the business model has  also pushed for the necessary consolidation- billions of pounds for the merge of Just Eat with, a closing operation also for the acquisition of Grubhub, billions of dollars spent by Uber Eats to take Postmates. Uber Eats, however, continues to show numbers in red as Just Eat grows in volume and, in 2020,  increases losses by 67%.

For those who regularly attend this playing field, there was no surprise. For those watching the game from the stands, however, there was no lack, also for the expectations given by the crazy explosion of IPOs on Wall Street in 2020. Deliveroo’s behaviour towards the IPO from the major players on the stock exchange, however, could be indicative of a fundamental trend: the move away from the fast-growing but weak business models.

While the pandemic has sanctioned the victory, in particular, of the titles belonging to the stay at home of which Deliveroo is part, it is also true that the much-desired exit from the emergency, despite the strong differences in graduality between the various countries, has shifted the market’s attention towards the “real” recovery and solid value chains; in addition, of course, to the effectiveness of vaccination campaigns on which the beginning of progressive social and economic normalization will depend.

Deliveroo’s business logic, and food delivery as a whole, is perceived by investors as critical. Andrew Millington, manager of UK Equities at Aberdeen Standard Investments, was explicit about this. Ketan Patel, manager of the EdenTree Sustainable fund, described Deliveroo as “the antithesis of a sustainable business model”. The refusal to participate in deliveroo’s IPO should certainly not be understood as a laudable ethical jolt of the market. The simplest reality lies in the risk of investing in companies that may be within walking distance of stopping practices that have expanded their size (but not their income statement).

A business in the back of the way

Regulations are, in fact, going in the opposite direction to what their competitors are pursuing,and the UK is taking the lead. Trade unions such as the Independent Workers’ Union of Great Britain have declared war on the food gig economy, winning major battles over health and safety protection. For general  regulation, it’sonly a matter of time. After the British Supreme Court ruling, Uber’s decision to hire drivers was reached by guaranteeing them minimum wages, holidays and contributions; in Spain, the new labor reform requires food delivery platforms to  regularize the position of riders. Just Eat, europe’s number one, already offers employee contracts to its British riders.

In Italy, an investigation by the Milan public prosecutor’s  office into food delivery companies, for the violation of rules on the health and safety at work of riders,involved four leading companies in thesector (Uber Eats, Glovo-Foodinho, JustEat and Deliveroo) and sixty thousand workers. On the table, the nature of the working relationship, understood as “dependent” and quite different from other forms of “collaboration”. For the Milanese magistrates, who assume heavy penalties, “the investigation has been imposed because this situation of illegality is obvious”. The initiative could fundamentally change the practices and prospects of the Italian food delivery sector.

In the context of an industry that already sees strong competitive pressures between platforms, the risks to long-term investors seem to be firm:  doing business in close dependence on gig economy workers does not pay. Investments in unstable value chains, linked to opportunity and precariousness, are very risky.

New balances

In catering, the returnto out of home that characterized the years before the pandemic will be slow and incomplete and consumption at home is now a strategic factor impossible to ignore.  The ecosystem from this induced, to date, does not hold. The apps not only say that the customer is always right, and that this reason must be fulfilled by disproportionately increasing users and giving up profits, but they hide all the other players in the meal supply chain. Just Eat Takeaway is already trying free delivery; Uber Eats, Deliveroo and competitors will again be forced into the race to the bottom. The profitability of the model, for now, is non-existent. The cost of this competition will inevitably have to be distributed on the various steps of supply: restaurants, platforms, delivery workers.

The former already face variable commissions of more than 20% on average and, above all, are handing over control of customers to third parties.  It will be vital to run for cover by focusing on the autonomy given by the digitization of work in the room, in the kitchen and outside; and, with this, to redefine the position with the platforms, to be integrated into the operation and, at the same time, from which to defend yourself. The object of the dispute is clear: knowledge and data processing and technology as a whole must serve to strengthen the local entity, not to marginalise or “cannibalise” its customers.

For employees, in addition to the ethical aspects of the performance of the work, the consolidation of the contractual position is in the natural order of interests and the size of the category. It also corresponds to the inevitable increase in the demand for quality and greater professionalism of the service, beyond the logic of the emergency. New balances will have to be found and there will be aftershocks, even violent ones.

The Stone Covitate

Consumers, of course; there is no point in talking about food delivery without calling them into question. In this case sustainability also  becomes inescapable for demand. The term “on demand”, the favorite of the gig economy, makes their whims central, and it seems distant the awareness of the serious impact induced by the habit of “when you want, as you want, at the price you want”.

In the reversal of the intricate relationship between supply, production, supply and service, it is impossible to call one another. The costs of food delivery are  evident, the model does not stand, two out of three subjects (restaurants and transporters) of the chain pay more than this convenience of consumption, the third (the platforms) will not be able to find profitability by increasing the number of customers and further offloading the liabilities on to the other entities of the supply. The fourth (those waiting for the burger at home), then, can not think of not paying it for what it costs. Those who did not invest in Deliveroo’s IPO, after all, simply took note of the reality of the situation. It is up to everyone involved to do the same, from kitchens to their front door.

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