The move from Deliveroo to launch a collection service follows the current gig-economy trend of finding cheaper alternatives to a large and costly workforce

Deliveroo, deliveroo technology

Deliveroo is the fastest-growing tech company in the UK, according to Deloitte

Although the decision from Deliveroo to move into the food collection market might strike people as odd, it highlights a problem that many gig economy companies are facing — the fact that people cost too much money. Sam Forsdick reports.

 

Earlier in the month Deliveroo — a company that has built its reputation on delivering food to customers’ doors — announced it would be introducing a collection service across 700 restaurants in the UK.

The service, dubbed Collecteroo, is an attempt to provide customers with more choice and give those, who are willing to walk, a cheaper option.

While many consumers will welcome a cheaper way to get their takeaway, the decision has heaped pressure on the uneasy relationship between the company and its delivery staff.

On the announcement, one rider said: “This new pick-up option is going to severely detriment the pushbike riders, as the option is only available to customers who live within 10 to 20 minutes of the restaurant, these deliveries are normally serviced by the cyclists.

“That is removing potential work for the rider and is another attack on pushbike riders following the introduction of vehicle priority, which means mopeds and cars are more likely to get shifts.”

 

Is the search for scalability coming at the expense of gig economy workers?

Deliveroo’s current model has failed to realise a profit, and it hopes that a shift to a less labour-intensive method of delivering food could be the answer.

FT Alphaville pointed to comments from Matt Maloney, CEO of US takeout platform Grubhub, to underline the point.

In a letter to shareholders, he said: “A common fallacy in this business is that an avalanche of volume, food or otherwise, will drive logistics costs down materially.

“Bottom line is that you need to pay someone enough money to drive to the restaurant, pick up food and drive it to a diner. That takes time and drivers need to be appropriately paid for their time or they will find another opportunity.”

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Deliveroo founder Will Shu helped deliver orders to customers during the first years of the company (Credit: Deliveroo)

Deliveroo has successfully scaled its business to work with 80,000 restaurants and works with 60,000 self-employed riders to meet its growing delivery demands.

However, trade union IWGB has criticised the company’s “over-aggressive” expansion, which its couriers and logistics branch secretary Greg Howard claims has come “on the backs of underpaid and overworked riders, whose conditions have only gotten worse year-on-year”.

He added: “Now, with this new pick-up policy, we know that all of the company’s delivery workers, but especially those on pushbikes — the public face of Deliveroo — will be squeezed even more than they already are.”

 

Other gig economy companies facing similar problems

However, Deliveroo is not alone in facing this conundrum — ride-hailing firms are also being asked the same questions.

Uber now finds itself with a global driver workforce of three million, while attempting to turn around its history of losses, which topped $5bn over the second quarter of 2019.

Similarly, its main US competitor Lyft provides a million rides each day across about 300 US cities but is also yet to turn a profit.

Moves in San Francisco to change the legal standing of gig economy workers to make sure they are entitled to a range of statutory benefits, including sick pay, holiday allowance or a minimum wage, have added to its frustrations.

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Lyft completed an IPO in early 2019 (Credit: Lyft)

In a statement on the Assembly Bill 5, which would bring in these changes, Lyft said: “The overwhelming majority of rideshare drivers who want a thoughtful solution that balances flexibility with an earnings standard and benefits.”

Nikhil Datta, trade and labour researcher at the London School of Economics has conducted research of 2,000 workers across the US and UK economy and found that most workers valued job security over flexibility.

He adds: “People want to know the money that they’ll have at the end of every month to feed and clothe their families, without job security day-to-day budgeting is difficult.

“Since the recession in 2008, real wages haven’t recovered, so it’s unsurprising that for many of these households, job security is still in high demand.”

 

Could automation be the answer?

Automation has also been tabled as a possible answer to reducing the human labour costs standing in the way of these companies’ profits.

Discussing Lyft’s IPO earlier this year, Dave Leggett, automotive editor at GlobalData, said: “Lyft is still losing a lot of money. They will need to consider whether the pathway to profitability and the timeline is clear.

“Another big question surrounds removing the driver and transforming the ride-hail business model with autonomous vehicles.

“Potentially, cost-per-mile for passenger transportation is slashed with driver remuneration taken out, but the technology is still some way off being market-ready.”

The move to replace workers with new technology has been seen as a possible route out of the repeated losses for these businesses.

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Uber autonomous car being tested in San Francisco (Wikipedia Commons/Dllu)

Datta, says: “A number of companies are moving towards technology to replace workers, whether it’s Amazon using drones for deliveries or Uber’s driverless cars.

“Driverless cars don’t need to be paid or fed and don’t need a holiday or sick leave. Uber’s business model has been moving towards an autonomous future.”

GrubHub CEO Maloney agrees: “At some point, delivery drones and robots may reduce the cost of fulfilment, but it will be a long time before the capital costs and ongoing operating expenses are less than the cost of paying someone for 30-45 minutes of their time.”

While Uber, Lyft, Deliveroo and many other start-ups were quick to reach scale, the path to profitability may prove harder to reach, and is likely to come at the cost of workers.

However, on a more optimistic note Datta adds: “One thing that’s important to note is that when technological change does occur, the economy tends to adjust to create new jobs for the displaced workforce.” Meaning that the Deliveroo riders of today may find that they aren’t out of work for long.