On-demand food delivery startups have the same psychological value in the on-demand economy– pledge to save people time and effort when it comes to ordering food through built on a sustainable food delivery business model.
One of the fastest-growing industries in the past years is, unsurprisingly, food delivery apps. Food is an essential human need, and having your food delivered from your favorite restaurant has never been easier thanks to apps that connect a number of actors into the same platform. Thanks to food delivery platforms, restaurants, consumers, and delivery companies’ personnel have benefited in unprecedented ways.
Food delivery digital trends have been very positive, and they still have the potential to keep on growing, but first, they have to face some challenges. In this post, we analyze how food delivery apps work, how they make money, and what the future of the food industry holds for them.
FOOD DELIVERY BUSINESS MODEL
#BUSINESS MODEL – 1: ORDER ONLY MODEL
The model is followed by many food delivery services such as Delivery Hero, JustEat etc., and serves as pure tools for independent restaurant ordering. The key point of sale of this online food delivery business model is to attract new customers through both an integrated web and mobile channel.
- The Food Ordering Process
The food ordering process works this way under this model:
- Customers put an order on the website/mobile app first.
- The restaurant will then collect your order via the app or dashboard.
- The restaurant will alert the order has been received via an email or an automated phone call.
- Delivery Process
The delivery process has two different possible scenarios.
- By the delivery person who is employed by the restaurant.
- By the delivery person who is employed by the company.
Start-ups with this model are limited in terms of price and cuisine in their service offering on request. They are primarily associated with consumers with relatively low-key delivery foods such as burgers, pizza, Chinese, etc. Food startup can’t control and/or optimize the quality and speed of food delivery services with this model.
Benefits Of This Model
Online Food delivery companies are not going to have to worry about cooking or shipping this model. Such start-ups tend to charge 10-15 per cent for food delivery services. And, being a pure software company, they have great scale possibilities and remarkable growth.
BUSINESS MODEL – 2: ORDER & DELIVERY MODEL
Order and delivery platforms handle logistics for restaurants, food joints, and home delivery services. A partnership with this these platforms is beneficial for any eatery as they don’t have to search for and pay couriers or maintain vehicles.
Order and delivery services cut 20 to 30 percent on the cost of each order and may charge a flat delivery fee to customers. UberEats went even further: the company offers to make restaurants pop up at the top of search results for a marketing fee.
Main challenge: arranging an efficient delivery system
The delivery time matters most for customers. Delivery speed is a key factor of satisfaction for 60 percent of customers. Besides, food must be kept at a consistent temperature to stay fresh and tasty.
The time factor is especially critical for lunch orders, as working people usually have a limited lunch break. Delivery in under 30 minutes counts as great service. Wait times of one hour or more can upset customers and increase the churn rate.
Among common delivery types are milk run and point-to-point delivery. Each of the types has its own pluses and minuses.
Milk run delivery
With milk run delivery, a food delivery company has a base of couriers for regular deliveries. The company maps a fixed route for each courier that reaches all delivery points in one run.
Strengths: The milk run model helps a food delivery platform reduce operating costs.
Weakness: The milk run model doesn’t work whenever someone requests a different delivery time or wants to make changes to their order.
With point-to-point delivery, a food delivery service uses a network of standby carriers and assigns a particular order to the carrier closest to the eatery. That carrier takes the food from the pick-up location and delivers it to the drop-off point.
Strengths: With point-to-point delivery, a company is able to provide flexible and efficient delivery services for customers.
Weakness: Sustaining a solid delivery network of motivated couriers takes lots of effort and investment. For example, DoorDash pays over $200 for each carrier recruited, and carriers typically stay with the company for only three to six months. To maintain a team of 25,000 carriers, DoorDash has to spend around $5,000,000 every few months.
#BUSINESS MODEL – 3: FULLY INTEGRATED MODEL
Also called the Full Stack Model, here one service provider takes care of the entire food chain.
Right from preparation to drop-off, this online food delivery business model is unique and warrants a high capital investment.
To prepare the food, you can further take two different routes:
- Set up your own kitchens and hire the entire staff.
- Hire cloud-kitchens or ghost kitchens. They will prepare the food that will be delivered to the customer under your banner.
However, the food preparation facilities are not open to a dine-in.
They are only responsible for preparing the food and handing it over to the delivery department.
In this food delivery business model, you will be responsible for maintaining quality standards.
Not just in the delivery aspect, but also in the preparation of the food too.
|Since it combines food delivery with other aspects makes this model a preferred avenue for investors.||The end-user is usually attached to a restaurant name and will tend to order from their favorite eatery.|
|You will have full control over the entire supply chain of the orders.||The startup cost of this business model is higher as it goes beyond the food delivery aspect.|
|No dine-in means the setup cost of a restaurant will be much less.||Managing the whole network of operations is complex.
Inefficiency in any aspect can lead to low-quality service.
Main Challenges to Overcome
Cost is one of the biggest challenges in this business.
Whereas the food delivery and other charges might be at par with others, the food preparation is an added aspect in this model.
Even if you can cover the cost aspect with funding or bootstrapping, acquiring the customers without a branded restaurant name is not easy.
People might like to change their food habits occasionally. Still, the basic premise is to try out new recipes, rather than new restaurants.
Lastly, the food delivery cost is also on the higher end in this business model.
Maple’s working model succumbed to this bottleneck of high courier cost and lower profits in food delivery.
They started losing money on every meal. And soon, the cumulative loss climbed to $9 million.
How to overcome them?
Well, getting the required funding depends on your initial investment and your ability to secure funds.
- The investor sentiment depends on the potential of your startup that is backed by an outstanding pitch.
- The convergence of all three segments of the online food delivery business model is what interests the investors.
Dahmakan, which has a similar food delivery model, is working in Malaysia. And just recently, it has secured $18 million in Series B funding.
For getting the customers:
- Provide high-quality standards of food.
- Run effective PR campaigns.
- Give out discounts and promotional offers.
- Use social media channels to your benefit.
How to Generate Cash
Since the entire management of services and deliveries is under your control, generating revenue from this model is easy.
More importantly, food delivery resting on a comprehensive model paves the way for a higher profit.
|Service Charges||Along with the profit earned on food delivery, you can also put an extra service charge in this business model.
This charge can be in the form of priority deliveries or even a subscription for free deliveries.
|Profit Generation||The potential to scale in such a food delivery business model is huge.
If you are able to market your service with efficiency and use technology to your benefit, it is possible to build a mammoth business.
|Special Packages||Since you will be taking care of the entire network of operations, it is easier to leverage from high-earning opportunities.
You can take special orders or go for a meal-kit food delivery model.
Taking orders in high volume from corporates and other businesses is something that you can consider.
#BUSINESS MODEL – 4: CLOUD RESTAURANT MODEL
Do you want to start your food delivery business from home? Then the cloud restaurant model is the most efficient choice.
In this food delivery business model you don’t need a restaurant. When a customer places the order, it goes to a central kitchen. The central kitchen will prepare the order and delivery personnel will deliver it.
In recent years, people who choose this business model got a lot of funding.
If we compare this business model to the initial two, this business model requires less investment.
The major advantage is that you are in complete control of the business activities. Hence, you can use the resources as per your needs.
As you are running the business without any physical presence, you require a seamless app.
For a perfect app, find a food delivery app development company with experience in the industry.
For a competitive edge, you can customize the core services. How is that possible? You will be able to do it as the investment is less.
Also, you did not invest in real estate. So, you get complete freedom to operate your business.
#BUSINESS MODEL – 5: MEAL KIT DELIVERY MODEL
This is maybe an out of the box food delivery business plan, but it is profitable. You just have to deliver premium quality ingredients to your customers.
You can give a variety of options in vegetarian and non-vegetarian meals. The customers will have the option to choose the number of recipes they want every week.
You will deliver recipes and ingredients as per the plans customers choose.
All of this sounds easy from a bird’s eye view. What about the implementation? First, you will require a team of chefs who can create unique recipes.
Second, of course, a team of delivery personnel to deliver the meal kits. Third, suppliers that provide premium quality of ingredients.
Are you forgetting the main ingredient in this whole recipe? Yes, your customers. Your customers will be people who prefer to cook a variety of dishes at their home.
You can earn high revenue in the meal kit food delivery business model. We can say this with a guarantee because customers will subscribe to your services.
It can be on a monthly or weekly basis. But it is definitely not a single order thing. Talk to your food delivery app development company to see if you can implement the idea.
If you are keen to start your own food delivery business, it is imperative that you have a good knowledge base of how the business works.
Talk to us. Appscrip is an expert in deploying hundreds of successful food delivery businesses around the globe. We have evolved over a period of seven year and perfected the art of delivering a successful food delivery app.