Food delivery sector gets hammered by recession

The landscape is challenging for any business based around its customers being cash rich but time poor, says

Choosing a logo for a company can be a tricky business. A kangaroo features prominently in the branding for the food delivery group Deliveroo but this week it quit the Australian market, putting that part of the business into voluntary administration in a move that was a bit, strewth, embarrassing.

These are challenging times in the food-delivery sector. Judging by the number of riders you see scooting around the streets, you might think Deliveroo is on a roll. Founded by investment banker Will Shu back in 2013 when he noticed how hard it was to get good takeway food in London, the business now works with about 175,000 restaurants and grocery partners, deploying about 155,000 riders to deliver food to customers.

However since day one, it has never made a profit. Having burned through cash for the best part of a decade, it has now added Australia to Spain and the Netherlands on the list of countries where it has thrown in the towel and pulled out.

The challenge is making money in a business where margins are already tight. With rising food costs, restaurants are looking at every penny they spend. For some of them Deliveroo has been a lifesaver but for others the 35 per cent commission is no longer sustainable.

It’s also a crowded market with Ubereats and Justeat competing for every hungry mouth, bombarding users with discount codes in the battle for business. Behind each of these brands, venture capitalists have been pouring in money in the hope that the competitors will go out of business, leaving one to dominate the market.

Then came the downturn. Five years ago, Deliveroo was valued at £1.5 billion as a growing economy ensured plentiful jobs and healthy incomes but little time to cook at home. Generation Z, born after 1997, were the demographic most likely to use fooddelivery services but, saving for a first home or in the grip of the private rental sector, they were also vulnerable to changes in household income.

With inflation now at a 40-year high, fuelled by rises in food prices, the people who helped Deliveroo grow so fast are now the ones tightening their belts and looking at a two-forone supermarket meal deal instead.

The shine was starting to come off last year when a stock market flotation flopped and turned into what was later called “the worst IPO in London’s history”. On the first day of trading, the value of the company collapsed by more than a quarter.

The future for Deliveroo and its rivals depends upon the length of the recession we are entering and how optimistic the financial backers feel.

On paper, it still makes sense. If you think back to how bad the home delivery experience was a decade ago when some bloke in a car without insurance might turn up with your pizza if you were lucky, Deliveroo has revolutionised the marketplace.

However the current economic climate with all its consumer belt-tightening makes the landscape very challenging for any business based around its customers being cash rich but time poor. Down the road, that will change but right now the best way for Deliveroo to improve its profitability would be to stop operating altogether and for a business, that is not exactly a great place to be.