Delivery Hero: The gentle exploiter

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Driver of the Delivery Hero subsidiary Foodora: "All this company wanted was a monopoly in order to be able to treat its employees even worse"

Niklas Östberg is not as bright as many start-up founders. The 40-year-old usually appears calm and level-headed, goes fishing with his children in his free time, he has that charming Swedish accent when he explains his business vision to interviewers on podiums.

The logo of his company Delivery Hero is a red and yellow, always friendly-looking superhero. In their headquarters, an old Berlin telecommunications office, mostly young people work who mostly speak in English.

Sounds like a friendly start-up - and a nice boss too. In fact, Niklas Östberg's company has to assert itself in one of the world's most competitive markets. Indeed, many consider Delivery Hero's business model to be exploitation.

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CEO Östberg: Aggressive growth course

Either way, the company will now be given one of the greatest honors in the German economy: It should move up to the Dax next Monday.

The official decision will be made on Wednesday night. Then the stock exchange in Frankfurt am Main wants to announce the exclusion of the insolvent Munich payment service provider Wirecard from the German leading index. Delivery Hero, currently listed in the M-Dax, should move up.

For Östberg and his company, this rise would not only mean prestige. It would also have tangible economic advantages. Index funds, so-called ETFs, precisely replicate stock market indices. Dax ETFs will soon have to buy Delivery Hero shares. The price of the relatively young company should then rise. Even more so than he already does.

Delivery Hero was only founded in 2011, but is already active in more than 40 countries and, according to its own information, employs around 25,000 people. With its platform model, in which customers are referred to restaurants and delivery services, the Berlin company quickly became one of the most important tech groups in Europe. And it's still growing rapidly.

Delivery Hero became known in Germany with its own and acquired brands Lieferheld, Pizza.de and Foodora. Meanwhile, the company is no longer active in this country. Around a year and a half ago, it sold its German business to its Dutch competitor Takeaway. Purchase price: around one billion euros.

The Berliners used the money for their expansion in other parts of the world. At the end of 2019, Östberg's company took over the majority in South Korean competitor Woowa for 3.6 billion euros. Delivery Hero generates the majority of its sales in Asia - similar to the allegedly Dax relegated Wirecard.

The record earnings only tell half the story

Östberg's aggressive growth course is reflected in initially impressive figures. In the second quarter, Delivery Hero recorded 281 million bookings on its platforms, almost twice as many as in the same period last year. Annual sales could even more than double in 2020: up to 2.8 billion euros.

But the record earnings only tell half the story. There is a fierce battle for competition raging in the delivery services industry. In the end, only a handful of companies will be left that will divide the world market for food deliveries among themselves.

Delivery Hero wants to be one of those companies. Östberg's company is taking corresponding risks, is penetrating new markets with high investments and attracting new customers at high cost.

And Delivery Hero's losses are correspondingly large: in 2018 it was minus 242 million euros, in 2019 even minus 648 million euros. According to analyst estimates, a loss of 352 million euros was incurred in the first half of 2020. Originally, Delivery Hero wanted to be operationally in the black as early as 2018.

This does not harm the success on the stock exchange: Since the beginning of the year, the share has increased by 47 percent to around 104 euros. Delivery Hero is now valued at 20.7 billion euros. The company is already worth more than Deutsche Bank. Investors seem to believe in Östberg's growth story, in his hero's journey. Although there are definitely warnings about the company.

There are weaknesses in the corporate governance of Delivery Hero, said Christian Strenger, ex-DWS boss and expert for good corporate governance, the "Handelsblatt". The young company is not yet ready for the Dax. After Wirecard, the German stock exchange is threatening to bring the next potential problem into the house.

Employee representatives are also critical of Delivery Hero. Because the company often treats its drivers legally as self-employed, only pays them for journeys that have been completed instead of hours worked. The wages are accordingly manageable.

In Canada, drivers from Foodora, a subsidiary of Delivery Hero, wanted to set up a union. Foodora warned them not to complicate the relationship with the company "through third parties". The company threatened that union dues could cost drivers "up to $ 1,100" a year. Before the national agency for employer-employee relations, the delivery service argued that the drivers did not have the legal requirements to form a union.

The drivers went to court and won in all instances. Shortly thereafter, Delivery Hero decided to withdraw from Canada with immediate effect. "All this company wanted was a monopoly in order to be able to treat its employees even worse," said Alex Kurth, one of the drivers involved, to SPIEGEL in June.

Niklas Östberg denied this. He also rejected the allegations about his business model. Only in the regions where you are expanding are you not profitable, he said. In other markets you would be earning money long ago.

New business areas are also to be added soon. Last December, Östberg took over the Berlin start-up Honest Food, which specializes in so-called ghost kitchens: cooking areas without restaurant space, from which chefs deliver food to local residents. 

Such concepts are a challenge for classic gastronomy. For Delivery Hero they are a new potential source of income - which should help to continue the growth story.