Deliveroo’s IPO: The Key ESG Takeaways
Deliveroo’s IPO: The Key ESG Takeaways
Fri 16 Apr 2021
For as long as I can remember, Tuesdays in my house are known as ‘Takeaway Tuesdays’. It’s the one weekday evening when I give myself a break from cooking, instead choosing to order something from a restaurant that I love. As such, when we went into ‘Lockdown 1.0’ in March last year, like many households, the frequency of my takeaways increased considerably. The company fulfilling my takeaway needs was, for the most part, Deliveroo. Whether I was isolating, too busy to cook or simply too lazy, I could often rely on my favourite meal showing up at my door in just a few clicks. Moreover, I would often succumb to temptation with Deliveroo’s latest lockdown innovation; pop-up kitchens that allowed central London restaurants to get over the distance barrier and deliver in areas beyond Zone 1. At this point, I could certainly call myself a fan. Though, does being a fan of Deliveroo’s services translate to being a fan of the company itself? This is what I asked myself upon receiving an email from Deliveroo a few weeks ago, titled ‘Interested in investing in Deliveroo?’.
Deliveroo had been gearing up for its stock market debut for some time now, so the news of its March listing in London was no surprise. However, the timing of the debut was certainly questionable. As the lockdown in the UK was beginning to lift, it was inevitable that household takeaway spending was likely to reduce significantly, with consumer preferences shifting towards outdoor eating. As such, IPO-ing just as we were about to come out of a four-month lockdown arguably could not be worse timing. Another interesting point worth noting is the fact that Deliveroo chose the 31st March as their IPO debut- the final day of Q1, when fund managers are inevitably rebalancing their portfolios. Thus, the last thing they would want is to enter into new and potentially volatile positions.
Additionally, ethical concerns now very much underpin many investment decisions. As such, a major ethical issue that came to the forefront in Deliveroo’s IPO surrounded the position on workers’ rights. Around one-third of Deliveroo riders earn less than the minimum wage and are still treated as ‘self-employed contractors’. Deliveroo’s business model, like that of other gig economy juggernauts such as Uber, relies on depressing labour costs. One of the ways in which it does this is by classifying its drivers as self-employed contractors, on the basis that they are performing services not for Deliveroo, but for each individual customer, with Deliveroo simply acting as a booking agent. This controversial structure results in Deliveroo not being required to pay a minimum wage, holiday pay, or pension. As a result, just this week, hundreds of Deliveroo drivers engaged in strikes to demand higher pay and improved working conditions. The action follows a survey published in March showing some couriers earn as little as £2 an hour. The striking drivers have been calling for a guaranteed living wage after costs, as well as holiday and sick pay. However, Deliveroo has insisted that the walkouts are being organised by a small union that “does not represent the vast majority of riders”.
Furthermore, another issue active asset managers face is the dual-class share structure of Deliveroo, which gives Co-Founder and CEO Will Shu a £500m stake and 57% of voting rights. This gives active managers virtually no power to hold management to account because of the rights that the CEO will hold for three years. Theoretically, Shu could run the business as he likes for a number of years with limited shareholder accountability. Notably, the CEO maintaining higher control resulted in Deliveroo being disqualified from joining the FTSE 100, which meant that passive index tracker funds were not able to buy the stock either.
Upon floating onto AIM on 31st March, the company saw more than £2bn wiped off its £7.6bn valuation, after its share price tumbled by more than 26% during its first day of trading. While Deliveroo’s IPO was eagerly anticipated, in part due to the mass uptick in demand for takeaway deliveries during the pandemic, studies and surveys are increasingly showing that demand for ESG-compliant portfolios has also increased significantly. As such, Deliveroo’s heavily touted IPO and its subsequent flop has highlighted the risks of overlooking the ‘S’ in ESG when making investment decisions. The future for Deliveroo’s share price remains to be seen. For the moment, the hotly anticipated food delivery company’s IPO has not delivered.