Deliveroo IPO: as criticism grows over workers’ rights, is the loss-making app really worth £7.6bn?

Scrutiny is growing over allegations of low pay, while questions remain about the business model’s potential to turn a healthy profit

Beyond the question of ethics is one that may be even more sensitive for the company when Wednesday’s share sale kicks off: money

Deliveroo is today launching the most anticipated stock-market listing in London for a decade, but for founder Will Shu, the focus of what promises to be a bumper pay day has moved to an uncomfortable topic – workers’ rights.

Shu, a former investment banker whose founder story is that he delivered the company’s first food order back in 2013, is reported to be cashing in about £30m of his shares and could see his stake jump in value to as much as £500m.

The comparison with what some riders earn is stark. A survey of thousands of invoices by the Bureau of Investigative Journalism found that the lowest-paid rider earned just £2 an hour, and one-third earned less than minimum wage. The company disputes the numbers, claiming that pay averages £13 an hour at the busiest times and that satisfaction among risers has never been higher. Sub-minimum wage rates are not illegal, because Deliveroo classifies riders as contractors, not workers.

Beyond the question of ethics is one that may be more sensitive for the company when Wednesday’s share sale kicks off: money.

Several large fund managers have said they will not be buying. Most have focused on the ethical reasons for their respective decisions, citing concerns over the classification of workers. Others have taken issue with Deliveroo handing founder Will Shu shares which give him control, and give investors less of a say. Perhaps a bigger worry is that Deliveroo simply might not be worth the hefty price tag.

Read more:

• Union urges Deliveroo investors to push worker rights ahead of £8.8 billion IPO
• Deliveroo riders to go on strike as investigation reveals pay as low as £2 per hour
• Deliveroo chooses London for £7.5bn stock market listing

Deliveroo has never made a profit despite low rates of pay, taking a cut of up to 30 per cent of the price that restaurants charge, and enjoying a huge boost in sales during the coronavirus pandemic.

It also spends a lot on acquiring customers as it fights for market share with other deep-pocketed platforms like UberEats and Just Eat Takeaway.

Deliveroo has already slashed £1.2bn off its targeted top-end valuation. It is now priced at 390p a share, valuing the company at £7.6bn. The company cites “market volatility”, but unions and campaigners are claiming a victory.

“It’s not just about it being a volatile market at the moment, workers’ rights have been front and centre in the run-up to this IPO, that’s what has been coming out of these massive investors’ mouths,” says Alex Marshall, president of the Independent Workers’ Union of Great Britain (IWGB).

He says riders can have the flexibility that Deliveroo often cites as a positive reason for using the contractor model while also being given rights such as sick pay, holiday pay, pension contributions and a guaranteed minimum wage. The UK already has a legal classification, called “Limb B worker, to allow exactly this.

IWGB workers will be going on strike, refusing to complete orders, on 7 April, when Deliveroo’s shares begin trading freely.

Yaseen Aslam, president of the App Drivers and Couriers Union, believes his own six-year battle against Uber, which concluded in a Supreme Court victory last month, has helped to persuade big investors to ditch Deliveroo.

Judges ruled that Uber drivers were indeed workers, not contractors. As of today, Uber drivers have effectively been given a 15 per cent pay rise (12 per cent holiday accrual and 3 per cent pension contributions) and will be guaranteed the national minimum wage for the time they have passengers in their cars.

While the ruling did not apply to companies other than Uber, Aslam believes it made a clear statement about the business models that gig economy platforms use.

“Deliveroo heavily rely on a model that exploits people,” he says, although he reserves his strongest criticism for government and regulators who have failed to step in.

He believes he was lucky that he and co-claimant James Farrer were able to bring a case. Their claim was backed by the GMB union.

“[Uber] had an army of lawyers when we first went to tribunal, but they decided to fight it all the way and throw money at it.

“I’ve got scars, my family suffered, my kids suffered. We paid the price but stayed firm.

“It’s good to see investors now taking workers’ rights seriously and taking an ethical stand, which didn’t happen when Uber listed on the stock market, but someone at the government level should be asking the questions.”

The fear among some in the City is that governments are taking more notice and that it will not be good for the bottom line.

Yaseen Aslam outside the Supreme Court after the Uber drivers’ victory (PA)

Aslam believes that food delivery platforms can be profitable while giving a fair deal to workers. Just Eat, Deliveroo’s larger rival, is negotiating with staff and has pledged to move away from the gig economy model.

Tyler Riordan, an academic at the University of Queensland, is more sceptical. He is researching a PhD on the impact of online platforms on migrant workers and has spent hours shadowing Deliveroo riders to document their experiences.

“The shine of these digital platforms is starting to wear off as more people realise these ‘disruptive’ models are not as forward-thinking as they claim to be,” he says.

While Deliveroo has seen off legal challenges on workers’ rights in the UK, regulators and governments worldwide are becoming more aware of the way platforms operate.

“Things follow similar patterns in multiple countries,” says Riordan. “The disruptor comes in, tries to shake up the well-established industries like taxis, and once the governments or workers or unions force change, then the platforms adapt in that market.”

In Australia, most food delivery workers are temporary migrants who have less awareness of their rights , he says.

Riordan says: “Being your own boss is great when things are working, but if you’re a temporary migrant with bills to pay and rain is pouring and you need to make rent, you have to go out to work. What can you do? There’s no flexibility if you have to work but the work isn’t there and you don’t have holiday pay.”

In the Australian context, he believes that if workers were to be given full rights with minimum wage and pensions, “it's difficult to see how these platforms would be sustainable without needing to charge customers two or three times more per delivery”.

The costs of Deliveroo’s gig economy workforce look set to go only one way. The share price may be another matter.

A Deliveroo spokesperson said: “Deliveroo is proud to work with 50,000 self-employed riders in the UK, with thousands of people applying to ride with us in the UK every week. Riders are at the very heart of our business and their well-being is our absolute priority.”