March 31, 2021

Deliveroo: is it worth it?

Yes, argues Nicolas Colin, even with its regulatory changes and all the competition. You just need to look at the big picture to see why.

Nicolas Colin

5 min read

There are reports that public equity investors might be shunning Deliveroo’s imminent IPO. Given that the IPO market has continued to be quite hot for tech companies lately, the exact reasons why are unclear. 

Maybe it’s the fact that the UK antitrust authorities almost prevented Amazon’s investment in Deliveroo one year ago, suggesting a future acquisition by a larger (US) company might be out of the question.

Maybe it’s because of Deliveroo’s reliance on a self-employment model whose days might be numbered in the wake of the UK Supreme Court’s recent decision on Uber.


Or maybe, as argued here, it’s because Deliveroo simply is a challenger confronted with too much competition: both locally, from the mighty Just Eat Takeaway, or from abroad from the still-growing Uber Eats.

Today I’d like to bring forward two arguments as to why Deliveroo could tackle these challenges.

Deliveroo is bigger than takeaway meals

The first relates to the total addressable market. Many people view Deliveroo as the company that brings you a meal prepared in a restaurant nearby. But it’s already apparent that Deliveroo’s business has a broader scope.

The company’s main asset, after all, is the infrastructure it’s been deploying over the years, connecting couriers with supporting technology and collecting data at every turn.

At first it was indeed to connect customers with their favourite restaurants. But now the same infrastructure can be used for much more than that: ordering meals prepared in cloud kitchens, ordering groceries online, perhaps even delivering prescription drugs or samples from medical tests performed at home.

The stakes are high: nothing less than upgrading last-mile logistics and rewiring dense European cities so as to increase the level of convenience for all. In the future, city dwellers will expect more things to be delivered to them (meals, groceries, clothes, medicines, you name it) not only at their home or at their office, but increasingly wherever they are at any given moment.

This requires a dense network of highly mobile agents, all working on an integrated tech-powered infrastructure — and who, as an aside, will be given much more room to move around the city since fewer people will be driving their own car.

The city-rewiring business

In a seminal essay published in 2014, Benchmark Capital’s Bill Gurley suggested to valuation expert Aswath Damodaran of New York University that he'd got Uber’s addressable market wrong.

For Damodaran, Uber was merely competing for a share of the historical taxi and limousine market, which was estimated to be $100bn. But Bill Gurley saw it otherwise: for him, Uber was competing on the market for car ownership — a $6tn market at the global level.

Gurley’s analysis hasn’t quite lived up to expectations since Uber encountered many obstacles along the way. Still, the same reasoning can be applied to Deliveroo today: it’s not in the meal-delivery business; rather it’s in the city-rewiring business, contributing to the vast and complex last-mile logistics infrastructure that we need for our old European cities to be liveable. I haven’t calculated that market’s size, but I’m convinced that Deliveroo has a shot at securing a significant share of it.

It's no wonder that Amazon invested in them.

It’s no wonder that Amazon invested in them: the US tech giant needs that kind of infrastructure in dense European cities, and it’s willing to contribute to growing it with as much capital as necessary.


But then there’s the other thing: maybe Deliveroo isn’t viable because it relies too much on self-employed contractors who might end up reclassified as workers or even employees. 

The ‘worker’ debate

Here again, allow me to be contrarian. According to some among Deliveroo’s critics, the alternative to betting on such a business would be to say goodbye to the online delivery model and to come back to the status quo in proximity services in general and the restaurant industry in particular.

What I don’t understand, however, is how restoring the status quo would be a victory from a worker’s perspective. A sector such as last-mile logistics, which is representative of the services industry in cities, is far from being an example to follow when it comes to wages and working conditions.

What I don’t understand is how restoring the status quo would be a victory from a worker’s perspective.

As for restaurants in particular, well, they are notorious for being one of the worst industries when it comes to worker treatment: long hours, bad conditions from a hygiene and security perspective, frequent cases of harassment, low wages, low benefits and a significant fraction of workers’ earnings paid in cash — thus encouraging undeclared work, mistreatment by employers (especially in the case of undeclared immigrants) and, by the way, eluding the tax system entirely.

If governments and our society as a whole were serious about empowering workers and improving their conditions, they wouldn’t argue for relying on such industries for dealing with workers. Rather they would elect to work with Deliveroo and its competitors to seize the emergence of the gig economy as an opportunity and upgrade the social contract for workers in proximity services — whether they are contractors, workers or employees.

Quite simply, it’s easier to improve workers’ conditions when dealing with a few large-scale platforms supporting them in their daily activities, entities like Deliveroo, than with thousands of restaurants and other small businesses where standards are almost impossible to enforce.

Much depends on governments.

On both fronts, whether it’s upgrading last-mile logistics or upgrading the social contract, much depends on governments. And unfortunately, European governments have provided few reasons for us to trust their ability to look forward and tackle the challenges of institutional innovation.

But the current debates around Deliveroo’s IPO also reveal the short-sightedness of public equity investors.

What they seem to assume is that Deliveroo will have to compete, all other things being equal. What they don’t realise is that the rise of Deliveroo and others like them is part of a larger shift that bears consequences in other dimensions: a new approach to delivering services in cities, and a new approach to empowering workers in the nascent segment of the labour market that is the gig economy.

Nicolas Colin is partner at The Family and writes a regular column for Sifted.

Nicolas Colin

Nicolas Colin is cofounder of VC firm The Family. He writes a regular column for Sifted