Employment practices at the food delivery technology companies are once again being called into question after Just Eat (JET) confirmed it was laying off 1,700 delivery workers in the UK and going back to the much-maligned gig economy model. This comes as the major delivery companies face further profitability challenges, as consumer spending slows.
The company had brought on delivery riders and drivers as employees with hourly wages, pensions and sick leave, from 2020 across six UK cities. This differentiated it from competitors.
But no longer. Just Eat will return to a self-employed model, like Deliveroo (ROO) and Uber Eats. Around 170 employees in Just Eat's operational team will also be made redundant as part of the move.
A company spokesperson said Just Eat UK had “proposed to transition away from the worker model for couriers”, as part of the “ongoing goal of improving efficiency”. Just Eat said there would be “no impact to the service provided to partners and customers”.
Independent Workers’ Union of Great Britain (IWGB) president Alex Marshall said the company had treated the workers poorly. “Just Eat is built on the backs of these workers yet they are fired en masse via cruel email,” he said.
IWGB has challenged delivery company actions before, taking Deliveroo to the UK Supreme Court in a bid to obtain collective bargaining rights. Meanwhile, as reported by the Financial Times, the company recently blocked an app, Rodeo, which lets delivery couriers compare earnings at different delivery companies, from using its platform.
While the Just Eat employees only made up a small element of its total workforce, the company's move highlights the pressure that the delivery app companies are under as they chase profitability and reconfigure after the boom provided by the pandemic.
Covid high-flyers
Consumers turned in droves to takeaway and delivery services during the various Covid lockdowns, pushing share prices up as well. They have since tumbled on the back of worsening conditions, but City analysts, according to FactSet, expect Deliveroo to become profitable in 2025 and Just Eat the following year.
Both companies reported full-year results for 2022 this month. Pre-tax losses came in at €5.8bn (£5.1bn) for Just Eat and £231mn for Deliveroo. Just Eat’s losses ballooned due to €4.6bn-worth of impairments relating to the merger with Takeaway.com and the purchase of American platform Grubhub. Top-three institutional shareholder Cat Rock Capital argued that management's approach to the acquisition of the latter led to “value destruction”.
Order numbers are struggling against lockdown-inflated figures. Just Eat’s orders fell from 1.1bn to 984mn year on year, and were down across all of the company’s geographic markets. This included a 10 per cent drop in the UK. Deliveroo managed to increase its annual order numbers by 5 per cent to 299mn, but order growth slowed as the year went on and growth turned negative in the final quarter.
HSBC analyst Christopher Johnen said that “growth will normalise once the Covid-19 ‘super boost’ is truly digested", meaning that tough comparative years have faded into the past. He did add that the “days of growth at any cost are now behind us” as companies stop chasing low-value, or unprofitable orders.
Deutsche Bank analysts said in a research note that the Just Eat lay-offs “should offer reassurance on JET’s ability to reach its profitability target”. “We see it as a move to increase flexibility on operating costs in JET’s UK delivery business amid falling order volumes, although note that the larger and more profitable marketplace business in the UK would be unaffected by these changes,” they said.
Both Deliveroo and Just Eat are also involved in the ultra-fast grocery delivery space, on top of restaurant deliveries. Around 11 per cent of Deliveroo's total gross transaction value in the second half of 2022 came from on-demand groceries – the company delivers from more than 8,000 sites in the UK and Ireland. Just Eat, meanwhile, announced a new partnership with Sainsbury’s (SBRY) in January.
Post-pandemic weakness has been evident in this sub-sector too. After a panoply of new ultra-fast delivery companies emerged during Covid-19, there has been consolidation – Turkish start-app Getir bought German operator Gorillas last year for $1.2bn – and failures as big losses have mounted up and valuations have sagged.
As for where the food delivery sector goes from here, HSBC’s Johnen said its future would be driven by “striking a delicate balance between growth and free cash flow generation”. But earlier this month, Just Eat boss Jitse Groen said it was "early days" in terms of scale for the company, with growth to come from new customers and increasing order frequency, as well as profits. Perhaps a dose of reality is on the menu for the company.