business

Deliveroo CEO Says He Welcomes Competition After Riders Launched Their Own Takeout App

Deliveroo
  • Entrepreneur Will Shu said he welcomes any competition after two former riders set up a rival service to Deliveroo with lower fees for restaurants.
  • Norwich Urban Collective was founded eight months ago by Maryanne Moles and Samantha Woodhouse who believe Deliveroo and UberEats charge restaurants too much.
  • Unlike Deliveroo and other takeaway apps, Norwich Urban Collective doesn't take any commission on orders.

LONDON — Will Shu, the co-founder and chief executive of food delivery app Deliveroo, said Tuesday he welcomes any competition, after two former riders set up a rival service with lower fees for restaurants.

Norwich Urban Collective was founded eight months ago by Maryanne Moles and Samantha Woodhouse who believe Deliveroo and UberEats charge restaurants too much. Unlike Deliveroo and other takeout apps, it doesn't take any commission on orders.

According to Britain's The Sunday Times newspaper, the small start-up has 15 riders delivering food across the English city of Norwich for 12 restaurants including the Grosvenor Fish Bar and Churros for the People. It claims to have done over 5,000 orders since launching.

"We always welcome competition," Shu told CNBC's "Squawk Box Europe" on Tuesday when he was asked if initiatives like the Norwich Urban Collective are likely to become a phenomenon. "If there are more innovations in the sector, that's always a good thing for riders, restaurants and consumers."

Deliveroo has been criticized by restaurant owners for taking too much commission on orders made via its app, with rates of 37.5% not unheard of in some cases. Instead of charging restaurants commission, Norwich Urban Collective charges a 50 pence (67 cents) services fee.

Customers are charged a flat delivery fee of £5 per order when they use Norwich Urban Collective. Meanwhile, Deliveroo charges customers a delivery fee of up to £4.50, but it can sometimes be free, while the "service charge" is around 50 pence.

"After watching the main delivery platforms gouge restaurants for 30% and paying riders peanuts, we knew we could provide a better service and let the restaurant keep 100% of the food bill," Norwich Urban Collective writes on its website.

Norwich Urban Collective aren't the only ones trying to take on Deliveroo at its own game. EasyFood, backed by easyJet mogul Stelios Haji-Ioannou, charges a flat fee of £3.99 per order.

Rider pay

Headquartered in London, Deliveroo pays riders per delivery instead of by the hour, meaning riders can theoretically be logged onto the app for half a day and earn less than £5, or earn as much as £15 an hour during a busy period.

Shu stressed that it's a "very different type of work" and that "you can log in, log out whenever you feel like."

However, unions have called on Deliveroo and its competitors to pay an hourly minimum wage and offer benefits such as holiday pay. 

"My view is that benefits should be offered in a manner that's congruent with flexible work," said Shu. "I think that's the most important thing. The average Deliveroo rider works on our platform anywhere from 10 to 14 hours a week. And they value that flexibility, very, very highly, and that is something that draws riders to the platform."

In April, when demand for orders plummeted as a result of the coronavirus pandemic, some delivery riders told CNBC that they were struggling to make enough money to live off while carrying out work for the likes of Deliveroo and UberEats. At the time, the delivery companies said they were doing all they could to help riders through the pandemic and that riders earned more than the national minimum wage on average.

Shu also highlighted how Deliveroo riders can work for rival platforms, such as JustEat and UberEats.

"We're very proud of what we've done for riders this far," he said.

Looking ahead

Deliveroo has been loss-making for several years but overall the company's business has grown through the pandemic, despite a fall in order numbers at the start of the year.

Indeed, Shu said last week that Deliveroo has been profitable at the operating level for the last six months and that Covid-19 has accelerated consumer adoption of delivery services by about two to three years.

Shu said scaling up grocery deliveries had been the firm's "main innovation" during the pandemic, with this part of the business now accounting for 10% of Deliveroo's U.K. revenues. The feature allows customers to get items from grocery stores like Waitrose, Co-op, Aldi, Carrefour and Casino.

Deliveroo was backed by Amazon in a $575 million funding round in May 2019 and it now owns 16% of the company, which is valued at well over $2 billion. Amazon's investment was approved by the U.K. Competition and Markets Authority (CMA) in August.

Reports have suggested that the company plans to hold an initial public offering in 2021. Shu said: "We're a highly ambitious company and we have exciting plans for the future."

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