Deliveroo Spain Exit: Labor Law Changes Loom

Deliveroo Considers Exit from the Spanish Market

Today, Deliveroo has announced it is evaluating a potential departure from the Spanish market. This decision stems from a limited market share and the expectation of substantial, ongoing investment with “highly uncertain long-term potential returns.”

Company Background and Recent Performance

The U.K.-based on-demand delivery company went public earlier in 2021. Initially, its stock price declined, raising concerns about the valuation of on-demand businesses and tech companies listing in London. However, Deliveroo’s shares have since seen a recovery.

The company’s second-quarter earnings report indicated a raised expectation for gross order volume growth, increasing “from between 30% to 40% to between 50% to 60%.”

Strategic Considerations for Market Exit

Despite improving growth forecasts and a strengthened public market valuation, Deliveroo is contemplating leaving one of its 12 current operating markets. In Spain, the primary concern revolves around anticipated changes to local labor regulations.

These changes are projected to increase operational costs, a factor that, combined with Deliveroo’s relatively small market share in Spain, makes continued operation less viable.

Impact of New Labor Laws

Spain enacted a law in May – agreed upon in March – mandating that on-demand companies directly employ their couriers. This type of requirement has been consistently opposed by companies in the food delivery and ride-hailing sectors.

Many on-demand companies operate at a loss without the use of freelance couriers, and the cost of hiring employees could significantly impact their profitability. Such alterations to labor laws present a challenge for both startups and publicly traded companies reliant on freelance delivery personnel.

Analyzing Deliveroo’s Statement

Let's examine Deliveroo’s official statement to gain a clearer understanding of their rationale. The opening paragraph essentially conveys this message:

Translation: A withdrawal from Spain is highly probable. The majority of our order volume originates from markets where we hold a leading position. We do not currently possess a leading position within the Spanish market.

Translation: Spain represents a comparatively small market for Deliveroo. Achieving substantial market share in Spain would necessitate significant investment, and the company is uncertain about the long-term profitability of its Spanish operations. This is where labor-related issues become particularly impactful – investing to gain market share in a less profitable country is difficult to justify financially.

Timing of the Announcement

According to reports from El Pais, Deliveroo’s decision coincided with an impending deadline concerning worker reclassification. This deadline may have influenced the timing of the announcement.

Deliveroo’s Commitment to Workers

Following this assessment, Deliveroo dedicated three paragraphs to outlining its plans to support workers should it ultimately exit the Spanish market. The statement concluded with a simple acknowledgement:

Fair enough.

Broader Implications for On-Demand Companies

On-demand companies have consistently argued that labor law changes, which increase costs through mandatory courier employment or higher wages, could render certain markets economically unsustainable and lead to their withdrawal. In this instance, Deliveroo is positioned to execute an exit with minimal financial repercussions, given the relatively small contribution of the Spanish market to its overall order volume.