END OF THE ROAD FOR FOOD DELIVERY APP
DELIVEROO’S swift and sudden collapse raises significant questions for remaining players like Uber Eats and DoorDash, in a sector that has been marked by opaque economics, cheap labour and business models propped up by billions in venture capital funding.
Deliveroo's drivers and customers were left stranded on Wednesday when the company announced it had entered voluntary administration, switching off its app and ceasing food deliveries after seven years in the Australian market.
“Deliveroo was unable to achieve sufficient market share in Australia to develop a sustainable business. To do so would require significant ongoing investment in the Australian market,” administrator Michael Korda said on Wednesday.
The Transport Workers Union has sought an urgent meeting with the administrators, stressing that riders are devastated over the sudden loss of their jobs.
The demise came just days after the abrupt closure of grocery delivery app Voly, which raised $18m in venture capital funding at the end of last year, before displaying a “closed until further notice” message to its users last Friday.
Rival grocery delivery app SEND meanwhile fell into voluntary administration less than 12 months after launching, closing in May.
What Voly, SEND and now Deliveroo all have in common is that they all operated on the basis of raising investor money, rather than building sustainable businesses, according to Steve Orenstein, the founder and chief executive of ASX-listed delivery platform Zoom2u. Each of those companies had subsidised their deliveries with venture capital funding and burned through cash, he said.
“Winging it like this isn’t sustainable, it’s dangerous and catastrophic for all involved when the fuel eventually runs out,” Mr Orenstein said. “Businesses with this approach are now no longer able to raise money, and are inevitably forced to close.”
Shiny marketing is no match for sound financials, the executive said.
“Deliveroo was operating a business that was likely either making a loss per trip, or a very small margin – not enough to operate,” Mr Orenstein said.