Representatives for one of Melbourne’s most prominent dining districts actively discouraged restaurants and cafes from using Deliveroo Australia before its collapse, saying the delivery platform’s commission fees were unsustainable for small businesses.
But the company’s demise is hardly a cause for celebration among hospitality providers, who are largely dependent on the sector to reach customers dedicated to the convenience and variety of delivery apps.
Deliveroo Australia departed the local market on Wednesday, with the UK-headquartered company saying operations in a “highly competitive” local market were no longer manageable.
“Working with the local Australian leadership, the company has determined that it cannot reach a sustainable and profitable scale in Australia without considerable financial investment, and the expected return on such investment is not commensurate with Deliveroo’s risk/reward thresholds,” the company said.
The overnight closure of Deliveroo Australia and its fall into voluntary administration came as a surprise to thousands of delivery riders, diners, and restaurant partners listed on the service since its launch in 2015.
Less of a surprise to restaurants was Deliveroo Australia’s commission structure, which funnelled much of a restaurant’s delivery order value directly back to the platform.
In exchange for commission fees, restaurants were granted access to a customer base dazzled by the variety, convenience, and low up-front cost of Deliveroo Australia and its ilk compared to legacy delivery options.
Yet as the food delivery market matured, the cost of acquiring new diners through marketing and promotions only increased. At the same time, an influx of new entrants intensified the competition for riders operating under the contentious independent contractor model.
On top of it all: investors in firms like Deliveroo, who are eager to push the loss-making venture into profitability.
With delivery apps reluctant to pass every extra cost onto diners, restaurants shouldered much of that burden, with some commission rates approaching 30% of every order.
The closure of restaurants through the pandemic lockdowns of 2020 and 2021 increased business dependence on delivery services to reach customers, and restaurant industry pressure saw Deliveroo Australia and Uber Eats lower their commission fees.
However, the cost of those services is still a pressing concern for hospitality firms, as proprietors juggle commission fees against power prices, the cost of ingredients, and their efforts to attract talent during a historic labour shortfall.
The Chapel Street Precinct Association, which represents 2200 businesses clustered in the lively Melbourne hotspot, actively discouraged member restaurants and cafes from engaging with Deliveroo, general manager Chrissie Maus says.
“We have actually been pushing for Deliveroo not to be used by our businesses given the amount of money [as a percentage] that they take out from the bottom line of our traders,” Maus told SmartCompany on Thursday.
“We encourage people to order ahead and collect. Making sure that the maximum amount of money goes into our businesses!”
Debts accumulated through punishing COVID-19 lockdowns means venues still have little free revenue to pass to third-party aggregators, she added.
The website for Miss Kuku, an Asian-inspired restaurant located in the heart of Chapel Street’s dining district, speaks to the ambivalence of some hospitality providers towards those services.
Until Wednesday, Miss Kuku said diners could order through Deliveroo Australia “if you have to, but the prices are more expensive due to their fees”.
Burgertory, which includes a Chapel Street venue among its 16 stores, is another venture to bristle against delivery app fee structures.
“We pretty much work for them,” founder Hash Tayeh told SmartCompany in October.
“The amount of money versus what our profit margins are, it’s insane.”
Tayeh suggested the new federal budget could even provide subsidies to small and medium-sized businesses reliant on delivery platforms to reach customers attached to those services.
“I think the big one that nobody really talks about is offsetting commissions charged by third-party aggregators,” he said.
With cost pressures mounting, Tayeh even suggested a government-funded advertising campaign advising diners to order directly from restaurants.
Despite persistent concerns over commissions paid to delivery platforms, many hospitality providers begrudgingly accepted fees paid to platforms like Deliveroo Australia as the cost of reaching a massive customer base.
Its departure from the local market has been met with concern from former critics, who see its failure as a broader warning sign for the sector.
The prevalence of delivery platforms and their hefty commission structures “could sound the death knell for an industry we all enjoy”, HUNGRYHUNGRY founder Mark Calabro declared in 2019.
“Fast forward a few years and the collapse of Deliveroo in Australia has left me anything but happy,” he told SmartCompany on Thursday.
“Our industry is full of passionate professionals, people who put their livelihoods on the line to open a restaurant or cafe, and this news really is a kick in the guts for so many hard working people whose businesses have been heavily reliant on them.”
The end of Deliveroo Australia has some restaurateurs wondering if delivery is a viable option at all.
Dani Zeini, whose Melbourne burger chain Royal Stacks used Deliveroo Australia as an exclusive delivery partner, says its demise was cause for contemplation.
“I’ve always wanted to be a restaurant first,” Zeini posted on LinkedIn.
“Now Deliveroo is gone I’m thinking long and hard whether to go without any delivery moving forward.”
Senior Business Journalist
Focused on the small business sector, David’s work covers the political, regulatory, and economic issues facing Australian entrepreneurs. Prior to joining SmartCompany, he was a reporter for Business Insider Australia. You can follow him on LinkedIn.
