Newly floated Deliveroo has dished up a banquet of grocery delivery deals since its IPO – but whether there is sustained appetite from the supermarkets for the platform must be open to question.

Just a year ago, as the full force of the pandemic struck, it looked as if Deliveroo’s future was in jeopardy and it was argued only investment from Amazon would save it. But since then, deals have piled up like plates of mezze on a taverna table.

In the last few weeks, Deliveroo has extended a pilot scheme with Sainsbury’s to 100 stores, serving about 30% of the UK’s population, and expanded its relationship with Waitrose to serve 150 branches by the summer. 

It is not just in the UK that Deliveroo is teaming up with big grocers – it is rolling out its service with Carrefour in the giant’s domestic French market and other countries.

“The IPO was widely viewed as a flop as the City looked askance at three big factors: profitability, governance and ethics”

Partnerships have increasingly become a feature of the retail landscape as established retailers acknowledged the benefits of working with the new generation of tech companies rather than attempting to replicate their strengths. 

Deliveroo rider in Cardiff

Deliveroo has been criticised for how it manages its riders

The Covid-19 outbreak epitomised the merits of that approach as Deliveroo helped food retailers to scale up home delivery as online demand soared. For the platform, grocery partnerships created a vital income stream as its established customer base of restaurants was shuttered by lockdowns - although in the event there was a quick bounceback as eateries switched into takeaway.

Deliveroo sees grocery partnerships as key to its future. Its prospectus said: “We believe that online penetration of convenience grocery is just getting started and that there is very significant headroom.”

That is undoubtedly true. Consumers, used for some time to doing the weekly shop online, increasingly expect the same when convenience shopping – a trend that not only reflects factors such as single-person households in urban areas, but also the experience of the pandemic. Such habits and expectations, once formed, will prove sticky.

But that does not guarantee Deliveroo will automatically retain its popularity. The IPO was widely viewed as a flop – it is worth remembering though, it still has a bigger market cap than Marks & Spencer – as the City looked askance at three big factors: profitability, governance and ethics.

The first two primarily concern the company and investors. The third, however, may ultimately affect retailers. 

Rivals on the rise

Investment group Aberdeen Standard UK head of equities Andrew Millington told the BBC Radio 4’s Today at the time of Deliveroo’s IPO: “We wouldn’t be comfortable that the way in which its workforce is employed is sustainable.”

He made comparisons with Boohoo, which Aberdeen Standard sold out of in the wake of allegations of exploitation at factories run by suppliers to the fast-fashion etailer.

That is the comparison that should set alarm bells ringing among grocers. Should concerns about Deliveroo grow, will food retailers end up being tarnished by relationships with a supplier, in the same way Boohoo was? Boohoo’s share price has not yet recovered to the level it was at when conditions at Leicester factories were exposed last summer.

Aside from that, other players are chasing the “significant headroom” for growth that Deliveroo identified. Several rivals are emerging, such as Weezy and Dija, which are likely to pile pressure on margins in delivery and give grocers a choice of partners – some already work with Uber Eats as well as Deliveroo. Some of the newcomers may primarily see an opportunity to make their money through sales as consolidation inevitably occurs.

Some of the grocers may drive that consolidation themselves by snapping up some of the most promising start-ups. Some already have their own rapid delivery services, such as Sainsbury’s Chop Chop. What is to stop them from ditching Deliveroo as they build scale? Some of the deals with Deliveroo remain pilots, such as with Sainsbury’s, or are quite short, like the two-year deal with Waitrose.

That is not to dismiss Deliveroo. Anything that Amazon thinks is worthy of significant investment should not be written off. 

But it is not the only show in town. The best thing it could do to help ensure a long and happy relationship with food retailers is to address the criticisms that have been made to ensure it is not taken off the menu as competition hots up.

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