First there were Uber drivers who would come to your door at the touch of a button. Now there are people who will bring you a packet of cookies and some ibuprofen.
It’s easy to see the appeal of the new glut of super-fast delivery apps, which promise to bring groceries to customers in as little as 10 minutes. An investor in the sector was won over after ordering pistachios and a can of coke that arrived in seven minutes.
Having people at your beck and call is not a new idea. In countries like Britain, it was common for wealthy households to have servants. Mrs Beeton’s book on household management, published in 1907, stated that a household with an income of £1,000 a year should keep two or three servants, while even one on £200 a year should have a “young daughter for heavy work”. In some very unequal countries like India, wealthy households still have servants.
“On-demand” apps have enabled a consumer version of the luxury of having people on hand to do things for you – albeit an atomized collection of people you don’t know and probably won’t see again .
The Gig Companies have sometimes explicitly played on this theme. One of Uber’s early slogans was “everyone’s private driver”. Getir, one of the super-fast delivery apps, claims that it is “democratizing the right to be lazy”.
For some critics, the growth of this new “service economy” is a symptom of resurgence in economic inequality and an underclass without better options. But there’s another factor fueling its rise: Investors have subsidized consumers by funding companies that often charge less for these services than it costs to provide them.
Now this model is in danger. The big problem is that the money is drying up. A decade of cheap money gave way to high inflation, bleak growth forecasts and higher interest rates. Investors are starting to worry about putting money into loss-making companies. Shares of listed companies such as Uber, Lyft and Deliveroo fell sharply.
Many super-fast delivery apps are also cutting jobs in an effort to show investors they’re serious about profitability. “In channeling Jerry Maguire, we need to show them the money,” Uber chief executive Dara Khosrowshahi told staff in a recent memo.
But making money probably means paying workers less or charging customers more. It’s a bad time to try either. Unemployment is low and job vacancies are high in many countries, from the United States to Europe and Australia. Workers have more options than before. In addition, the high price of gasoline makes commuting all day particularly expensive.
On top of that, courts, regulators, and legislators are becoming more stringent about the need for employment rights and protections for gig workers.
The UK Supreme Court ruled last year that Uber does employ its drivers, meaning it owes them minimum wage, holiday pay and pension contributions. The EU has also set out plans to give employment rights to many construction workers currently treated as self-employed. A number of new super-fast delivery apps, including Getir and Gorilla, are already employing their employees.
Charging customers higher prices will also be tricky. Unemployment may be low, but high inflation is eating away at people’s wages. In the UK, the Bank of England predicted the worst squeeze on disposable incomes for at least 30 years.
There are already signs that people are cutting back on discretionary spending — and nothing is more discretionary than paying someone to bring a pack of cookies to your house.
Companies like to talk about the vast size of their TAMs, or “Total Addressable Markets”. In its initial public offering document, Uber said its TAM was “all passenger vehicle miles and all public transportation miles in every country in the world.”
Customers clearly appreciate the nifty technology deployed by gig companies such as Uber. But what will be the demand for these services once their prices increase?
It remains to be seen how many of these companies will survive in the coming years and in what form. But the golden age of on-demand service consumers is coming to an end.
In the decade after the 2008 financial crisis, when wage growth was pretty stagnant for many, these apps may have made us feel like we were richer than we really were, but with long-term hidden costs. Laziness may have become more democratic, but not for long. —Copyright The Financial Times Limited 2022