Deliveroo’s IPO won’t tempt responsible investors

Recent judgements and new legislation threaten companies that have thrived in the gig economy. David Burrows reports.

Locked down and with nowhere to go, we have all gobbled up more takeaways. No surprise, then, that Deliveroo could today post London’s biggest initial public offering (IPO) in a decade, potentially valuing the business at some £8.8bn. And the talk is bullish, despite the company’s £224m loss last year.

“The way we think about it is simple: there are 21 meal occasions in a week — breakfast, lunch and dinner — seven days a week,” Deliveroo said in reports last week. “Right now, less than one of those 21 transactions takes place online. We are working to change that.”

Although talk of developing ‘greener’ high streets and sustainable city centres in the post-pandemic era is inspiring, another reality could be high streets full of fast food joints and the only buzz in centres being the bikes whizzing past with a pizza or coffee and cake to deliver.

“Takeaways seize opportunity to dominate high street”, ran a recent headline in the FT (paper edition), as it reported on the chains like Fireaway, Jollibee and Wingstop that have already announced expansion plans. US burger giant Wendy’s is even returning here after leaving the UK two decades ago. This is all great news for the likes of Deliveroo.

But some investors won’t be taking a bite. Aviva Investors, which manages £365bn of assets, is one of them. The reason: Deliveroo’s treatment of its riders and the threat of new regulation that could turn the business’s model on its head. "A lot of employers could make a massive difference to workers' lives if they guaranteed working hours or a living wage, and how companies behave is becoming more important,” Aviva chief investment officer David Cumming told BBC’s Today programme.

Since then major asset managers Aberdeen Standard, BMO Global, CCLA, LGIM and M&G have also dissed Deliveroo. There are plenty more who will be happy to buy shares but you wonder if a precedent is being set: are companies that rely on gig workers irresponsible and unsustainable?

Certainly not all of them. Yet increasingly investors want to be able to make the distinction and will be picking over the environmental, social and governance (ESG) performance of these companies. The systems guiding them to do so are far from perfect but the wave of responsible investing appears unstoppable. Politicians will be keen to ride it too.

In Spain, the government is working on a law that would define all food delivery workers as permanent staff within three months. In February, the UK Supreme Court ruled that 35 Uber drivers were entitled to rights such as the minimum wage. The judgement is “a clear and powerful restatement of the importance of basic employment protections”, said Paul Jennings, partner at Bates Wells, which represented the drivers. “It will shape all future cases concerning the gig economy.”

Deliveroo’s business model could now be viewed as potentially risky: the threat of new claims and legislation to protect workers in the gig economy is real. “Challenges to the current employment model are financially material,” Tom Powdrill, head of stewardship at PIRC, the investment advisers told the Bureau of Investigative Journalism last week.

The Bureau (with support from ITV and the Daily Mirror) has published an analysis of almost 12,000 sessions by 318 Deliveroo riders across the UK, covering 34,000 hours in the 2020-21 financial year. Just over half (56%) of the riders who took part earned less than an average of £10 an hour for all the time they were logged in to the app. Some took home far less, with one in six (17%) getting less than £6.45 per hour – the lowest possible minimum wage – and one in three (41%) receiving below £8.72, the legal minimum wage for workers over 25.

This is perfectly legal because riders are treated as being self-employed (their ability to ask others riders to do deliveries for them has so far allowed them to duck legal challenges).

Deliveroo argued the Bureau’s data is not representative and referenced the freedom riders have to reject orders. It is also only “meaningful” to calculate rates of pay for deliveries, not the time between orders, it said.

Has the lure of flexible working allowed companies to forego fair pay? “These companies will give you one overarching reason to support the gig economy: ‘flexibility’,” wrote Jitse Groen chief executive, Just Eat Takeaway.com in a letter to the FT last month. Takeaway.com “has always employed its delivery staff, either directly or through agencies”, he added.

With a reported 5.5 million workers in the gig economy change will be resisted. Deliveroo has suggested it would leave markets where its model is threatened by changes in legislation. Its IPO prospectus notes: “Our business would be adversely affected if our rider model or approach to rider status and our operating practices were successfully challenged or if changes in law require us to reclassify our riders as employees.”


This is already happening. In the UK, Spain, Italy, France, Belgium, Australia and the Netherlands. The risks are both financial and reputational, the prospectus notes. The fact Marcus Rashford, the high profile footballer and food poverty campaigner, is now seeking a chat with Deliveroo’s bosses is significant, in light of his ability to bend both footballs and politicians.

Chief executive Will Shu hailed riders as “heroes” for delivering food to millions across the UK during the coronavirus crisis. I dare say many would like some more cash and employee comforts rather than a warm word or a clap.

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