We all know the feeling of ordering a pizza in the middle of the day, on those movie nights and gaming sessions. Food delivery has become such an important part of our lives. Most of us can’t live without Online Food Delivery. Ordering food after a tiring day at office or college or just when you’re too lazy to cook, has become a blessing for people.
With the growing demand of comfort and ease, online food delivery industry is at it’s peak today. But did you know how Food Delivery Businesses work the way they do in today’s world? What are the strategies they use to succeed and stand out? Let’s read about the Business Model followed by Food Delivery Companies.
Food Delivery Industry- an Overview
Food Delivery is a courier service restaurants, food stores, or any other third-party seller delivers food to customers on demand. Eversince it grew as a trend, food delivery orders have been possible from phone calls to websites and via mobile apps.
Food delivery not only offers dishes from different cuisines but also packaged food items groceries from stores. Catering businesses and wholesale food stores are also a form of food delivery business.
As per the records, food delivery sstsrted in 1889, in Italy. King Umberto and his Queen Margherita called Raffaele Esposito, who created Pizza Margherita, to deliver a pizza to their palace in Naples. Who knew this was the beginning of an ever growing business.
Let’s talk about how the modern food delivery system gained popularity. In the 1950s, most of the American restaurants offered delivery service. This became a trend when most of the American middle class was at home watching TV all day. Mobile phones made delivery businesses popular and restaurants got over 50 per cent of profit in such a short time.
Today, technology is growing increasingly. Now you can order anything, anywhere just through your mobile screen. Online food delivery apps! Yes this is the main reason for such high success of food delivery industry. The global online food delivery market has reached a value of US$ 106.1 Billion in 2021. The revenue is expected to reach US$ 223.7 Billion by 2027, with the growing consumer demand. The overall demand of for food delivery industry is increasing by 3.5 per cent per year.
Food Delivery Business Models
Food delivery industry has it’s own forms. Platforms that contribute and partner up with restaurants, delivery drivers, a well framed model where eveything is done in an organisation, all of these are are involved in a food delivery business.
1. Platform to Customer Model
In this model, the third-party apps list and suggest restaurants close to the customer’s location, via a website or a mobile app.
Customers can easily order food from restaurants they find most convenient and get the food at the doorstep either through the restaurant or the delivery platform driver. Some of the most popular examples of such a model are DoorDash, Deliveroo and UberEats.
Usually, these platforms will take a 20-30 percent charge from the order rate. But this cost might even rise based on various factors.
The Platform to Customer model makes a revenue around 63 out of the $122 billion per year. It is the most dominant form in the food delivery industry.
2. Delivery Service Collectors
This is the aggregator model, which eventually becomes a part of the platform to Customer model. But let’s know about this section in detail. In this model, customers and restaurants are connected through the platform service.
Platforms also provide customer support when customers face issues with the delivery service.
For every successful transaction, charges are fixed or variable. Some popular examples are JustEat, Delivery Hero and Grubhub.
A lot of delivery companies are adapting different subscription models to attract more customers. Customers can pay a monthly fee for free delivery and exciting offers.
3. Full – Stack Model
This model is for in-house performance. Every activity of the organisation is kept in-house. With this model, businesses create and built their own apps, hire drivers and prepare the food as well.
These are mostly the ghost or cloud kitchens. These kitchen businesses are set up with the purpose of preparing food to deliver. The food is prepared in cheaper areas, and owners have to only rent out space for kitchens, while delivering food in nearby locations.
But this model comes with it’s own drawback. Budget can be a major issue as significant investments are needed to launch platforms like these. But once cloud kitchens are well known for their quality of food and delivery, they can easily get to a peak. Since everything is in-house they can inspect and improve their quality of food too, which will eventually benefit the business.
3. Restaurant to Consumer Model
This Food Delivery Business Model has restaurants delivering food to the customers without involving a third party delivery system. Some of the most famous examples are Domino’s, McDonald’s, Burger King.
These companies have been highly popular and offer food delivered through their websites, app or join a delivery platform. Food chains like McDonald’s offer delivery in selected countries via it’s own app and partners up with delivery companies like DoorDash to deliver orders to rest of the places.
One of the best businesses acing the food delivery game is Domino’s. Here are some features that has made it a successful pizza chain:
- Live tracking app
- Drones for automated delivery
- Dom- a voice recognition system to place orders.
Pros and Cons of Food Delivery Business Model
Today, Online Food Delivery applications are making delivery businesses popular. To build these applications isn’t easy but the growing demand of online easy ordering has made all businesses get on online platforms.
Today, a lot of delivery apps have become the most used apps in our daily lives. Food delivery startups are increasing investing in huge capital in app development.
Let’s read about the pros and cons of running a food delivery business.
Advantages of Food Delivery Business Model:
- Product Reliability
When customers become comfortable with an app, they would barely switch to another one. Increasing competition in the market can make customers explore more though.
- Business Network Effects
In today’s digitised world, food delivery platforms connect buyers and sellers, creating a wide network that is extremely beneficial for the business. Once customers are attracted to an app, there are high chances for the delivery company and partnered restaurants to grow their network leading to profits.
- Supply Prioritization
Delivery companies can decide the restaurants and suppliers they wish to promote and partner with. Most companies go for brands with higher margin and that are more consumer friendly.
- Pricing Moves
Once a business hits a certain number, it can set prices and commission according to their marketing strategy. Many food delivery businesses have raised fees after getting more demand in the market and standing out among their competitors. Restaurants and food businesses eventually agree to the raise prices since they need a stable marketplace.
- No legal commitment to drivers
Most delivery businesses have drivers hired on contract basis. Companies pay the drivers only when they’re working on board. Most companies don’t have to pay for the medical insurance or give paid holidays.
Disadvantages of Food Delivery Business Model
- High Operating Cost
This is a major issue for most businesses. Massive Operating cost and thin margins can get companies into a high loss. In 2019, DoorDash supposedly lost $400 million and Postmates had to lay off many employees and shut some offices too. Food Delivery Businesses that follow the full-stack model face this issue as every activity is kept in-house.
- Operational Complexity
App development isn’t an easy game! Companies often struggle with developing the app, investing in developement and human resources and finding convenient restaurants and driver team. The whole process is highly complex and even the slightest mistake can backfire.
- Fierce Competition
Online Delivery Apps have become highly trendy and there are plenty businesses in the market. It can be extremely hard to businesses to be noticed and to stand out in the overcrowded market. Not only do delivery apps compete with other businesses of its kind but also with traditional restaurants and consumer demand.
Metrics and KPIs
Food delivery has it’s own steps and involves multiple parties. A food delivery management system needs to track all activities performed by these parties. These parties include the owner, restaurants, drivers and customers.
Let’s see how this works:
To check how mature the business has become in addition to displaying advantageous tendencies to buyers and key stakeholders, it is crucial to track company-wide platform KPIs. These span over more than one stakeholders and predict the general achievement of the business.
Total Amount of Orders
Next to the money you’re making, understanding how many orders you receive is the most important metric while analysing the status of your delivery business.
In the global market, entrepreneurs are most likely to invest in companies that get more orders. Food Delivery companies mostly get double the amount of orders received per month.
Established businesses like GrubHub grow consistently with a rate of of around 20 to 30 percent per annum.
Average Delivery Scale
The Average Number Of Deliveries/Orders Per Hour demonstrates whether or not a business has accomplished enough density to realise sustainable unit economics (i.e. wonderful contribution margins).
Consequently, the better the quantity of deliveries and orders in step with hour turns into, the greater indicative it turns into how plenty scale a platform has accomplished.
To calculate it, virtually the full quantity of orders and/or deliveries in step with hour over a given timeframe (e.g. week, month, or quarter) and divide via way of means of the quantity of hours chosen.
Let’s anticipate we need to compute the common quantity of deliveries for one day. In our instance we fulfilled 2000 orders for that day, with an afternoon being 24 hours. That might yield a median of 2000 ÷ 24 = 83.three deliveries in step with hour. The calculation also can be damaged down over a larger timespan.
For instance, we are able to get the full quantity of orders for one week for 1 to 2pm and divide it via way of means of the quantity of days (=7) to obtain the common quantity of orders we obtain among 1 to 2pm.
Average Profit Per Delivery