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Analysis: Does Foodora exit signal death of share economy?

Analysis: Does Foodora exit signal death of share economy?

The share economy has attracted a huge number of players vying for attention, but allegations of wage underpayment and questionable contracts have cast a shadow over this once-booming sector.

Both in Australia and globally, food delivery has been a high-profile example of the share economy and its rapid rise to prominence.

Breaking down traditional delivery methods and encouraging anyone and everyone to earn some extra cash delivering goods on their way from point A to point B was pitched as a more cost-effective alternative for small restaurants to make home and office deliveries, and boost sales in the process.

In recent months, though, we have seen deep flaws emerge in this business model.

Restaurants have complained that the likes of Foodora, Uber Eats and others have been bleeding them dry, taking hefty margins and delivering a poor service for end-users. The Australian Competition and Consumer Commission began investigating Uber Eats after My Business exposed aspects of its contracts that imposed arguably unfair conditions onto restaurants when handling customer disputes.

Then, delivery people themselves began complaining about their employment conditions. This time it was Foodora in the firing line, with the Fair Work Ombudsman launching legal action over allegations the company had misrepresented employees as independent contractors.

This sparked regulators to take a wider look at the industry in general.

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Some would suggest that Foodora’s decision to quit Australia altogether in favour of “higher growth markets” is proof that Australia’s workplace rules are overly complex and driving out global businesses, or preventing them from opening on our shores in the first place.

Yet the entire model appears to have caused damage to all stakeholders apart from the delivery companies themselves.

IBISWorld senior industry analyst Andrew Ledovskikh noted that as well as leaving a trail of disgruntled drivers and small businesses, consumers are also worse for wear as a result of third-party delivery drivers, with convenience giving way to “higher prices for fast food and takeaway”.

“The pressure on third-party operators to ensure large investments pay off, and the possible increased costs to these operators if they lose regulatory battles surrounding contractor delivery drivers, will likely lead to consumers and small businesses facing higher charges over the next five years,” he said.

“Small percentage increases to costs over the next five years could mean significantly more money spent by consumers.

“To put this into perspective, the Australian Energy Regulator recently announced it would strip $2 billion in revenue from electricity networks in a move aimed at saving Australians up to $30-$40 off their electricity bill every year. An added 2.5 per cent gross sales commission on top of existing charges by third-party operators, passed on to consumers, would offset this entire saving.”

Mr Ledovskikh added: “Following Just Eat’s acquisition of Menulog, the commission rose by 5 per cent.”

The question will be, to what extent will consumers support higher prices. Where convenience reigns, there will continue to be demand for delivery drivers in the cheapest means possible.

But with in-house wages being unviable for smaller businesses, and regulatory enforcement driving the cost of the big players upwards, we could see drivers begin to snub the major players in the share economy altogether, instead contracting directly to local restaurants and cafes to stop the “sharing” of profits.

Analysis: Does Foodora exit signal death of share economy?
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