How can we be heroes? The gig economy.

"A great business, except for a few riders.

The European market is a tough terrain for food-delivery firms.

D ELIVERY HERO has had a good run in the past couple of years. In August 2020 it ascended to the DAX, the stockmarket index of Germany's most valuable listed firms. It is present in 50 countries on four continents. Revenue for the third quarter was [euro]1.8bn ($2bn), a jump of 89% compared with the same period in 2020. "We grew 100% before Corona, 100% during Corona and we will grow 100% after Corona," says Niklas Ostberg, the Berlin-based firm's Swedish chief executive.

By number of orders Delivery Hero is more than twice as big as DoorDash, its large American rival. Even so, DoorDash's market capitalisation is $58bn, more than that of Delivery Hero ($31bn) and Just Eat Takeaway.com ($13bn), the two big European food-delivery firms, combined. European shares tend in general to underperform American ones. But another reason for investors' caution is more specific to food delivery. Strict labour laws, a tradition of union organising, pricey unskilled workers and stingy customers, who buy little and tip rarely, make Europe the toughest of all continents for the business.

Mr Ostberg says that high labour costs have become less of a problem in Europe, because the efficiency of delivery has improved substantially in recent years. European consumers have also grown less parsimonious amid the pandemic boom in online shopping of all kinds. As a consequence, Delivery Hero has reversed its decision to leave the German market altogether, by offloading its domestic businesses, Foodora, Lieferheld and Pizza.de, to Takeaway.com (a Dutch firm that subsequently merged with Just Eat) in order to focus on fast-growing Asia. In the summer it launched a new app, Foodpanda, in Berlin, Frankfurt, Hamburg and Munich.

When it comes to other labour matters, however, things may be about to get tougher still. If a draft proposal in the works in the European Union (EU) becomes law, as many as 4m gig workers delivering meals or ferrying ride-hailers could be reclassified as employees. This would entitle them to a minimum wage, sick leave and paid leave, unemployment benefits, health- and long-term-care coverage, and pension-insurance contributions.

The EU estimates that the reclassification could cost gig-economy firms around [euro]4.5bn a year. Like his counterparts in the business, Mr Ostberg insists that many of his riders choose to be freelancers because that lets them work as much as they want, whenever they want. "More or less anyone can work for us at any time of the day," he says. But such arguments are increasingly cutting less mustard. In February Britain's highest court ordered Uber (which runs both food-delivery and ride-hailing apps) to reclassify its drivers in London as employees. Delivery Hero's share price fell by nearly 3% on December 3rd following reports of the draft EU proposal.

Such developments help explain why couriers are getting more assertive. The riders of Gorillas, a German online grocer with operations across Europe, have clashed with management for months over working conditions and pay. In October the firm sacked hundreds of riders who had participated in strikes, which further fuelled tensions. In late November a labour court in Germany rejected the management's attempt to stop Gorillas riders from electing an in-house works council, which they duly did. The firm's executives grudgingly had no choice but to say they will work with workers' representatives.

All this is happening as competition in Germany intensifies. Delivery Hero will have to invest some [euro]120m in German sales and marketing in 2022, reckons Jürgen Kolb of Kepler Cheuvreux, a financial-services firm. It is now competing with Lieferando, which dominates the German market (and is owned by Just Eat Takeaway.com), Uber Eats, which launched in April, and Wolt, a Finnish firm recently acquired by DoorDash for [euro]7bn. Last month DoorDash launched under its own brand in Stuttgart. The next few years look poised to be dog-eat-dog in German food delivery. Consumers can count on full bellies, courtesy of the gig firms. Their shareholders may go hungry." [1] 

·  ·  ·  1. "How can we be heroes? The gig economy." The Economist, 11 Dec. 2021, p. 60(US).