Quality Food, Fast – Deliveroo and the On Demand Economy
High smartphone penetration and cloud based software has enabled Deliveroo to become the Uber of food delivery but are the benefits of this opportunity shared equally amongst all stakeholders?
Increased smartphone penetration and smartphone computing power has enhanced how we communicate, changing the way many businesses operate and leading to a new classification of business model named the on demand economy. Here, digital technology enables the real time matching of demand and supply, coordinating an unallocated pool of physical resources to deliver a product or service. This model is particularly disruptive in sectors where mobility is a key part of the task such as transportation (Uber) and food delivery (Deliveroo).
Deliveroo – “Proper Food, Proper Delivery”
Headquarted in London, Deliveroo is a fast-growing tech company that markets, sells and efficiently delivers meals from high quality restaurants to homes and offices. The idea came from William Shu who, after moving from New York to London, was so surprised at how difficult it was to get quality food delivered that he subsequently launched the company with his co-founder Greg Orlowski in 2013. Today, Deliveroo hires about 800 people and works with over 16,000 restaurants and over 20,000 delivery riders in over 80 cities across 12 countries in Europe, Asia, Australia and the Middle East [1]. Their rapid growth has led to revenues of over $150M [2], a valuation of over $1BN and total funding of $475M from venture capital firms such as Index Ventures, Hummingbird Ventures, Accel Partners and others [3].
Technology-Enabled Delivery Process
Customers order online or through a smartphone app from a selection of local high quality restaurants. After the order is submitted to the restaurant, the waiting staff check the order before sending it to the kitchen. The order is tracked through the kitchen and around 5-7 minutes before the order is ready, a nearby Deliveroo rider is notified through a smartphone app. The order is then marked and the driver comes and collects it before delivering to the customer. Meanwhile the customer has full visibility of where their order is in this process and can track the rider’s whereabouts from restaurant to door [4].
Such a food delivery network isn’t a novel idea but until recently the costs of setting up the necessary proprietary hardware and software, and maintaining a paid fleet of drivers were prohibitive. Now, most people have a GPS-enabled smartphone powerful enough to run basic applications and Deliveroo can provide restaurants with cheap Android tablets to connect to their point of sale systems. In addition, the digitalisation of background checks and payroll processing systems enables rapid onboarding of new drivers into the delivery network. By integrating these with sleek web and mobile apps and a proprietary logistics optimization algorithm Deliveroo can deliver on their unique value proposition of reliable and efficient high quality food delivery, achieving an average of 32 minutes per delivery [4].
“They are creating a new market, addressing a latent customer need, while allowing restaurants to increase throughput.”
– Martin Mignot, Index Ventures [5]
For restaurants, Deliveroo handles the burden of delivery logistics (overheads, delivery fleet investment, payment processing etc.) as well as online and offline marketing. This enables incremental sales through existing and additional customers. The delivery platform also drives demand at times of the week when restaurants are less busy. Overall, restaurants see revenue increases of around 30%, fuelling increased returns and enabling higher employment opportunities [4].
Challenges – Employed vs. Self-Employed Riders?
Whilst technology has clearly enabled Deliveroo to create value for customers, restaurants and shareholders, questions have been raised about the value to the delivery drivers, particularly with regards to their employment status. The on demand economy has led to a rise in self-employed workers who benefit from flexible work hours but are not entitled to the rights available to employees, including sick pay, paid holiday, and minimum wage.
Whilst the majority of riders appreciate the ability to work flexibly, some argue that they are unable to negotiate the terms of the service and thus they are effectively employed by Deliveroo (drivers are paid a flat rate of £7.00 per hour plus a fee of £1 per delivery). In fact, a recent employment tribunal case (currently under appeal) found that a group of drivers for popular taxi hailing service Uber should be classified as employees [6]. Classifying the employment of on demand workers in this way may put the business model at risk given the increased cost.
This may be an instance where legislation needs to be updated to keep up with changes in technology and the new ways business and consumers interact. I believe Deliveroo and other on demand services should work with academic institutions and think tanks to resist changes in employment status and maybe even press for changes in employment law to create a third category of employment that considers the new flexible ways people can work today whilst protecting their key rights.
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Sources
[1] General Catalyst, “Deliveroo Overview,” [Online]. Available: http://generalcatalyst.com/companies/deliveroo/. [Accessed 16 November 2016].
[2] J. Titcomb, “Deliveroo revenue to hit £130m this year,” Guardian, UK, 5 June 2016. [Online]. Available: http://www.telegraph.co.uk/technology/2016/06/05/deliveroo-revenue-to-hit-130m-this-year/. [Accessed 16 November 2016].
[3] I. Lunden, “Food startup Deliveroo raises $275M as Uber eats into its European market,” TechCrunch, 5 August 2016. [Online]. Available: https://techcrunch.com/2016/08/05/food-startup-deliveroo-raises-275m-as-uber-eats-into-its-european-market/. [Accessed 16 November 2016].
[4] Deliveroo, “Introduction to Deliveroo,” June 2016. [Online]. Available: http://ec.europa.eu/information_society/newsroom/image/document/2016-6/deliveroo_13855.pdf. [Accessed 15 November 2016].
[5] M. Mignot, “Building a local food delivery network,” Index Ventures, 26 June 2014. [Online]. Available: https://www.indexventures.com/news-room/blog/building-a-local-food-delivery-network. [Accessed 16 November 2016].
[6] H. Osborne, “Uber loses right to classify UK drivers as self-employed,” Guardian, UK, 28 October 2016. [Online]. Available: https://www.theguardian.com/technology/2016/oct/28/uber-uk-tribunal-self-employed-status. [Accessed 15 November 2016].
An interesting post about the system equity of the new “sharing” economy and how we might consider the distribution of utility through this new value chain.
To build on your final paragraph, I thought I’d crunch some numbers to get a sense of the earnings that drivers get in one evening’s work:
Assume that – people order dinner around a 3-hour window from 6-9pm
Deliveroo Drivers can complete one delivery every 20 minutes
2/3 of people will tip £3, the other 1/3 stiff them.
Deliveries made: 9
Base wage: £21
Per Delivery Wage: £9
Gratuities: £18
Total: £48
Hourly Rate: £16
Typical minimum wage is £7/hour, so they earn an extra £27 working for Deliveroo, pending luck with the tips.
From a remuneration perspective, looks to me like the Deliveroo rider would in theory be better off working in a bar (better tips!) or driving an Uber (more certainty around the income – not tip-dependent)
Given that they have over 20,000 delivery riders, though, the riders must derive utility beyond remuneration. So the main benefit from being a Deliveroo driver must be the flexible hours (no minimum shifts, unlike bar work) and the low overhead requirement (bike/scooter vs a car) which – to your point – should be taken into account when deciding on the benefits that each worker should be entitled to.
I think your post raises a complicated question: Should laws be adapted to technology-based companies or technological companies comply with the current regulation?
My big ethical issue here is that usually laws are set to protect some powerless group (workers) from the pressure of the power groups (companies). When some company (like Uber or Deliveroo) find a loophole to avoid complying with the regulation, they are affecting a huge group of people who do not have the power or the resources to defend themselves. There is a reason why labor laws were created: to ensure a fair treatment to all employees. Not paying the fair value of work (which includes vacations, retirement, health benefits, etc) is not only prejudicial for employees, but it is also giving this companies and unfair competitive advantage.
I agree that regulators need to do something about it, however, we must ensure that the solution is fair to all parties involved.
Legislation can’t be static by definition, and many examples in history show us the benefits of adapting policies and labor laws in response to change in the business landscape, from the industrial revolution to women labor laws.
At the same time, while technology can be disruptive itself, rules are there to make sure that this disruption takes place in a competitively fare and socially responsible way.
I totally agree with Bernardita and my answer to her questions on whether laws should be adapted to business changes or vice versa is indeed both – none of them should be static or passively adapting to the changes in the others, as this tension is crucial to ensure sustainable progress.
And we have to be careful when assuming that if workers are willing to do a certain job, this means that the job conditions are favorable and fare. Workers can be simply desperate for a job and rules must be set to prevent speculation on people despair.
I agree that flexible types of job could be regulated and taken into account, but still allowing workers to have a minimum set of protection like minimum hourly wages and minimum health benefits. My concern indeed is that these “flexible” type of jobs without any benefits for workers will spread out, disrupting many existing businesses due to significant overhead cost reduction, and lower the overall work conditions for an increasing number of workers. This may result in a short term gain for the employer and the final customer, but in an overall damage in the long term to the whole society.
Interesting post.
You highlighted some of the big distributional consequences/questions about Deliveroo’s business model that I think are very important.
I’m also interested though in the role that a company like Deliveroo can play in improving food supply chains to deliver FRESH, HEALTHY food not just to wealthy consumers who can afford private delivery… but also, whether the innovations they’ve discovered in the process can be applied to help bring the same kinds of fresh & healthy foods to lower-income populations. One way I thought about was whether there could be bulk drop-off/delivery points in a neighborhood where people would actually come and meet up with Deliveroo drivers. Making use of these kinds of efficiencies could bring down prices for consumers, so that it’s not only wealthy people who are able to benefit from healthy, convenient services like this one.
Great idea Rachel. I am not sure what the economics behind that type of system would be but I definitely think this would be a change to their current business model. Setting up bulk drop off seems like it would need to have more than one driver with a bag that has enough capacity to make these drop offs. It appears that current deliveries are made on bikes. If they begin doing bulk drop offs, then I would imagine the company would have to invest more into the infrastructure for executing this initiative, i.e. shift to cars or have several drivers drop off to this same location. I wonder if this could be a social program that the company engages in for certain events each quarter instead of completely shifting their business model to do bulk deliveries.