Deliveroo Australia has sacked 150 staff and kicked almost 12,000 restaurants, and 14,500 riders off its platform after the British parent company pulled funding.
Deliveroo said the Australian operations were not profitable and could not continue without substantial financial investment to support the delivery platform.
The Deliveroo app has been switched off and orders cannot be placed through the platform, with customers attempting to use the app met with a message saying “there’s been a problem”.
Deliveroo Australia CEO Ed McManus told staff about the move to close the business late on Wednesday, with KordaMentha administrators appointed to manage the closure.
KordaMentha partners Craig Shepard, Andrew Knight and Michael Korda have been appointed Deliveroo Australia’s voluntary administrators.
Mr Korda said Deliveroo was unable to achieve sufficient market share.
“Given this, Deliveroo Australia’s UK parent has advised that it has decided to cease funding Deliveroo Australia,” he said.
“Without ongoing funding, the director of Deliveroo Australia resolved to place the company into administration.”
A skeleton staff will be retained at Deliveroo Australia’s Melbourne office to ensure the shutdown, with the company announcing it was working with administrators to prepare a deal to pay restaurants and riders.
Deliveroo said it would pay riders and drivers who completed deliveries in the past three months four weeks of compensation pay.
Compensation will be calculated against a driver’s average weekly earnings in the past 12 months.
Riders and drivers will receive two weeks of pay within the next eight days, but the remainder has been quarantined until the execution of the deed to terminate Deliveroo Australia set for late December.
Deliveroo said the deed of company arrangement would include compensation for “certain restaurant partners”.
In an email to customers on Wednesday Deliveroo revealed it was “leaving Australia”.
“Deliveroo, like all other companies, is now doing business in challenging economic conditions, which requires us to take difficult decisions,” the company said.
“In Australia, we have concluded that achieving a sustainable position of leadership in the market is not possible without a disproportionate level of investment which would have highly uncertain returns.”
The closure comes amid hot competition in Australia’s food delivery market, with Deliveroo noting Australian business represented only 3 per cent of the company’s total gross transaction value and negatively impacted the company’s adjusted earnings by “approximately 30 basis points”.
“Deliveroo does not hold a broad base of strong local positions,” the company said.
A recent spate of interest rate rises designed to head off inflation have been weighing on consumer spending, with the International Monetary Fund warning on Wednesday more rate hikes were necessary in Australia.
In a recent trading update Deliveroo said it was pushing for profitability, flagging plans to break-even in the middle of the 2023 financial year or in the first half of 2024.
However, the company noted orders were down 7 per cent “reflecting summer seasonality in European markets and current consumer headwinds”.
The company also slashed its earnings guidance, down from 1.5-1.8 per cent growth to 1.2-1.5 per cent.
Deliveroo also recently appointed a new chief financial officer, with David Hancock announcing he would step down from the job in place of Scilla Grimble.
“Following today’s announcement, there is no change to Deliveroo’s previously-communicated financial guidance on GTV growth and adjusted EBITDA margin for 2022 and beyond,” Deliveroo said.
Deliveroo’s chief operating officer Eric French said the decision to shut its Australian operations were “difficult and not one we take lightly”.
“We want to thank all our employees, consumers, riders and restaurant and grocery partners who have been involved with the Australian operations over the past seven years,” he said.
“Our focus is now on making sure our employees, riders and partners are supported throughout this process.”
Extracted from The Australian