Too much VC money, inadequate market research, and questionable PR Stunts.
On-demand delivery service, Deliveroo has pulled the plug on its service in Germany. Though many “experts” seem surprised, those of us in the gig economy can say this does not come as a surprise. Europe is a collection of feudal states, though democratic, the fundamentals of European idiosyncracies have not changed. Germany is no exception.
Deliveroo entered Germany a little over four years ago to great fanfare. I have a home in Germany and we have used the service a few times with minimal issues.
We want to thank all of the riders and restaurants who worked with Deliveroo in Germany, as well as our wonderful customers. It has been an honour to serve so many people amazing food from Germany’s many great restaurants and to work with so many brilliant, hard-working riders. We are grateful to our extremely talented employees for their commitment to bringing fantastic foods to people’s homes, and they will be supported in this period. Deliveroo will continue to grow and invest in markets across the world, seeking to become the world’s definitive food company.
There are many reasons any company will pull out of Germany. However, a few key reasons to bear in mind are;
- German Practicality: Germans are very practical, especially when it comes to how they spend money. A German will not pay $4 to deliver a $7 sandwich. However, an expatriate might. In cities like Frankfurt, Mainz (where I lived for a couple of years), Berlin, or other metropolitan areas with diversity and expatriates, this may not be a problem. Which narrows down the Deliveroo customer profile.
- Cycling Culture: Though not on the scale of cities like Amsterdam (where I also lived), cycling culture runs deep in Germany. It’s a core part of the socio-cultural life in Germany. It’s a statement about mobility, conservation, energy efficiency, health, and alternative to fossil fuel consumption by automobiles. A bicycle will get you places a car won’t. It’s not unusual to see a German who has either never owned a car or driver’s license, or in many cases owns a car and has not driven it in weeks or months while preferring to get around on his or her bicycle. This also includes scooters. Germans also place a high value on property insurance. This is a culture of insuring everything…including bicycles, scooters, shoes, and almost everything imaginable. Germans would rather get on their bicycle to pick up their food than have it delivered.
- Social-Cultural Considerations: Germans while very private, are very social within their core group of friends and family. Germans do light breakfasts, usually on the go, a very heavy lunch, and rarely do dinner. The norm is to cycle from work to meet friends at the park or at the pub after work. Dinner is not a big thing in Germany. Most Germans socialize after work, then go home. If there’s any food to be had, they pick it up while cycling home or taking the train. It’s that simple!
- Lunch Vs. Dinner in Germany: As aforementioned, dinner is not a big “thing” in Germany. Lunch, however, is a major event, and Germans clean their plates! This leaves little room for anything else by way of dinner after socializing with friends and family after work.
- German Labor Laws: This requires no explanation. In fact, in the past, the company had been repeatedly criticized for its drivers’ working conditions. In Germany, for example, Federal Labor Minister Hubertus Heil(SPD) demanded in February, with regard to delivery services such as Deliveroo, that a “socio-political Wild West” had to be prevented from working on digital platforms. German labor is heavily controlled by labor unions and enjoy almost absolute power in labor-related matters and backed by the Bundestag — the German Government. In 2018, Deliveroo couriers had organized and massively complained about compensation, noting that the Deliveroo paid too little and did not even assure them. They attempted to unionize and demanded to no longer be classified as independent contractors, in addition to receiving health and accident insurance. Arguably, working in the gig economy (or any industry sector) part-time is a choice. Gig economy companies should not be penalized for giving people an opportunity via their smartphone to earn some money they would not have otherwise earned prior to joining the platform. Who really loses, in this situation is debatable. Innovation and capital will always go where the opportunity is. Regulators, unfortunately, have not kept pace with innovation.
- Air Conditioning in Germany: Germans are no fans of air conditioning. As a matter of fact, 90% of German homes do not have central air or air conditioners as they believe it makes you sick, in addition to being bad for the environment, emissions, etc. This means Germans spend plenty of time outdoors. In my neighborhood in Mainz, along the river Rhine and in just about every neighborhood, everyone is outside with hundreds of bike parking racks filled up day and night. People picnicking, outdoor activities are a core part of German life, especially after a heavy lunch during work hours. Since 68% of food delivery orders happen in the evening, German outdoor culture is simply not suited for platforms like Deliveroo.
- The Uber Syndrome: The company was valued at $2 billion back in 2017, with a $575 million investment from Amazon in 2019. Hyper valuations, the herd mentality of the VC world often leads to a culture of spending money without a multi-layered deep dive into the socio-cultural idiosyncrasies of regional markets. Uber, for example, was once valued at $120 billion, then down to $80 billion at IPO, and now reported a $5 billion loss over a 90 day period. Those are scary numbers. The naysayers against the gig economy are having a field day. However temporary that may be. Many of our gig economy counterparts jumped on the Uber bandwagon while raising enormous funding at insane valuations without taking a holistic look at their model. The chickens are coming home to roost. The next wave is the shakeout reminiscent of the search engine shake out of 2003. Deliveroo is not down and out, they are simply recalibrating.
- Lastly……..the image below serves as a juxtaposition to the point above. Unless you’re a dictator or a billionaire, there’s no reason to have lunch in or delivered by helicopter. Too much VC money, too soon;
Deliveroo, headquartered in London, was founded in 2013 and is still active in 13 countries after leaving Germany.
#deliveroo #gigeconomy #phlatbed