Buying into sharing economy not a sure bet

Businesses need to weigh gains against costs and loss of direct access to customers

Businesses need to be aware of what impact consumer interaction with either Deliveroo or UberEats will have on their own brand identity. Photograph: Nick Ansell/PA Wire

Businesses need to be aware of what impact consumer interaction with either Deliveroo or UberEats will have on their own brand identity. Photograph: Nick Ansell/PA Wire

 

The rise of the sharing economy has spawned the growth of many disruptive brands across a variety of industries. Nowhere is this more clearly evident than in the impact of sharing-economy apps on the Irish food industry.

UberEats, which launched in Ireland in late 2018, and rival Deliveroo, which has operated here since 2016, are two of these.

Globally, Uber has preached market growth over profitability, posting losses of $4.5 billion in 2017, while still generating a market capitalisation of an estimated $70 billion at the beginning of 2018 (as reported by Recode, though estimated valuations vary). UberEats itself is said to be growing global sales revenue at an estimated 200 per cent annually.

Deliveroo appears to be more focused on a sustainable growth strategy. In an Irish context, Deliveroo increased sales by 76 per cent in 2017, yielding a profit before taxation of €136,747, which represented a stark improvement on their 2016 loss of €2.4 million (though the company posted a £184.7 million global net loss in 2017 due to what it described as “significant investments” in operations).

Innovations within Deliveroo, specifically its shift toward a recurring revenue model through the release of Deliveroo Plus – a €9.99 monthly subscription service giving subscribers priority on special offers along with free delivery on all orders – may demonstrate that the company is scaling for long-term growth, without overtly damaging short-term potential for profit.

Typically, the sharing economy, where Deliveroo and UberEats reside, is built on five synergetic pillars: disruptive technology; social integration; democratisation; consumer trust; and consumer convenience. However, limited debate has taken place on the role of bricks-and-mortar retailers in this newly-created digital ecosystem.

Many traditional businesses are now implementing sharing-economy applications, with some demonstrating a lack of discernment as to what impact the digital pivot may have on their business and brand. So what needs to be considered?

Capacity maximisation

One benefit of using a sharing-economy app is that it may allow your business to reach previously untapped audiences. That can help with maximising the capacity of the business. A restaurant, for example, can utilise spare cooking time, staff resources and excess stock to generate additional business from customers who may not frequent the physical restaurant premises.

Several of the brands we consulted for a research project have grown revenues by upwards of 15 per cent through this approach.

Of course, both Deliveroo and UberEats take a percentage of this revenue – between 20 and 35 per cent – depending on the agreement with each individual restaurant, including exclusive access by one or other app. A decision to expand capacity – for instance by extra staffing, increasing stock levels and covering ancillary operational costs – requires a thorough decision-making process to determine if it is profitable from a business perspective.

Customer service: B2B offerings

Questions are also being asked as to the customer service of both Deliveroo and UberEats, in terms of their business-to-business (B2B) offering. Restaurants cite issues with the time taken to alter menus on the apps themselves and a lack of transparency on the algorithmic processes determining which restaurants appear higher in the consumer search interface. Concerns have also been expressed about the lack of transparency surrounding complaints procedures. Restaurants are, in essence, conceding control of their food to a third party with limited knowledge as to customer complaints about the end product. Finally, issues around the availability of delivery staff see many restaurants alleging double-jobbing among delivery drivers.

“Frank”, the Deliveroo algorithm that co-ordinates drivers, restaurants and customers, will soon improve service efficiency as its decision-making capability is enhanced. Current evidence suggests neither can account for delivery workers double jobbing across both apps, or others, delaying delivery to the customer and disrupting the overall customer experience.

Businesses need to be aware of what impact consumer interaction with either UberEats or Deliveroo will have on their own brand identity.

Brand identity

How your brand is perceived by the consumer is fundamental to the adopted marketing strategy of any food service brand. In an ever more competitive market, only premium brands that deliver on food quality excellence can charge premium prices. In transitioning to omnichannel consumption (restaurant and third-party delivery), brand owners must recognise how third-party delivery may induce cognitive dissonance among its current customer base.

If you are a premium Italian restaurant in the centre of Dublin and you transition to include a delivery option where the same food is served in plastic boxes with none of the carefully designed restaurant ambience, your brand could be devalued in the mind of the customer. With their perception of what it represents somewhat contaminated, will they return?

For convenience food brands, this is not so much of an issue, but for those that focus on a quality experience, the sharing economy may not be the right choice, even if profitable in the short term.

Future market implications

Finally, as economic agents of the economy, indigenous businesses must also consider the broader societal issues that have emerged from the introduction of sharing-economy apps. These specifically surround the emergence of a “gig economy” and the well-documented associated labour issues. It’s an ideological issue but businesses must ask themselves if they want to support the global apps that rely on labour policies, where the employee is replaced by the “just-in-time” worker, without the rights of a traditional PAYE employee.

Ultimately, the digital disruption of sharing-economy apps such as UberEats and Deliveroo may have an impact not only on the immediate business models of individual firms but potentially on the very concept of work and how it is manifested within the economy.

Dave Alton is a lecturer in marketing in the department of management and marketing at Cork University Business School, University College Cork

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