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Comment by lindig | Hacker News Reader

* Deliveroo lost money last year that probably provided the best possible business environment with many people willing to work for them and ordering from home during a pandemic.

* Deliveroo has basically no assets

* What is the barrier to entry for other companies? Neither riders, restaurants, or customers have any reason to stay with them.

* Deliveroo heavily depends on "self employed" couriers which quite likely courts will find are workers (edited, was: "employees") which the company needs to compensate accordingly

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And somehow this is a "tech company".

The real winners in this scam are the founders, VCs and Amazon (Who will eventually acquire them) and some of the employees (Not riders). As expected the general public who got in late always lose even when the big investors warned them they would sell very early. Some did and some backed out altogether.

I don't know how one could fall for this ad in the UK [0] and actually become a very late 'retail investor' in Deliveroo's IPO day in which not only the share allocation isn't guaranteed, you are now locked in to waiting until the general public can trade it.

If a retail investor who bought into this pump and dump sells on the day of trading, it is at a loss. Ignore the initial hype entirely, wait for it to die down and probably buy it low.

[0] https://imgur.com/a/ylLwtE8

IPOs typically outperform in the short term. While I agree retail investors shouldn’t go anywhere near an IPO based on an ad in a food delivery app, in other ways it is rational.

EDIT: also, WeWork was somehow a tech company. Until it wasn't...

The barrier to entry isn't the tech (which is why I don't think that this is really a tech firm). The barrier to entry is the relationships with the restaurants and the riders (and advertising to get people to use it)

Which means there is no barrier to entry. The riders will go to any platform which takes a lower share of commission, since they are limited by the number of workable hours. And because restaurants host themselves on all platforms, there isn't any loyalty there. And customers go to platforms only looking for deals that cheapen the prices, since otherwise they have to pay 20ish% extra.

Also, network effects don't really compound outside of individual cities. Deliveroo being the best delivery service in Leeds doesn't make it more competitive in Manchester. A competitor can easily pop up, dominate a single city, and expand from there.

There is a small network effect with (business) travelers: wherever I go I can use the same app to get dinner to my hotel room or conference center.

But that is of course a minority of customers, especially amid a pandemic. (But then again, with restaurants closed, for the ones who travel ...)

But then you're competing with hotels nearly all of which provide complimentary food, especially since things started getting competitive for them.

Correction: I mean business hotels and upscale hotels

I don't have an insight what kind of selections they provide these days.

I assume they either cut kitchen staff and only have a very basic (boring) offering to cut costs or add some fantasy label to make use of their kitchen and offer delivery themselves as new revenue stream. Then the deliveroo rider could ride on the elevator instead of their bike ;)

That’s not enteirly true. In London all my favourite places are only on Deliveroo, and not on Uber Eats (at least in my area). Maybe the have some kind of exclusive contracts?

I find that the Deliveroo prices are heavily inflated for some of my favorite places. And that the info number listed in a restaurant's info page allows one to call the restaurant directly and order the same food for significantly less.

It used to be this way in Paris as well until it wasn't, now almost all these restaurants are on Uber as well. It seems Eats can just pulverize these deals anytime they decide so.

Well somebody else's favorite places are on Uber Eats and not on Deliveroo then ;)

The riders are not exclusive. the restaurants arent either. Like uber, this is a bad position to be in. Maybe it works in some countries where taxis or delivery drivers don't exist, but in plenty of places there are already networks

Going by what they use I'd say the one thing Deliveroo has going for it is the big square bag things. All my Uber Eats and Just Eat deliveries come in a Deliveroo backpack

In the UK at least this equipment is not supplied, it has to be bought before you start working. That's why there's so many about, everyone who worked for them at some point has one lying around.

You have to provide evidence of owning a long list of equipment as part of the application process.

Telling someone how they must complete a task (i.e. use specific equipment) is one of the things that turns contractors into employees under AU law.

I think you're not mandated to use their box (you need one, but can use the one on your bike), but if you don't have one of course they'll sell you their branded one)

Wow, that’s a real kicker.

> What is the barrier to entry for other companies?

It probably says something that Amazon failed at entering back in 2018 [0]. Then, they u-turned and invested in Deliveroo [1].

[0]: https://www.theverge.com/2018/11/26/18112620/amazon-restaura...

[1]: https://www.bbc.co.uk/news/business-48306172

I have some ideas on what it might be their "secret sauce" (though I haven't really read their IPO docs)

- Matching delivery people to restaurants to deliveries (and giving them a route that serves 2, 3 people)

- Their app experience is really polished (both on the buyer and delivery people side). Delivery times are usually predicted accurately and it shows when your delivery person is near you.

- Network effects (obviously)

Of course nothing of that is too hard to replicate, but it takes time

> Deliveroo heavily depends on "self employed" couriers which quite likely courts will find are employees which the company needs to compensate accordingly

This issue has been raised in France but it turns out most couriers are "micro-entrepreneurs" and appear to be quite content with both the social benefits and the flexibility (as reported by Deliveroo and as independently assessed by the Sénat in 2020).

Anecdata, I had a couple of chats with some couriers and it seems to correlate with the Sénat finding. TBH I expected it to be otherwise.

https://fr.wikipedia.org/wiki/Deliveroo#Rémunération_et_stat...

You may not be aware, but recently Uber drivers have been recognised as actual employees in UK by the court.

Just for accuracy, they were actually recognised as "workers"[0], which is a different formal employment status to "employees"[1] and doesn't confer the full set of employment rights in law. Worker status does come with the rights to minimum wages, breaks and holiday pay, though, so it's still a reasonable concern that if/when Deliveroo riders are granted the same status it will increase the company's operating costs considerably.

[0] https://www.gov.uk/employment-status/worker

[1] https://www.gov.uk/employment-status/employee

So far all the courts in the Netherlands have done the same for deliveroo employees (no longer gig workers). They keep appealing and losing so we have to wait another year or so for the final verdict.

Uber drivers need to be allowed to set their own prices, but stay contractors, imo. The UK is different to the US in that you don't need health insurance, so the employee distinction is less expensive of a change.

> Uber drivers need to be allowed to set their own prices

Yikes this seems terrible for the drivers. There would be a race to the bottom surely with the most desperate drivers who perhaps just need to make a mortgage payment today undercutting everyone else.

The same laws of supply and demand also explain the price of employee labour, no? The big question is whether one price beats flexible pricing. It's not obvious that having a single price for all Uber drivers would benefit everybody, presumably it would have deadweight costs by pricing some drivers out of the market.

The difference is most people aren't providing their labour with a pricing model this dynamic.

If I look for Ubers and one is offering rides for 50p I'd take it, because the result should be the same as anyone else offering something more expensive and I have no relationship with my Uber driver.

If a gardener stats to offer gardening services for 50p an hour I wouldn't go with that, because I have a relationship with my existing gardener and I'm suspicious how quality someone can be for 50p an hour.

See the practical difference?

I see your point. It sounds as if you agree that in Uber's case, flexible pricing is appropriate. Or do you think that Uber should price its cabs flexibly but pay a flat rate to its drivers?

The implementation I have seen is that there is a minimum price, but drivers can set higher prices, if they like. (Which in reality means that they can't set the price at all)

Usually yes, but there are a lot of moments when the prices can be hugely increased after pandemic - and are now increased by surge pricing.

A valid point, but shouldn't this competition on price (i.e. race to bottom) also apply at the level of Uber and its competitors?

A large company like Uber is going to be relatively stable in terms of cash-flow, access to credit, etc day-to-day. If they do sell under cost it's usually part of a longer-term plan.

An individual driver may have a loan-shark threatening to break their fingers for a repayment that day.

I think individuals are going to be much more volatile and so create a worse race to the bottom.

Maybe let drivers set a price above a floor? Could be like their own surge pricing.

not employees. workers. big difference.

> TBH I expected it to be otherwise.

That's because this is always presented in a certain (negative) way in the media so that people have come to believe that all Deliveroo riders or Uber drivers are unhappy.

Of course the reality is a bit different, not least in a country like France that has high structural unemployment (and a very closed taxi industry). The 'gig economy' has no doubt allowed people to get work, and in a rather empowering way.

> courts will find are employees which the company needs to compensate accordingly

Already happened in NL, Deliveroo is appealing.

At which point it will face back taxes for all the years they misclassified drivers, as does Uber UK:

https://news.bloombergtax.com/daily-tax-report-international...

Would reply with something like privatize profits, socialize losses if only there were profits ...

Socialise losses by leaving retail investors holding the bag

Isn't all of this equally true for the variety of other Uber-for-X companies? (and hell, Uber itself)

What makes Deliveroo any worse of a business than Grubhub, Door Dash or Just Eat or Uber Eats or...

When I order with Just Eat the food is generally delivered by a driver employed/paid directly by the restaurant. When I order with Deliveroo the food is generally delivered by a driver employed/paid by Deliveroo.

(There do seem to be exceptions to the above for some restaurants)

Some of the current debate touches on the commission that gets charged which I guess is similar for the two, however much seems to be about treatment of the delivery drivers which would be more of a difference if Just East don't (usually/always?) employ/pay them directly.

I prefer to use 2 delivery apps, I am not going to keep on installing new apps all the time. Habits are hard to change.

The restaurants and drivers though ... they ll keep installing all of them. And demand for food will always be high, it's not like deliveroo invented hunger

> Habits are hard to change.

How hard is it to change to a new app? Three minutes maybe? That’s not hard is it, come on.

>How hard is it to change to a new app? Three minutes maybe? That’s not hard is it, come on.

If that's all it took, then no, it's not hard.

However, they all require you to login, provide email/phone details, prove who you are etc.

Also, that their Ts and Cs say that they'll share data with their partners, which you can go lookup on a massive list somewhere...

That's umpteen more companies that I know nothing about with a copy of my details.

It all adds up.

> That’s not hard is it, come on.

https://en.wikipedia.org/wiki/Mind_share

It's a very appealing service to the public, and it is quite popular, indeed.

But as a business it's tough because consumers are not willing to pay much for delivery, which is a very low productivity activity (a delivery 'rider' cannot do many deliveries per hour in most cases).

As is any business that sells 1 dollar bills for 80 cents. Not a good business to own, though. "Making it up by volume" seems doubtful.

If you're ordering for 2, you're often paying ~10% on delivery with them. On top of that they're taking large commission from the restaurant on all sales.

1. DoorDash, GrubHub, Uber, are all massive money losing business, and all lost money last year. In fact, all of the share econ companies are massive money losers, this includes Lyft, AirBnB, and a whole bunch of others I've missed in Europe and Asia. Investors invest in them expecting growth, not dividends at IPOs.

2. You might have a very different definition of asset than everyone else's. Please explain.

3. The barrier to entry? Absolutely massive initial capital requirement.

4. Yes, just like every other sharing econ companies, unless you are operating exclusively out of California.

Without questioning it, I never understood how “sharing economy” companies lose money. Are they subsidising their “partners”? My base assumption was always that eg Uber passes costs and revenue to the riders. Or is it their bloated central operations, needed to justify the VC valuations?

I don't know if this is still true, but a few years ago Uber was losing money on every trip [1]. They also, five years ago, had 6000 employees, of which 2000 were engineers [2]. Apologies for the outdated links, there's probably more precise data out there.

[1] https://nymag.com/intelligencer/2019/04/ubers-plan-to-lose-m... [2] http://highscalability.com/blog/2016/10/12/lessons-learned-f....

I read the top article, it’s good. The pertinent bit to my question seems to be, they do subsidise drivers. Apart from fixed costs, they have “driver incentives” to shape supply and demand. Ie give out cash to subsidise trips when needed.

I just had a job interview with Deliveroo. There is over 100 programmers in central office, they pay better than some banks. I dont think problem they solve is that difficult.

Most of it is marketing, fighting legal issues and attrition of goods delivered / compensation. And also the insane discounts they have to provide to stay ahead of the competition. Airbnb is somewhat immune, since their only major competitors are old school hotels.

Right, so “discount” implies they subsidise drivers for the journeys? Eg Uber charges $1 per mile but driver receives $1.1 or sth?

The org bloat is quite staggering for what is effectively a taxi app.

No no. I meant that the effective cost of a ride (paying contractor + tech costs + employee costs + marketing per ride) is $1 a mile, but they give a discount that makes it effectively $0.9 a mile, and doing this on scale is effectively making them run operations at a loss unless they have market monopoly. Even a duopoly situation is unfavorable for them.

As they got cheap money from investors they typically go big in expanding. This means paying lots of marketing, competing with low prices, having localized phone hotlines, be generous to customers (not suppliers!) when handling disputes, ...

Investors care about profits, not growth. Growth can lead to profits, but it can also lead to bigger losses, particularly in a company without large fixed costs. Also, there are reasons to think that the market for food delivery has already peaked. Where I live it's full of "riders" everywhere, it's quite annoying. I don't know if there's any room for more growth.

Deliveroo is not a food delivery company, it's a food company. Both DoorDash in the US and Deliveroo in the UK are now operating ghost kitchens that are restaurants owned exclusively by the "delivery companies". These are brands and restaurants that only deliver, and the quality of the offering are extremely high. In addition, the profit margins are even higher as these ghost kitchens share the same resources and operate out of areas with super low rent and centrally located among a wide delivery area. These companies are now moving up the food chain to become restaurant groups themselves, and soon, grocery, ingredient and meal prep delivery.

We may have reached peak food delivery, but we are nowhere close to peak food and peak delivery.

Disclaimer: I'm a Deliveroo shareholder.

All this was true and well known prior to the IPO, so I'm not sure why should it affect the price now and not earlier?

It is my understanding that the stock price of IPOs is often inflated through different mechanisms - maybe another commenter who knows more than I do can explain what these are.

At any rate, if they really released at pricing levels determined by transparent and efficient markets we wouldn't see these pops, would we?

You could actually say IPO pops (and drops) are a temporarily more extreme price discovery process when a company transitions from relatively inefficiently traded private entity to a more efficiently traded public one.

*Deliveroo is a horrible name

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