The economics of food delivery platforms

Is app-based food delivery profitable? The Gig Economy Project recently received access to a paper published last year which gives us some insight into this question. 



"Economic profitability of last-mile food delivery services: Lessons from Barcelona" is authored by five academics at the Open University of Catalonia. The paper uses real-life data from Just Eat, Deliveroo and Glovo in Barcelona to assess the unit economics of these companies.



What it finds is that a minimum of 8,000 deliveries are needed to "overcome operating expenses". Almost 19,000 are needed to "keep the company scaling up and expanding to other markets". 



"Although these numbers seem reasonable, it is obvious that this type of service cannot operate in any city," the paper finds. "A minimum city size is required to ensure such a large amount of operations."



Key to the ability to grow organically (i.e. without the injection of finance capital) is for the platforms to take a high-percentage of the restaurant fee. For example, a drop in the restaurant fee from 30% to 20% per delivery would mean a doubling of orders would be necessary for profitability. 



What about labour costs? The paper assumes a gig economy model where riders are paid per-delivery and not for waiting times, but if riders were to be employees the researchers estimate that profitability is reduced "by up to 30%".



"This explains why these companies are reluctant to make changes to their riders’ working conditions," the report finds.

Thus, the economics of food delivery is highly variable depending on factors that are central to the public debate about the social value of food delivery platforms.



"Their ability to become profitable strongly depends on the volume of orders they can capture, the conditions imposed on restaurants, the precariousness of riders, and the conditions of the environment in which they operate: our cities," the report concludes.



In other words, the economics of food delivery is to a large extent about politics. The question for politicians is: do you want to sacrifice the viability of restaurants and the rights of workers on the altar of platform profitability, and if not, are you willing to help build a not-for-profit alternative?



Ben Wray, Gig Economy Project co-ordinator

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Gig Economy news round-up

• POLICE ARREST LONDON COURIERS AFTER PROTEST: Eight riders were arrested in the Hackney area of East London for “immigration offences”, just two days after protesting outside Hackney Town Council for safe parking spaces. Twenty-two motorcycles were also taken off the street for having no insurance or not having the correct license (or both). The IWGB union, which organised the protest, claimed "protesting Hackney couriers" had been targeted. The mayor of Hackney, Philip Glanville, said he was “not aware of this operation and do not support immigration raids”, adding that he was “disappointed” by the timing because of “the unintended message that that may send” about the right to protest.
• LANDMARK UK HOLIDAY PAY CASE HAS "HUGE" IMPLICATIONS FOR THE GIG ECONOMY: A plumber has won the right to back-dated holiday pay in the UK Supreme Court, in a case thought to have major implications for workers' rights in the UK's gig economy. The Court of Appeal overturned the lower courts' judgement in the case of Gary Smith, who worked for Pimlico Plumbers from 2005 to 2011. The lawyer, Michael Ford QC, described the result as "huge" for gig workers, explaining that "it means, in essence, that individuals who were denied worker status can recover, without limit, compensation for all their four weeks’ ‘Euro’ leave – taken or untaken – every year for the duration of their employment". He added: "As a result, the financial costs to employers of wrongly denying worker status are now potentially very high indeed".
• 4 CCOO LEADERS ACCUSED OF 'COERCION' IN GLOVO STRIKE: Four leaders of the Catalan section of the CCOO union have been summoned to court accused of "coercion" for organising 'information pickets' outside the Barcelona headquarters of Glovo, Spain's largest food delivery company, in support of a strike which took place last August.The historic industrial action in Glovo's 'dark supermarkets' was the first official strike in the gig economy in Spain. Ahead of the court case, which began on 3 February, the CCOO issued a statement stating "we are not afraid of these companies and we will continue to fight for decent working conditions at work on digital platforms". Read more here. 
• STRIKING STUART DELIVERY COURIERS BLOCKADE A MCDONALD'S: Stuart Delivery couriers in Sheffield, who are now into their third month of strike action, blockaded a McDonald's drive-through restaurant on Monday [31 January]. "Several dozen" customers were turned away as 60 couriers and supporters blocked the road. Two out of four of the striking workers' demands have at least partially been met by Stuart, but the chief demand to reverse a pay cut continues to be ignored. The IWGB union workers are calling for a UK-wide boycott of Just Eat, the food delivery company which uses Stuart Delivery as a sub-contractor, on Valentine's Day. Read more here. 
• BANK OF SPAIN CALLS FOR MORE DATA ON SPANISH PLATFORM ECONOMY: The Bank of Spain has published an analysis paper on the country's platform economy, finding there are difficulties in analysing and quantifying the sector without more "reliable and exhaustive" data. Lack of analytical data is a perennial problem in the gig economy, as most of the information is held - and guarded closely - by the platforms. The BoS found that the last survey, in 2018, showed that 18.5% of Spanish workers had worked on platforms sporadically, while for 2.6% it was their main job, but "in practise it is difficult to obtain precise measurements". The national bank wants official government surveys to ask about this type of work, either directly or via supplements. Read more here.  

Have we missed important news on the gig economy in Europe this week? E-mail Ben at [email protected] to help us improve our news round-up.