Over the last few years, a tech trend we have all seen is the use of on-demand food delivery apps such as Deliveroo, UberEats and Just Eat. These apps really are a game changer – we have access to hundreds of menus at our fingertips that can be delivered straight to our door in minutes.
Why Has There Been Such A Rapid Growth?
Simply put, we have all realised how easy, straightforward, and convenient these apps are!
Over a year into the Covid-19 pandemic, the face of the restaurant business has changed. This has contributed to the success of food delivery apps (noting that use of UberEats has more than doubled since the pandemic!). As lockdown restrictions saw the closure of restaurants, we all still craved a tasty non-home cooked meal which shifted the focus to takeaway apps.
That being said, this begs the question: will use of on-demand food delivery apps die out once we recover from the pandemic? Probably not.
They have an added bonus of saving us all the time and effort of getting ready and going out for dinner, and have redefined how we consume food – especially the high-end restaurants (where I am based in Manchester) such as Don Giovanni, Rosso and Dishoom all used these delivery platforms successfully at different points during the pandemic.
The Customer Comes First:
One of the main objectives of on-demand food delivery apps is to provide multi-functional comfort for customers.
But how? It could be seen that their strategy is to always put the wishes of the customer first. From the high-pressure kitchens which prepare the food, to the drivers who compete with each other to deliver the food the quickest, the customer will receive their tasty food on time. The founder of Deliveroo himself, William Shu, even said this was his ‘personal mission’ when starting the company in 2013.
This sounds simple, right? Well for the consumer it is. On the flipside, however, for the restaurants and delivery drivers the situation is far from straightforward.
So, What Are The Issues?
Firstly, let’s take a look at the restaurants themselves. Roughly, Deliveroo, Uber Eats and Just Eat charge around 30% on each order placed. So, if you order a takeaway for £20, the delivery company will make at least £6 from the transaction.
As we can see, this is particularly expensive for small businesses. Despite the fact many small businesses believe that the fees are simply not worth it, the logistics of setting up their own web ordering system is often not feasible. This was the case during the pandemic when many businesses were simply fighting for survival. Also, restaurants face issues with how the delivery platforms control and manage customer data, as well as make it almost impossible for them to speak directly to their customer about their order. These reasons, amongst other ethical considerations, have raised legitimate concerns about the continued use of such apps.
Secondly, let’s look at the delivery drivers or riders. A very recent media trend appears to be the employment rights of the riders in this industry. For example, in 2019 Deliveroo said its riders were paid more than £10 an hour on average, however, an investigation by the Bureau of Investigative Journalism found that over half the couriers were paid considerably less than that. In one notable case, a cyclist in Yorkshire was logged in for 180 hours and that was the equivalent of being paid £2 per hour. This reflects how little pay the riders may receive, even during a pandemic where demand has increased. Although riders can choose how much work they effectively pick up, they are not entitled to minimum wage, sick leave, annual leave, insurance and other entitlements because they are ‘self-employed’. These issues are explained in-depth in our previous article, where we discussed the case of Uber BV and others v Aslam and others  UKSC 5 in which the Supreme Court ruled that Uber drivers are workers and not self-employed. However, there was not the same victory for Deliveroo riders or other competing on-demand food delivery riders.
The most recent legal case concerning Deliveroo and apps of this sort is IWGB v CAC & Deliveroo . Here, the High Court held the Deliveroo riders were independent contractors rather than workers, and thus not entitled to the same benefits as workers.
Have A Food For Thought:
Why were the Uber drivers successful but the Deliveroo riders were not? Although both apps operate in the gig economy, thus raising some of the same questions in terms of employment rights, there are some key differences. Most notably, Uber is largely a taxi company, whereas Deliveroo is an online food delivery service. Also looking at the terms of the contract of both drivers and riders could suggest different things. With Uber, once a driver accepts a booking, they are obliged to carry out this service and cannot pass on this responsibility. Contrastingly, a Deliveroo rider could, in effect, accept a delivery order but then ask a different rider to complete it. Lastly, the modes of transport used by each company varies, for example Uber is solely using cars, whereas Deliveroo uses cars and bicycles (hence the reference to ‘riders’). Ultimately, determining the ‘worker’ status is a very fact sensitive issue. That said, we do hope to see some positive legal development for food delivery drivers.
However, for now, this is still a hotly contested area, demonstrated by the fact hundreds of riders have taken part a series of strikes over the past few weeks calling for higher pay and better working conditions. The timing of such strikes coincided with Deliveroo’s recent IPO on the London Stock Exchange.
What Is An IPO And How Does It Work?
An initial public offering (IPO) refers to the process where a private company ‘goes public’ and offers its shares to investors via the Stock Exchange. Essentially this is a big money-making opportunity (but one that also bears several risks).
The process of an IPO in the UK can be summed up in five steps:
Step 1: The IPO Team– This includes legal advisers in the company, the investment bank (who acts an underwriter to help the company decide on how much money it hopes to raise and the price per share), accountants and brokers.
Step 2: IPO preparation– This must be done to ensure the company is suitable to list on the Stock Exchange. Ultimately the FCA must be satisfied the company complies with the basic conditions for admission. The most time-consuming part of this step is the preparation of the Prospectus (this is a legal document provided to everyone who is offered and/or buys the stock).
Step 3: Due Diligence – This step will identify any legal issues concerning the company including the company’s financial procedures, its organisational documents and any historical financial information. A due diligence investigation will also be carried out by the Bank and/or legal advisers.
Step 4: Roadshow– Once approved by the FCA, the company CEO and other directors will embark on a company ‘roadshow’ for a few weeks to attract potential investors and raise an interest in the shares.
Step 5: The IPO Day – After the company signals its intention to launch on the stock market, the IPO will go live and the underwriter will release the initial shares to the market on the date decided.
Pros And Cons Of IPOs:
o Raise Capital – Companies can raise a huge amount of capital which may be used to expand the business when other means of raising capital, such as bank loans, are often expensive.
o Exposure – Being listed on a Stock Exchange can provide companies with a lot of publicity and improve their corporate image.
o Benefits Traders – Easier for traders to buy publicly traded shares than those that are traded privately.
o Benefits Banks – Companies are seen as more transparent for lending purposes if they are public.
o Initial Costs – Companies must publicly disclose all aspects of their finances which may be costly and time-consuming. This was a big issue with the Saudi Aramco IPO in 2019/2020 and actually caused the valuation of the company to drop.
o Supervision – Company may be under close supervision of a financial exchange commission such as the FCA.
o Autonomy – May result in the loss of control of existing owners which could increase the risk of takeover.
o Pressure – The stock market is subject to market volatility which can negatively impact stock pricing.
So, What Happened To Deliveroo’s IPO?
Deliveroo recently announced plans to list on the London Stock Exchange. As it was listed at a valuation of £7.6 billion, it was anticipated to be one of the greatest British listings in a long time. That said, Deliveroo has been described as the ‘worst IPO in London’s history’. Deliveroo offered to sell shares at 390p each but within hours of joining the market, its share price had fallen by 30%. This was supposed to be a great victory day for Deliveroo but the sharp fall in shares on its first day of trading is now a viewed as a massive discouragement to other UK competitors.
Some could say this is surprising, given that Just Eat had a successful IPO in 2014, raising £360 million and giving the company a market share of £1.47 billion. So, what went wrong for Deliveroo?
Undoubtedly, technology has entirely transformed the take-out food industry. On-demand food delivery apps have placed our convenience first which has some hidden costs. Most obviously, the employment rights of the riders have been a key concern and there could be some positive legal development in this area given the recent Supreme Court’s recent decision in Uber v Aslam.
These concerns contributed to Deliveroo’s IPO failure at the end of March 2021. This, terrible timing, the shaky internal structure of Deliveroo, hesitant big investors and the volatile nature of the stock market were all attributable to why Deliveroo lost more than a quarter of its value on its first day of trading. Perhaps Deliveroo could be viewed as a cautionary tale for investors who are initially attracted to fast-growing companies, since the truth behind our takeaways has now come to light…
This article was written by Elisha Juttla. Elisha is a recent LLM graduate from the University of Manchester and is currently working as an Assistant Editor for Thomson Reuters (Westlaw UK). Elisha has a keen interest in trade mark law, human rights and sociology of the law. Elisha intends to pursue a career in legal journalism and hopes to embark on further legal study in the future.