HEAD onto the Foodora Australia website today and it’s as bright and breezy as ever. The lurid pink hue jumps out and, at the top of the page, a message still pops up asking for people to join the “Foodora courier team”.
But no one’s going to be signing up to “courier” meals for Foodora anymore. The food delivery firm, whose riders scurry chicken tikkas, wagyu burgers and Hawaiian pizzas between restaurants and homes, announced yesterday it was shutting up shop in Australia forever by August 20.
The Australian offshoot of Germany’s Delivery Hero was surprisingly chirpy for a company that had failed to crack a major market.
“It has been a privilege to bring the food you love right to your door,” Foodora Australia head Jeroen Willems said.
“The decision to leave the Australian market and cease operations” was “in response to a shift in focus towards other markets where the company currently sees a higher potential for growth”.
More than 40 staff and up to 1000 riders are affected.
But Foodora’s fast food fail was no surprise to industry watchers. The food delivery model is already looking shaky and, in a vital area, Foodora was quite literally streets behind its cutthroat competitors — Uber Eats, Menulog and Deliveroo.
Andrew Ledovskikh, a senior industry analyst with market researchers IBISWorld, told news.com.au that the “future viability” of the entire sector was now under threat and Foodora “won’t be the last fail we’ll see”.
“It’s a surprise about how quickly this happened,” he said. “We thought it might take another year of losses for someone to bite the bullet, but there’s no surprise that one of these operators was going to collapse.”
FOODORA’S BIG PROBLEM
Getting fast food delivered to your door isn’t new. But the entry of new technology and international firms has revolutionised the business.
Restaurants and cafes upload their menus to apps, such as Foodora. Delivery drivers and riders, wearing the company’s colours, then bring your choice to your door.
For restaurants, there’s a hefty price to pay. The likes of Foodora skim off a commission of up to 35 per cent on each order. Despite this, Foodora had always been vulnerable.
The two giants of the Australian industry, Uber Eats and Menulog, have a 70 per cent share with Deliveroo and Foodora — the smallest of the four — battling out for the rest, estimates IBISWorld.
And there was a key reason Foodora was the runt of the litter — it offered far less choice to far fewer customers.
“Foodora had about 2500 restaurants whereas Menulog had about 10,000,” said Mr Ledovskikh.
“Menulog started off with suburban stores and has been able to spread out a lot more but Foodora has always been available in a limited number of cities and only the inner cities at that.”
Indeed, while Foodora offers abundant food choices to Sydney’s CBD, if you’re in Penrith, in the city’s west, there’s nothing. In contrast, Menulog has at least 56 options in Penrith.
“Foodora are decent, but the selection is limited,” said one customer online.
“INSANE AMOUNT OF MONEY”
The firm’s online experience was less advanced than its rivals — for a time you couldn’t track where your order was and there were grumbles from customers about service and late deliveries.
Delivery staff also criticised the firm for an “oppressive” culture that saw riders pitted against one another to get the best shifts, reported ABC.
But in the end, it was cold hard cash, or the lack of it, that did Foodora in. Investors have become jaded with the sector.
It wasn’t always so. In 2016, British firm Just Eat bought Menulog, which was founded in Australia, for $855 million or 371 times the company’s earnings.
Clive Thorpe, the then Australian head of Delivery Hero, said the price tag was “an insane amount of money” and overvalued Menulog, reported Fairfax.
It’s Delivery Hero’s Foodora that is now lurching for the exit door, but arguably Mr Thorpe was right. In March, Just Eat slashed Menulog’s value by 40 per cent, in the wake of relentless competition from Uber Eats.
“I can understand the positivity, it’s a very exciting business which spread so quickly. People thought this is the way fast food will operate from now on, but years down the track and people are still struggling to make a profit,” said Mr Ledovskikh.
And things aren’t getting easier, with regulators and politicians breathing down the necks of delivery firms. The insistence by firms like Foodora that they don’t employ the people that turn up on your doorstep with $25 worth of steamed dumplings, and so don’t have to pay minimum wages, super or holiday pay, is wearing thin.
Foodora is currently battling both the Fair Work Commission and the Fair Work Ombudsman over claims it underpaid staff.
The Transport Workers’ Union National Secretary Tony Sheldon said yesterday that delivery firms were denying riders fair rates.
“Foodora would rather pull out of Australia and leave thousands of riders without work than pay them the millions of dollars they owe.”
If the firms are forced, either by law or public opinion, to up their pay rates, the whole business model could collapse, said Mr Ledovskikh.
“These companies are going to see their wage costs potentially double or triple so suddenly you take a look at the sector and it’s a little bit worrying. You have to question their future viability.”
One option would be to increase their cut from restaurants from the current 35 per cent to pay for wage hikes, but Mr Ledovskikh doubted whether that was possible.
“The fast food industry runs on tight margins and (any increase) will have to be passed on to consumers. At what point will consumers say they are paying far too much and just start calling stores directly and switch to pick up?” he said.
And what of the prospects for Deliveroo, Uber Eats and Menulog, now a rival is off the scene?
Mr Ledovskikh said Uber Eats had deeper pockets and could “play the long game” as they had economies of scale, while the United Kingdom’s Just Eat was likely to persevere with Menulog given it had pumped almost a $1 billion into it. But all bets were off, he warned.
“If industrial relations laws change and they force operators to pay award wages, if we see a company lose a test case, then absolutely I don’t think Foodora’s fail will be the last we’ll see.
“Even without that, it’s not certain (long term) any of these companies will succeed.”
Get that Pad Thai and crackers delivered dirt cheap while you can.
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