Deliveroo faces challenges before London IPO

Transparency and sustainability concerns
Charlie Richardson
25/03/2021
Deliveroo faces challenges before London IPO

What happened and why Last week, Uber announced that it will be changing its drivers’ status from “self-employed” to “workers”, entitling them to minimum wage, pension and other benefits. A transformative moment for the Gig Economy. At the time, Deliveroo was one of the companies that came forward and stated that its employment model will not be affected by this decision. Yet, today, the company looking to IPO on the London Exchange Market soon, at a £8.8 billion valuation, is facing public rejection from investors because of it. Pass!… The lack of transparency and concerns over the sustainability of its business model, with a focus on the status of its food couriers, are the main red flags. Some investors, including Aviva and Aberdeen Standard Investments, were a ‘firm nay’ when it came to making a call on investing in one of London’s biggest tech IPOs of the past decade. Pay is one major concern... Deliveroo claims that its drivers are making more than £10 / per hour, even £13 in peak times (alright Santa Claus), but a recent investigation from the Bureau for Investigative Journalism, which analysed over 2,500 receipts from 318 riders over a 1 year period (ended in March ‘21) found that:½ earned less than the food-delivery company claimed.⅓ was under the UK minimum living wage of £8.72. ...and that kinda stinks. But let's play fair… Deliveroo reverted, calling the claims “unverifiable” and “misleading”, suggesting that:With a data pool of less than one percent of its UK couriers, the investigation could not reach a clear conclusion.Drivers are simultaneously picking up orders from different apps, so looking at hourly rates is not a precise indicator of how much they’re taking home at the end of the day. Crunching in the numbers…£4 - £5 is the average rate per order for a Deliveroo food driver, with delivery fees growing yearly. But the company is not providing a clear breakdown of these said fees, so there’s no clear indication of the changes in its financial model and how it’s been adjusted over time.There are two key aspects of the final earnings a driver takes home: number of deliveries done per dayand the pay for each order. In spite of having a fixed repayment for each delivery done, the time waiting for restaurants to get the meals ready is not remunerated. Despite the bravado in prepping for their monster IPO, they had to disclose potential legal consequences of not altering their employment model, with damaging implications in 5 of its biggest markets. Deliveroo is proving a stubborn marsupial. Defending its decision to maintain the “self-employed” status for all of its drivers, but informs investors of the risk of not being able to do so in certain territories. In this case, the main two concerns are the need to exit said markets or sustain “significant additional expense”, which would crucially affect the profitability and viability of the food delivery behemoth. The Takeaway Change could lead to good things… A handful of investors suggest that going along with the need for change in the gig economy model could eventually lead to a better outcome for Deliveroo, giving it a clear advantage over major rivals like UberEats. Putting it to one side - and that’s not easy - this is the first major tech initial public offering the London Exchange Market has seen in years.