Growing risk a concern for fast-food delivery

A gloomy future is seen for fast-food delivery services like Uber Eats as pressure from regulators mounts, according to research firm IBISWorld.

Study shows that while online food delivery services is being utilised by a third of Australians in capital cities, risks are growing that would likely affect the fast-food delivery services and food operators.

According to IBISWorld, concerns over remuneration and conditions for third-party delivery drivers have been strong over the past five years. Multiple cases have challenged the contractor status of the drivers of these fast-food delivery services. Foodora being sued by the Fair Work Ombudsman over contractor status of third-party food delivery drivers is one example.

“This contractor status is vital to third-party operators, as it keeps costs down,” said Andrew Ledovskikh, IBISWorld Senior Industry analyst. “It means these companies do not need to provide award wages, superannuation or benefits such as long service leave.”

Ledovskikh said without the ability to employ these drivers as contractors, many third-party delivery operators would see their business model become unprofitable.

“This would see some operators collapse, while others would have to severely increase service charges to partner businesses,” he said.

IBISWorld forecasts the industry will face increased regulation on workers’ rights as the ‘gig economy’ becomes larger and more people are affected in Australia. As the contractor base of the ‘gig economy’ becomes larger the advocacy activities and protests already seen in recent years are likely to become more prominent, and this will make the issue unavoidable.

“Over the next five years, the status of these workers will likely be defined through test court cases and decisive government policy,” Ledovskikh said. “If these decisions don’t go the way of third-party delivery operators, it is very likely that the outlook for these companies will weaken.”

Online food-delivery services have been a major innovation in the $20 billion Fast Food and Takeaway Food Services industry. Companies like Domino’s, which have invested heavily into convenient online delivery services and innovative features such as driver tracking, have long outperformed the wider industry, according to IBISWorld.

The business model of the fast-food delivery services was simple. The company would provide an online advertising and order platform for small stores that couldn’t afford one.

However, the research agency said, the risks for the industry is growing and may affect everyone from third-party operators to the partner stores to consumers.

While consumers are receiving the benefits of increased convenience through food-delivery services, they are increasingly paying higher prices for fast food and takeaway.

Additional delivery and the third-party commission fees built into the price of the food has meant strong growth in fast food prices paid by consumers, which in many cases is siphoned directly to third-party delivery operators,” IBISWorld stated.

“The pressure on third-party operators to ensure large investments pay off, and the possible increased costs to these operators if they lose regulatory battles surrounding contractor delivery drivers, will likely lead to consumers and small businesses facing higher charges over the next five years,” Ledovskikh said.


This article first appeared on Inside Retail, a sibling publication to Inside Franchise Business.