Foodora the first casualty in a loss-making industry

Written on the 3 August 2018 by Nick Nichols

Foodora the first casualty in a loss-making industry

After forecasting a shake-up in the food delivery industry just two weeks ago, the departure from Australia of Foodora at the end of this month has even taken business analyst IBISWorld by surprise.

"We had forecast this would happen, but we didn't expect it be so quickly," says IBISWorld senior industry analyst Andrew Ledovskikh.

"Looking at the financials of each company it's a tough market. Even with the relatively impressive penetration these companies have, they've really struggled to make a profit."

Foodora announced this week that it would be abandoning the Australian market by August 20.

It comes on the heels of a landmark legal battle in Victoria over the rights of delivery workers. The findings could disrupt the food delivery model in Australia, which is led by Uber Eats, Menulog and Deliveroo.

Foodora, which is owned by Germany-based group Delivery Hero, operates in 22 countries under the Foodora and Foodpanda brand, largely in Asia and Europe.

It is clearly labelling the Australian market as challenging, saying that it will be pulling out to focus on other more promising markets.

The Transport Workers Union has launched an unfair dismissal action on behalf of former Foodora delivery rider Josh Klooger, arguing that rather he should be classed as an employee rather than a contractor and he should be entitled to standard workers' rights.

According to Ledovskikh, this case adds significant risk to the food delivery industry, the future of which may hinge on the findings in this case.

"Does it force these companies to pay award wages, annual leave, superannuation to delivery drivers?" he says.

"If that were to happen and considering that these companies still haven't been able to make a profit, you wonder what the future of the industry is. How do they survive?

"Will they have to raise commissions? If they are unable to do that then it's unlikely they'll be able to find profitability over the next few years."

Ledovskikh points out that Menulog has 10,000 food outlets signed up to its service but has yet to turn a profit in Australia after five years of operation.

"Menulog at the current projections still thinks it's going to make a profit," he says.

"But it's a difficult argument to make in the face of the regulatory risk around contractors and the fact that it had to make a massive writedown this year of about $320 million on the value of its assets. That's considering the company only achieved $90 million in revenue last year."

Ledovskikh says the food delivery model appears to have failed in Australia.

"Overseas these businesses have been performing well but in Australia they have been struggling to make a profit.

"It may have to do with how our population is distributes, it could be pricing or it could be related to wages."

In a report released last month, IBISWorld argued that the golden age of food delivery disruption has ended as more food operators sign up to the various services.

It says the competitive advantage of opting into food delivery services has disappeared and is now seen as a millstone around the neck of individual operators.

It sees risks starting to emerge for food outlets and customers as well as delivery service operators, although it had forecast these issues would likely come to a head over the next five years.

 
Author: Nick Nichols

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