New EU Labor Rules Proposal Potentially a Threat to Logistical Players' Business Models in Europe

Bloomberg News reported a new European Commission proposal is expected to be published on Dec. 8 with regard to gig workers' labor rights in the region. Within this draft proposal, according to the article, the European Commission estimates additional costs for the sector could be as high as EUR 4.5 billion per year with the majority accounting for increased taxes and social security contributions for riders. If passed and approved by the European countries and European Parliament, the digital platforms would have the legal obligation to prove whether a worker is an employee or not. Although these elevated costs will likely be shared with customers, this is definitely a negative for the sector as a whole, since higher consumer fees will likely slow down food online ordering penetration and order growth. On a more granular level though and looking at our coverage list, we see this development benefiting (in relative terms) Just Eat Takeaway versus its main competitors in Europe such as Deliveroo and the European operations of Delivery Hero, both of which predominantly operate the gig economy worker model. Just Eat runs a hybrid model with both contractors and company-employed riders (Scoober) across Europe depending on local laws. In addition and more importantly, Just Eat's logistical orders are not a significant part of the business (less than 40% of European orders), with the majority of group orders being marketplace orders (restaurant delivers the order). In contrast, Deliveroo's group orders are predominantly logistical with significant exposure in Europe. For Delivery Hero we don't expect a material impact at the group level as the firm's European operations are only a small part of the group (less than 10%). That being said, it remains to be seen what the final form of the proposal will be and how many European countries will support and enact it. We maintain our valuations, and star and moat ratings for Just Eat, Delivery Hero and Deliveroo.