We wrote in December about the DoorDash entering Australia last year and how it may increase the likelihood of Deliveroo leaving Australia. Things have only gotten worse in 2020, we believe, for Deliveroo.
We first mentioned DoorDash entering Australia back in August 2019, and were surprised, given that with Menulog, Deliveroo and UberEats, it was a pretty full market. Realistically, we think that the market is only big enough for 2 companies, especially given the concentration of Restaurants, riders and customers around the capital cities.
Evidence of Deliveroo leaving Australia:
We think that Deliveroo will be the next to leave Australia.
- They have been struggling financially as a group.
- Google Data suggests they are behind DoorDash.
- Many Restaurants can’t afford the 35% commission they charge.
- The market is too small for 4 delivery aggregator companies.
- Their business model is probably least favourable to Restaurants.
Deliveroo Group struggling financially
Despite a huge increase in demand for online ordering, Deliveroo has stated that it is struggling because of COVID-19, and it warned in the UK that the company may collapse without an investment from Amazon. After the investment, it will be interesting to see if any of the capital flows to Australia, or if the UK Head Office decides to close the Australian operations. Have been overtaken by DoorDash may be an influencing factor in this decision.
The fact that Deliveroo was struggling when there was such an increase in online orders is curious, unless the business in fundamentally unprofitable. A lot of this depends on how they classify their workers. Having them as cheap ‘gig economy’ workers enables them to often pay below the award wage, creating an unfair advantage against Restaurants that employ their own drivers – but despite this, they have said that they required the investment from Amazon.
Google Data shows Deliveroo behind DoorDash
Google data suggests that Deliveroo has fallen behind DoorDash in Melbourne. Is this an indication of DoorDash’s deep pockets, or how much Restaurants prefer alternatives to Deliveroo?
Is the Deliveroo Business model the worst for Restaurants (and customers)?
If Deliveroo is leaving Australia, we don’t think that too many Restaurants will be sad to see them go. For them, it has always been about building up a picture of customer demands and locations and using that to build their own dark kitchens, and then to cook the food themselves. This has been mentioned in their annual statements filed in the UK. Some Restaurants were surprised when Deliveroo started supplying staples in Melbourne amid the Coronavirus stock shortages, but this was after they saw Restaurants pivot and start supplying staples through the Delvieroo marketplace. Deliveroo was able to see the volume that Restaurants were doing, the price they were selling the staples for and Deliveroo saw an opportunity to compete against the Restaurants that they say are their ‘partners’. This is exactly what their business plan is all about and Restaurants are starting to realise this, we think.
If Deliveroo is leaving Australia, what next for Restaurants?
We think there will still be pressure on Menulog, currently coming second and DoorDash. Menulog has a history of brandjacking and was struggling last year, being late to the delivery party, but appears to have pulled ahead of Deliveroo, however, it appears that DoorDash has very deep pockets, so they may continue to fight to drag customers away. They may even maintain the decrease in commission, which could see a large number of Restaurants switch. UberEats had a bit of a win, seeing their riders classed as not being employees in the Fair Work Commission, but we expect the TWU to appeal the case, and/or a change in the law because of the unfair advantage it gives aggregators against restaurants trying to employ their own delivery riders / drivers.
Which is the best solution for Restaurants?
Before COVID-19, margin was important for Restaurants, now it is critical. It is so important that none other than NZ’s epic Prime Minister Jacinda Ardern recommended that consumers order from local Restaurants that don’t use UberEats. Delivery aggregators charging 35% commission was slowly killing the industry, with Restaurants only able to do Take Out and Delivery, they are killing Restaurants a lot quicker.
Our tips for building a successful take out / pick only Restaurant business are:
- Take orders online, either with FROLO, the Free Restuarant OnLine Ordering System, or your EFTPOS system.
- If you don’t want to do deliveries, do Pick Up only. Customers are keen to get out of their houses so a lot are ordering pick up.
- If you are using Menulog, UberEats or Deliveroo, use FROLO for pick up and save the commission.
- Do some Facebook marketing.
Have a read of our Case Study about how Duncan and Julia from Holy Basil Thai started doing takeout 3 weeks ago and are now doing $10K a week with FROLO (this doesn’t include phone orders).
Some Restaurants are surviving, some are thriving, but it is very hard to do either if you are being charged 35% commission!
Good luck. Stay safe.
James and the M4R Team. 🙂