As the developed world gets back to its feet and competition for workers heats up, major gig economy companies are still grappling with profitability even as consumers have come to rely on some of their services like never before. The added pressure from higher wages could throw another spanner in plans from Uber (US:UBER), Lyft (US:LYFT), Deliveroo (ROO) and others to make it into the black on a regular basis.
Recent interim results across the industry have already shown pay going up through bonuses. Uber embarked on a “super-aggressive” campaign to bring back drivers with inducements, while Lyft plans to maintain “elevated levels of new driver sign-up bonuses”.
Uber’s struggle to get drivers back showed in its half-yesar numbers. Its ‘take rate’, essentially the cut from each journey, plunged a massive 7.10 percentage points to 18.7 per cent because of “elevated investments in reviving driver availability”. This has since been wound back, but drivers reportedly don’t want to lose the extra cash.
Despite this Uber is confident it will hold onto the “resurrected” drivers, for reasons beyond money. “The number one reason why they had not driven is because of safety concerns, vaccines, Covid,” said Uber boss Dara Khosrowshahi. “As vaccination rates go up, we are seeing the resurrected drivers come back.”
For Deliveroo, rider numbers climbed during lockdown as hospitality and retail workers looked for new jobs. But retention has remained strong, the company said, even as those industries reopen and vacancies soar.
But higher wages generally could see this start to change. “For these businesses to recruit people to deliver to their needs, they will have to increase wages – it’s inevitable,” said Davy Research analyst David Reynolds. Deliveroo reported a pre-tax loss of £105m in the first half.
“It’s a model where so much capital is being put to work that, thus far at least, profitability is still elusive,” Reynolds said, who pointed to Deliveroo’s huge sales increase not translating into a profit.
More established transport companies such as First Group (FGP) and National Express (NXP) have spoken out about the struggle to get drivers as well. In its half-year results, National Express cited the “enhanced unemployment benefits” from the pandemic as putting pressure on recruitment for its US school services fleet after the summer holidays.
The UK’s shortage of drivers has mostly been felt in the heavy transport industry, but this could have an impact on other driving jobs.
“You’re only going to get £12 [an hour] as a qualified coach driver with someone like FirstGroup, but you can get as much as £18 doing an HGV run,” said Steve Garelick, branch secretary at GMB, the trade union representing professional drivers in the UK.
“What are you going to prefer to do?”
Reynolds at Davy suggested the end point for companies searching for margin was doing away with workers entirely: “Drones don’t have to self-isolate if they get sick and don’t require pensions.”
Drone deliveries are already being trialled, but driverless cars are a long way from widespread use.
Next stop
This unique set of circumstances is not going to last forever. Uber is already pulling back its driver payments, and the extra $300 a week handed to unemployed people in the US will disappear soon. Studies from states where this has already happened have shown people are also concerned about Covid-19 safety, so not everyone jumped back into work.
Companies relying on ‘gig’ workers have always faced challenges, however, largely through legislation tightening the definition of what an employee is. In February, Uber lost a battle in the Supreme Court, which delegated their drivers as employees who need to be paid holiday pay among other securities, rather than self-employed.
More recently, Deliveroo (ROO) made an exit from Spain due to workers’ rights problems there.
However, the takeaway company has not been so hard hit by these issues as Uber as it has won several court cases in the UK on how it should treat riders. And according to Reynolds,, the loss of the Spanish market for Deliveroo is not so much of a problem because its main focus is the UK.
The other uncertainty is the Delta variant. Deliveroo’s sales climbed as people stayed in, but now they’re out and about again the company is looking to the on-demand grocery business to find new growth.
Uber, which has the Uber Eats business, noted this in the example of Sydney recently, where car rides almost stopped completely but food delivery surged. “That's a hedge that we talk about,” he said. Drivers and riders don’t have that luxury for future lockdowns. Maybe that’s when it will be time to look for a new gig in this stronger economy.
