Food-delivery company’s model of using self-employed riders under pressure as it heads for £8.8bn listing

When the skies darken over London, Joe brightens up. After two and a half years biking meals around the capital for Deliveroo, he knows that bad weather means better pay.
Joe — who asked that his surname not be used — said that “working life” means “you’re always looking at the weather”, because when it rains, customers are more likely to order takeaway and casual couriers are less likely to go out.
While Deliveroo touts flexibility as an advantage, for full-time couriers such as Joe, “you have to work when it’s busy”. That has become harder with Deliveroo’s casual workforce doubling over the past year, he said.
“Over-hiring is the critical issue for riders and our fees,” he said. “That has got way worse for us since the pandemic.”
The surge in food delivery since the start of the pandemic has thrown a spotlight on the employment practices of companies whose business model depends on having armies of workers at hand to meet fluctuating demand, with no obligations to guarantee their pay, hours or even their personal safety.
A study of rider earnings published on Thursday has found that on an hourly basis, a third of drivers in the UK were paid less than the minimum wage.
Deliveroo, which is targeting a market capitalisation of up to £8.8bn in this month’s initial public offering in London, is under increasing pressure to justify its model of using self-employed riders, following Uber’s decision to cede to a Supreme Court ruling and class its UK drivers — although not its food couriers — as workers with entitlement to the minimum wage and other benefits.
The road ahead
Deliveroo faces legal challenges in at least five of its main markets over the status of its riders. Last year, it almost quadrupled the provision it made for fines and other costs related to legal proceedings, to £112.2m. A large portion of that relates to Italy, where it is threatened with criminal prosecution and what its IPO prospectus calls potentially “material” fines, after the Italian government found Deliveroo should have engaged its riders on a “quasi-employee basis”.
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The company has said it will continue to defend its position that riders are independent contractors, but highlighted to investors the risk that it might not succeed. If it were forced to change its model, it could incur “significant additional expense” or exit some markets.
David Cumming, head of UK equities at Aviva Investors, an asset manager that is part of the UK’s largest insurance group, told BBC Radio 4 on Wednesday that a “combination of investment risk and social issues” made him reluctant to invest in Deliveroo.
Meanwhile an equity investor at one large UK asset manager said they were “not very keen” on buying Deliveroo shares next week, in part because of the growing regulatory burden. “Given it’s such a low-margin business, the extra costs have the potential to destroy profitability.”
Tom Powdrill, head of stewardship at PIRC, a shareholder advisory group, said that for the growing number of investors prioritising environmental, social and governance (ESG) issues, Deliveroo “has question marks on both the S and the G”. Its dual-class share structure, which hands extra voting rights to chief executive Will Shu, only compounds the “central” question of working conditions, he said.
“If this [company] has a question mark over the employment issues, a governance structure that shields management from accountability to shareholders magnifies those concerns,” Powdrill said. Uber’s Supreme Court case demonstrates “how financially material these issues are”, he added.
If this [company] has a question mark over employment issues, a governance structure that shields management from accountability to shareholders magnifies those concerns
Tom Powdrill
Deliveroo’s prospectus maintains that in the UK, by far its largest market by sales, the “self-employed status of our riders has been confirmed in multiple court rulings”. But even since Deliveroo began its IPO process earlier this month, it has had to update its filings to warn prospective investors of new legal threats in Spain that could reclassify delivery workers as employees and force it to share details of its algorithms.
Pay is one of the biggest sources of contention. Deliveroo says its riders earn more than £10 an hour on average for the time they spend assigned to orders and an average of £13 in peak times. But an investigation led by the Bureau for Investigative Journalism, which analysed 2,669 invoices from 318 riders between April 2020 and March 2021 using a tool developed by the Independent Workers’ Union of Great Britain, suggests otherwise. It found that more than half of the riders earned less than Deliveroo claims. For every hour logged into the Deliveroo app, a third earned less than £8.72, the main adult rate of the national minimum wage.
Deliveroo hit out at what it called “unverifiable, misleading claims”, based on data gathered from less than 1 per cent of its UK riders. It said hourly rates are not a “meaningful reflection” of how riders are paid because they can accept jobs from multiple apps at the same time. Based on the time between accepting an order and dropping it off, Deliveroo said average earnings are more than the national minimum wage. Riders receive an average of £4-£5 per order, it added, and average delivery fees have risen year on year.
Each rider’s take-home pay depends not only on pay per order but also how many they can complete each day. Deliveroo doubled its overall number of riders to more than 100,000 over the past year, drawing on an expanding pool of people furloughed or fired from jobs elsewhere.
‘The better play’
For many of these new recruits, delivery work is a temporary stopgap and Deliveroo’s offer good enough to tide them over. Alexia, a furloughed bar manager waiting for an order in a north London branch of Pizza Hut, said she made just a couple of trips a week, close to her home, using time in which she would choose to be out on her bike in any case.
But with more people competing for orders, experienced riders say it is becoming increasingly difficult to make a living by doing the job full-time.
After what he called the pandemic’s “hiring spree”, Jack Kellythorn, a rider in Basildon, felt that Deliveroo now offered lower fares than in the past for similar journeys. A change to how Deliveroo calculates fees last year increased pay for longer-range deliveries but left riders feeling short changed for quicker trips. He has stopped riding full-time and now uses Deliveroo only to top up his wage from a new job as a traffic warden — a role in which he has to police his fellow riders.
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Deliveroo says that while on average 16,000 people applied to ride in the UK every week between September and December last year, it has frozen recruitment in some areas where consumer demand is not high enough to meet increased rider supply.
Unlike Uber, Deliveroo does not provide its riders with a full breakdown of their fees, making it hard to tell how it has changed its payment scheme over time. Riders say all the delivery apps have pros and cons. But one common gripe with Deliveroo is that it offers a fixed fare when riders accept an order, with no adjustment if they are held up at a restaurant — which frequently happens — or by traffic delays.
Some investors argue that upending the gig economy employment model is in the long-term business interests of Deliveroo and its rivals. Bradley Tusk, a venture capitalist and former Uber investor who advised on its regulatory strategy, believes that employing riders “may actually be the better play”. That way, they could be prevented from working for rivals and avoid the costly competition to recruiting new workers, he suggested.
“I sold all my Uber shares as soon as I could and I personally will not invest in Deliveroo when it goes public,” Tusk said. “I would reconsider all that if I thought they had a way to lock in the dominant position in the marketplace.”
Additional reporting by Attracta Mooney