ROOTED: Deliveroo just shut down in Australia

Online food delivery platform Deliveroo has placed its Australian subsidiary under voluntary administration and ceased local operations.

The London Stock Exchange-listed parent company withdrew its support from Australian operations Wednesday afternoon, appointing KordaMentha’s Michael Korda, Andrew Knight and Craig Shepard as managers.

Deliveroo’s bust comes just four days after local grocery delivery start-up Voly went out of business 12 months after launch, having burned $18 million. Rival Send slides shut down in May this year.

The company had served more than 12,000 restaurants, employing approximately 15,000 delivery drivers and employing approximately 120 local employees, and had expanded into grocery and liquor deliveries.

Deliveroo launched in Australia in 2015 and is headquartered in Melbourne. But it failed to gain traction and find a path to profitability amid fierce competition from rivals such as Uber Eats, DoorDash and Menulog, in addition to new competitors entering the market on a regular basis.

Last year, Deliveroo also ran into trouble with regulators when the Fair Work Commission found a driver was unfairly fired for being an employee, not a contractor.

The nine-year-old company. whose share price has fallen 66% in the past 12 months, will close its activities in the Netherlands on 30 Novemberafter the idea was originally floated in August.

Australia generated about 3% of global sales, but operating costs reduced the company’s EBITDA by about 0.3%. The app shut down and stopped taking orders ahead of the Wednesday afternoon announcement.

In a statement to the LSE, the company said the Australian market is “very competitive and had no path to profitability”without significant financial investment, and the expected return on such investment is disproportionate to Deliveroo’s risk/reward thresholds”.

In an ominous sign that its London parent company could penalize local businesses as it heads for its exit, Deliveroo said it will present a Deed of Company Arrangement to the trustees “outlining the appropriate compensation packages it intends to provide its creditors” .

That includes guaranteed enhanced severance pay for employees, as well as benefits for riders and certain restaurant partners.

Chief operating officer told them the focus is on supporting employees, riders and partners through the process.

“This was a difficult decision and not one we took lightly. We would like to thank all of our employees, consumers, riders and restaurant and grocery partners who have been involved in Australian operations over the past seven years,” he said.

The delivery service operating in 15 cities including the capitals and regional areas such as Ballarat, Bendigo, Gold Coast, Sunshine Coast, Geelong, Wollongong, Newcastle and Cairns.

After withdrawing from two countries, it still operates in 10 countries, but despite generating more than US$1.2 billion in revenue worldwide, it has yet to make a profit.

KordaMentha’s Michael Korda said Deliveroo was unable to gain enough market share in Australia to develop a sustainable business.

“Doing this will require significant ongoing investment in the Australian market. That is why Deliveroo Australia’s UK parent company has announced that it has decided to end funding for Deliveroo Australia,” he said.

“With no ongoing funding, the CEO of Deliveroo Australia decided to put the company into receivership. Administrators had no choice but to immediately cease operations for lack of financial support.”

Korda said their priority was an orderly wind-down of Australian operations to achieve the best outcome for all stakeholders.

The first meeting of creditors for Deliveroo Australia will be held on Monday 28 November. The future of the company will be decided at the second meeting of creditors, which is likely to take place in mid to late December.

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