What Does The Collapse Of Deliveroo Mean For The Future Of Delivery In Australia?

On Wednesday, 16th November, Deliveroo announced it would immediately cease its operations in Australia and went into voluntary administration.

The surprise announcement sent shockwaves through the hospitality industry, with thousands of restaurants left high and dry with no delivery partner to fulfil their orders. It’s also left many in the industry questioning what this means for the future of online food delivery and whether other platforms will follow suit.

To help address these concerns, we’ve analysed recent industry trends and data to understand the impact of Deliveroo’s shock exit from Australia on hospitality venues and the broader industry as a whole.

• What happened to Deliveroo?
• How are venues impacted?
• Future of delivery: changing customer habits
• Competitive market
• Online food delivery: an evolving industry

What happened to Deliveroo?

Deliveroo launched in Sydney and Melbourne in 2015 before expanding across the country. It was one of the first food delivery services to launch in Australia, arriving one year before Uber Eats and the same year Menulog was acquired by British takeaway giant Just Eat.

While it was one of Australia’s first platforms to break out into the food delivery scene, it soon lagged behind its rivals in consumer popularity and market share.

Operating in a competitive market

In a recent survey, only 27% of Australians said they’d ordered from Deliveroo in the last 12 months, compared to 65% of people ordering from Uber Eats and 50% from Menulog. 

This statistic is a significant indicator of why Devileroo decided to cease its operations in Australia. The company also admitted that several global players had made the local market highly competitive.

“In Australia, we have concluded that achieving a sustainable position of leadership in the market is not possible without a disproportionate level of investment which would have highly uncertain returns,” the company explained.

In Australia, the food delivery industry is highly concentrated and was, until last week, dominated by three leading companies – Uber Eats, Deliveroo and Menulog. However, in recent years US delivery giant DoorDash has also entered the Australian market and is gaining popularity.

In 2020, Uber Eats dominated Australia’s food delivery market with a 59.7% share. In the same year, Deliveroo held 17.5% and Menulog 12.1%.

However, by the end of 2021, these numbers had changed slightly. Uber Eats’ market share dropped to 52.9%, Menulog gained market share with 19%, and Deliveroo lost market share, holding just 11.7%.

With a dramatically decreasing market share, it’s unsurprising that Deliveroo decided to call it quits. Furthermore, Deliveroo admitted that in the first half of the year, the Australian business represented just 3% of its gross transaction value.

High commissions 

Compared to other delivery platforms, Deliveroo had the highest commission fees for restaurants, accounting for 30% to 35% of the order’s sales. Whereas Uber Eats’ fees range from 20% to 35%, and Menulog charges between 14% and 30%. 

Higher commissions can be extremely offputting for restaurants, as they’re already operating with razor-thin margins and delivery platform commissions eat into any profit. 

Deliveroo’s high commissions could also have contributed towards their decline in market share, with restaurants opting for cheaper players in the market.

How are venues impacted?

Deliveroo’s shock exit will impact 15,000 delivery drivers and more than 12,000 restaurants that offered delivery through the platform. In many cases, both drivers and restaurants are still owed money from Deliveroo. 

Deliveroo has entered voluntary administration – which happens when a company is unable to pay its debts, also known as an insolvency. KordaMentha has been appointed as the administrator and will be handling the process going forward. 

Restaurants that are owed money by Deliveroo are considered unsecured creditors. Unfortunately, unsecured creditors have little security once a company goes into voluntary administration and are not automatically entitled to the money they are owed. 

Does Deliveroo owe your business money? 

If Deliveroo still owes your restaurant money, you’ll need to lodge a proof of debt form to make a claim. Unfortunately, it’s not guaranteed that you’ll receive what you’re owed in full. 

Restaurants are also asked to contact the administrator if they possess any Deliveroo-supplied IT equipment to arrange its return.

More information for unsecured creditors, such as riders and restaurants, can be found on KordaMentha’s website.

Future of delivery: changing customer habits

While delivery remains popular among consumers, more and more Aussies are embracing post-Covid life and returning to regular in-person dining. 

Not only are more people ditching delivery for dining in again, but an increasing number of Aussie consumers are opting to order delivery directly with a venue rather than going through a third-party app.

According to Statista, in 2022, 3.2 million Australians used a third-party platform to order food for delivery. This is predicted to jump to 3.6 million in 2023, an increase of 12.5%.

By comparison, 5 million Australians went directly to a restaurant for online delivery in 2022. This is predicted to jump to 5.7 million people in 2023, an increase of 14% – emphasising how more and more customers are willing to cut out the middleman and go direct to restaurants for their food delivery.

Covid lockdowns took a significant toll on small businesses, and most Aussie consumers are well aware of that fact. As a result, many are actively changing their purchasing habits to ensure small businesses benefit from their custom.

Competitive market

While customers are getting out and about again to enjoy dining at their favourite restaurants, delivery still remains popular. 

New research released in August 2022 from Roy Morgan shows over 7 million Australians aged 14+ (33.4% of the population) now use food delivery services, up from 3.6 million (16.9% of the population) in early 2020.

The research also shows that Uber Eats is the clear market leader used by 3.5 million Australians, up from 2.3 million in early 2020.

Australia is a small market in the food delivery sector

Dr Rob Nicholls from UNSW Business School believes the food delivery sector is so competitive because Australia is a relatively small market, and there’s little room for new players to shake things up.

“They’re all competing for two things. For restaurants. And for riders,” Dr Nicholls said.

“It’s one of those sectors where it’s a winner takes all or winner takes most area. And you only expect a few to survive. In this case, the first to fall over was Deliveroo.”

Dr Nicholls also raises concerns about the delivery industry being monopolised and fears the sector will struggle to sustain the big three platforms going forward – Uber Eats, Menulog and DoorDash.

What are the risks of a monopolised delivery market? 

If only one or two players are left in the market, this signals bad news for both restaurants and customers. In this situation, delivery companies are likely to push prices up to increase profits as they’ll be uninhibited by cheaper competitors.

This could mean higher commissions for restaurants, fees to sign up for delivery apps, lowering how much drivers get paid or subscription fees for customers.

“Going from four to three (companies) means consumers have less choice,” comments Dr Nicholls. “It’s not good for consumers. It’s not good for restaurants. And it’s not good for drivers.”

Online food delivery: an evolving industry

Delieroo’s exit from Australia has led to increased scrutiny of the online food delivery industry, and many restaurants are unsure of what the future of delivery will look like. While the delivery landscape looks set to evolve in some shape or form in the near future, it’s still unclear what’s precisely in store for the coming years. 

What we do know for the near future, however, is that customer demand remains strong for online food delivery options, and many consumers opt to order food delivery straight from the restaurant – a promising change in behaviour for business owners.