Foodora is quitting Australia in less than 3 weeks

Foodora/Facebook
  • Foodora launched in Australia in 2015 after acquiring local delivery business Suppertime.
  • The German business says it’s leaving to focus on regions with greater growth potential.
  • The company is currently in court over unfair dismissal claims and allegations by the Fair Work Ombudsman that it was issuing sham contracts to delivery drivers.

The bright pink packs of food delivery business Foodora will be gone from Australia by August 20, with the company announcing today that it is quitting the region after just three years “in response to a shift in focus towards other markets where the company currently sees a higher potential for growth”.

The Australian arm of the German business, which operates in nine other countries, including Italy, France, Sweden and Canada, is leaving just as legal action by employment watchdog, the Fair Work Ombudsman (FWO), got underway over alleged sham contracts for delivery drivers

The FWO alleges Foodora Australia Pty Ltd breached sham contracting laws by misrepresenting to them that they were independent contractors.

An initial hearing was held in the Federal Court in Sydney on July 10. A case management hearing is listed for September 4.

The company is also defending an unfair dismissal case in the Fair Work Commission.

The Transport Workers’ Union, which has been running the case on behalf of the worker, accused Foodora of running away rather than paying worker entitlements.

“Foodora would rather pull out of Australia and leave thousands of riders without work rather than pay them the millions of dollars they owe,” TWU National Secretary Tony Sheldon said.

“Ever since they arrived in Australia Foodora, like other food delivery companies, has denied its riders fair rates, superannuation, workers compensation, annual leave, the right to collectively bargain and even forces them to work shifts for no pay at all.

“We are calling on the Federal Government to require Foodora to set up a fund to compensate riders for stolen entitlements.”

The food delivery company sent an email to its riders at 4pm on Thursday saying they had a week, until August 10, of regular shifts before the wind down of services begins.

It said the business was solvent, but the email was written notice that their “Independent Contractor Agreements will be terminated effective 20th August 2018”.

The company gave riders between August 6 and August 24 “to return Foodora equipment such as food boxes and backpacks… in Like Brand New condition” if they wanted a refund on the deposit they paid for the company’s branded “property”.

Berlin-based Foodora launched in Australia in March 2016 after acquiring a local delivery business, Suppertime, in late 2015 and rebranding it. The business operates in Sydney, Melbourne and Brisbane and has around 2,500 restaurants on its books including Din Tai Fung, Luke Mangan’s Chicken Confidential, Subway and KFC.

The business has been in a four-way tussle in the food delivery sector with Uber Eats and the UK businesses Deliveroo and Menulog. Meanwhile companies such as Domino’s, one of the biggest players in online food-delivery services, runs their own fleets.

Foodora Australia country manager Jeroen Willems said the company will commence winding down operations immediately and close by August 20. It will “ensure employees find suitable alternative roles, as well as support partners and contractors”.

“We wish to express our gratitude to all of our customers, contractors and employees for their dedication to Foodora Australia, and for allowing us to be a part of their everyday,” he said.

Foodora Australia’s announcement is in stark contrast to the comments by local founder and CEO Toon Gyssels, who is now focused on the Delivery Hero business (Foodora’s parent company) in the UAE.

In an interview earlier this year, Gyssels said the biggest challenge the company faced in Australia was “the sheer pace of our growth”.

Industry analysts IBISWorld said that while investors are bullish about third-party delivery operators, the market is full of threats.

Senior Industry Analyst Andrew Ledovskik said Menulog is an example of how quickly things can change following UK delivery service Just Eat’s 2015 acquisition of the business for $855 million.

“By March 2018, Just Eat slashed the value of Menulog by 40%. The company claimed this was a goodwill impairment to account for the cost of Menulog launching its own delivery service, rather than pressure from Uber Eats,” Ledovskikh said.

The Fair Work Ombudsman case is also a major regulatory risk to everyone in the sector.

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

IBISWorld believes increased regulation on workers’ rights in the “gig economy” will become a major part of the Australian landscape.

“Over the next five years, the status of these workers will likely be defined through test court cases and decisive government policy. 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,” he said.

The other problem, Ledovskikh says, is that their businesses rely on a sector already under margin pressure.

Cakes business Adriano Zumbo, one of Foodora’s touted partners, slid into voluntary administration last month.

“Overall, the Fast Food and Takeaway Food Services industry has struggled to maintain profitability levels over the past five years, which is bad news for an industry where many of its players are already running on thin margins,” Ledovskikh said.

That problem is compounded by the commissions charged by the likes of Uber Eats and Deliveroo.

“When third-party services first launched, many small store owners jumped on because it gave them a competitive advantage against the store down the street, and provided them with better access to customers a suburb or two away,” Ledovskikh said.

“However, once every store on the street has the service, that competitive advantage begins to erode. In effect many stores in Australia will feel they have been effectively franchised by third-party online operators.”

NOW WATCH: Briefing videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.