If other European capitals follow suit, turning a profit is going to become even harder for food delivery platforms.
The UK-based, Amazon-backed food delivery services platform Deliveroo will shut down its operations in Spain on November 29, six months after the Spanish government announced changes to the legal status of food delivery riders. The company first announced its intention to leave Spain in the summer, shortly before the so-called “Riders’ Law” came into force. The law requires platforms such as Deliveroo to hire full-time delivery workers instead of using self-employed workers.
Riding to the Rescue
In Spain, as in most countries, platform companies have tended to offer their couriers zero contract hours, no sick pay or paid holidays. Since the lockdowns of last year those same workers have become an even more essential cog in the fast-evolving digital economy. With zero rights or benefits and having to pay their own social security, they make it possible for food delivery companies to operate at the tightest of margins. For those companies the lockdowns were manna from heaven, though many of them, including Deliveroo, still managed to report operating losses in 2020.
In recent years, more and more delivery riders have demanded recognition as salaried staff as well as the corresponding rights, such as paid vacation time and sick leave. As Open Democracy reported in a February 2020 article cross-posted by NC, the gathering pressure prompted some of the biggest platforms, including Uber and Deliveroo, to launch a “Charter of Good Work”. As Yves wrote in her preamble to the piece, the initiative amounted to little more than “an empty charter to pretend to deal with the job conditions of gig workers.”
Almost two years later, Spain’s centre-left government has taken action into its own hands, which could prompt other European countries to follow suit. Its Riders’ Law establishes that food delivery riders are employees rather than self-employed workers. It forms part of the government’s ongoing campaign against so-called “false self-employment”. Here’s Wikipedia’s definition of the term:
“False self-employment is a situation in which somebody registered as self-employed, a freelancer, or a temp is de facto an employee carrying out a professional activity under the authority and subordination of another company… [It is] often a way to circumvent social welfare and employment legislation, for example by avoiding employer’s social security and income tax contributions. While a modern ‘gig economy’ encourages more casual employment practices in the interests of labour flexibility, the extent to which this disguises precarious employment and denial of rights is of growing concern to authorities.”
In Spain, it was the Supreme Court that was first to act against abuses in the gig economy, ruling in September last year in favour of a former worker for Spain’s largest food delivery company, Glovo. The court argued that “the relationship between a rider and the Glovo business is of a professional nature.” As El País notes, “it was the first time that Spain’s top court had recognised food-delivery workers as employees, rather than being self-employed.”
Bypassing the Law
When the government followed suit by passing the Riders’ Law after six months of consultation with unions, industry groups and deliver rider associations, companies in the sector were given three months to formalise their delivery riders’ employment status. But many have refused to play along.
Deliveroo, which listed in London earlier this year, said it was pulling out of the market due to the high levels of investment needed and uncertainty over future returns. In the process the company has left 100 full-time employees and around 3,700 self-employed delivery workers in the lurch. Reports suggest the workers will receive 45 days of salary per year worked and a minimum compensation of €1,000.
For Glovo, Spain is its domestic and most important market. As such, it is not going anywhere. Instead, the company has simply chosen to ignore the law whenever it suits it. The Barcelona-based company, whose largest shareholder is German food-delivery giant Delivery Hero, has hired 2,000 new workers for its own online supermarkets or business customers with which it has struck deals. But its other food couriers, who number between 8,000 and 10,000, still remain self-employed, six months after the law was passed. The company, which raised €450 million of fresh capital in April, has also expanded to smaller towns in Spain’s rural provinces and is now operating in 400 municipalities, according to El Confidencial.
But it still won’t abide by the Riders’ Law. And the government is making it pay. Last week, the Labour and Social Security Inspectorate fined the company €8.5 million for nor regularising the contracts of its delivery riders in the city of Seville.
As one would expect, Californian giant Uber Eats has opted for a workaround solution which essentially involves sub-contracting the workers using its platform through intermediary logistics firms. Uber Eats insists it is complying with the “Riders’ law” but unions disagree, accusing it of “illegally dismissing workers” and insisting that “platforms should have their own staff”. The company’s attempts to disassociate itself from the workers that fulfil its orders by outsourcing them to other firms is also likely to fall foul of the law, but in the meantime it’s able to continue business as usual.
The only large digital platform that actually appears to be adhering to the spirit of the law is Deliveroo’s UK rival Just Eat, which has publicly expressed support for the reform and has commenced talks with unions on brokering what its Spanish head Patrik Bergareche said would be the sector’s “first collective bargaining agreement”.
Deliveroo’s Reasons for Packing Bags
As for Deliveroo, it has denied any possible link between the Riders’ Law and its decision to leave Spain, which it put down to operational issues: “At Deliveroo, our goal is to offer the best food delivery service in the world, and that means creating a service that works for all our restaurants, riders and customers. Wherever we are unable to fulfil that responsibility at levels we want and you deserve, we will not develop our activity”.
However, the redundancy notices sent to workers were more explicit in laying out the company’s motives. The Spanish daily La Razon reports that Deliveroo listed four ways in which the new law will impact the sector. First, it says, it will increase wage costs, “thus reducing the business’ profitability” (given Deliveroo has never been profitable, this should perhaps read: “thus increasing the business’ loss-making capacity”); second, it will reduce the total volume of workers in the sector given that “some couriers do not want to change their contractual relationship”; third, “many restaurants will lose business volume as delivery platforms will be forced to close in areas where the cost of hiring delivery drivers cannot be met;” and finally, “consumers will be offered a less efficient, more restricted service.”
If Deliveroo stayed in Spain, not only would it continue to generate losses but the losses would grow significantly. It is estimated that Deliveroo’s Spanish operations will close 2021 with €8.8 million in losses. If it were to stay and incorporate its delivery workers into its workforce, those losses would increase to €20 million euros in 2022.
Deliveroo’s biggest problem has always been its wafer-thin margins and the fierce competition it faces from large rivals. In the UK, there are three big players in the market, Deliveroo, Just Eat and Uber Eats. In the US there are half a dozen, in Europe over 20. In Spain Deliveroo had a market share of just 10% in 2020, due largely to the overweening domination of Glovo, which controls almost half of the market. Just Eat represents around 28% and Uber Eats, 19%, according to a study by personal finance app Fintonic.
“It’s the same old story with many of the platform companies,” tweeted the Spanish economist Gonzalo Bernados. “They arrive in a country, crush the prices, lose money and if they don’t achieve a large enough market share to grant them monopoly power, they leave. Their main objective is to eliminate competition.”
Near-Death by Lockdown
Deliveroo hasn’t posted a single annual profit in its nine-year existence. It even managed to lose money during the lockdowns of last year. In fact, the UK’s first lockdown almost killed it, as Wired reports:
When the first lockdown began, Deliveroo was the worst prepared of the three major takeaway delivery players in the UK. Its biggest draws – KFC, Burger King and Wagamama – were forced to shut down. The bottom fell out of the demand for big chain takeaways, and Deliveroo didn’t have Uber’s resources, nor Just Eat’s roster of local restaurants, to plug the gap. But salvation was within reach in the form of a £575 million investment led by e-commerce giant Amazon.
The UK’s Competition and Markets Authority (CMA) had blocked the move for almost a year. But on March 17, Deliveroo told CMA that it was failing and the regulator let the deal go ahead. Thanks to that deal Amazon has learnt valuable lessons about Europe’s food delivery market at negligible cost, after failing at the restaurant delivery business in the U.S.
Deliveroo was able to increase its revenues by 72% to £476 million last year. But at the same time its losses also grew by 16.6%, from £199 million to £232 million, as it splashed cash throughout its network and launched in 250 cities. Like Uber it is remarkably gifted at burning through money while failing to generate profits. But it now has the world’s biggest e-commerce monster, Amazon, behind it, learning from it, quite possibly waiting for the moment to pounce on it.
In March this year, Deliveroo was publicly listed in what the Financial Times called “the worst IPO in London’s history.” The shares tanked a whopping 31% after pricing at the bottom of their range. Now, Deliveroo faces the prospect of other European capitals taking a leaf out of Madrid’s book and cracking down on digital platforms’ exploitation of their false self-employed riders. If that happens, turning a profit is going to become even harder for the likes of Deliverooo.