The Food Delivery Business Model – Complete Guide for Founders

Introduction

The food delivery industry is undergoing phenomenal growth, especially post-COVID crisis. Post-pandemic, people choose to stay in the comfort of their own homes and order food online. Online food delivery companies are well aware of this and choose various food delivery business models that ensure seamless and faster food delivery coupled with innovation in features and other services.

Convenience is one of the major factors in deciding on-demand food delivery business models as it can create an impact amongst the customers. But, the rising competition with an increase in the number of food delivery apps would mean that there are all the reasons why you need a food delivery app by choosing from the range of food delivery business models.

According to figures, online meal delivery revenues are expected to reach $220 billion by the end of 2023. This segment generates approximately 40% of all restaurant sales. Online meal delivery services took 13% of the U.S. restaurant business in Covid-19, according to Statista.

Few Stats on Food Delivery Business Model

• At least twice a week, 60% of US customers place an online food order.
• 57% of millennials want meals delivered to their homes.
• CAGR (2022-2026) revenue growth of 8.38 percent is estimated, culminating in a market volume of USD 474.30 billion by 2026.
• For Platform-to-Consumer Delivery, the biggest sector, the market is expected to be worth $217.80 billion in 2022.
• ARPU (average revenue per user) is expected to reach US$177.10 in 2022 in the Online Food Delivery sector.
• By 2026, online food delivery consumers are estimated to reach 2,691.0 million.

Types of Food Delivery Business Models

In this post, we will look at all of the different types of food delivery business models available to your business. As a food delivery startup, you need to know that each model has pros and cons. Choosing the right model would require knowing what works best per your business plan. If you are looking to enter this market anytime soon, it is best to have a thorough grasp of its business strategy before you do so.

Looking to start your food delivery business but not sure of the model?

#1. Order Only Business Model OR Platform To Consumer

For new startups, this is an excellent business plan to follow. Here, the application business can link customers with various restaurants and cafes. App owners give a platform for eateries to list their food delivery services and connect with customers.

In turn, restaurant owners manage the delivery services themselves. Your on-demand food delivery app development is solely responsible for taking orders from customers and distributing those orders to the eateries. However, this is a company strategy that relies only on orders.

For consumers, delivery is a service provided by the restaurant or a third-party courier service. Remember, the logistics are out of your hands as an app owner. Rather, your work involves being an intermediary between the restaurant owners and their customers through this application.

Consumers may then place an order with one of these partner restaurants, and the meal will be delivered by a rider employed by the restaurant or by a third party. Typically, you can expect to get a 20% to 30% cut of the order value, on top of any shipping costs that may be incurred.

A typical order workflow in this model will be as follows:

• Customers can leverage your apps or a website to place an order.
• Further, you would place an order by sending it to the nearest restaurants via an app notification.
• Once the restaurant gets the order, it will confirm the same, and consumers will be notified.
• It is possible to print orders to the kitchens via a POS system and attach them to the order box.
• Once ready, the delivery person assigned to the order will come to pick up the order at a restaurant.

👉 Challenges

The major challenge is to overcome the competition. Therefore adding more restaurants to your portfolio may be difficult. Also, you cannot jeopardize your brand by adding less well-known restaurants. You will need resources to create effective sales presentations for onboarding restaurant chains. So, a lot will depend on how you present rather than the business idea itself, operating in a competitive market.

Here, the challenge involves finding the right USPs of your app to onboard more restaurant owners.

💰 Monetization Options

For starters, you can employ a model based on commission. Here, you can set a price for restaurant owners and charge them for each order made via your app. And then, you have the option to go with a feature-listing approach where restaurants pay a fee to have their businesses listed in the top-feature list.

Examples: Grubhub, Seamless, Foodpanda, etc.

#2. Order With Delivery Business Model OR Delivery Service Aggregators

In this food delivery business model, the logistics are handled the same way as in the previous business model. As a result, the app owner accepts and delivers meal orders from the app’s users. In this arrangement, restaurants don’t have to worry about maintaining their fleet of vehicles.

Because the app already has a large client base, it may also reap the benefits of that customer base. Delivery of meals to customers’ homes is handled by a single app developer working with a number of different third-party delivery services. You can also include delivery modes as a part of this process.

It can be point-to-point or milk-run delivery.

A. Point-to-point: The rider picks up one order from one restaurant and brings it to one customer.

B. Milk Run: Numerous orders are collected from a single location and delivered to multiple consumers by a rider in this model. Here, you create a delivery person for frequent deliveries. Each delivery partner has a predetermined path that they must follow to make all of their deliveries on time.

A typical workflow under this model involves

• Customers browse the menu and place their orders using an app.
• Customers get the notifications via email or text message whenever there is an order update.
• As soon as the order is ready, the restaurant will send a message out to its network of messengers, including the rider, customer, and your business admins.
• The delivery will be picked up by a nearby rider who has accepted the order.
• Here, customers will be charged a delivery cost depending on their location.

👉 Challenges

It becomes more difficult for you to locate resources and form your own logistics team. If you do this incorrectly, you may hire inept leaders who will not be able to keep up with the delivery pace. The brand’s reputation is tarnished if the stated delivery time is not met. As a result, this is the biggest and most significant challenge that you need to overcome.

💰 Monetization Options

First, you can charge registration amounts to customers who want to sign up for your app under this on-demand delivery model. Alternatively, you can offer them free delivery. Secondly, you may charge clients for delivery costs (especially those who are not premium users).

The third option is to implement a subscription model in which you give clients free delivery and exclusive discounts in exchange for a membership. You might provide feature listing bargains as an incentive when it comes to restaurants.

Examples: UberEats, Swiggy, etc.

#3. Full-Stack Model

A business opting for a full-stack food delivery model performs everything on-site. To do this, you’ll need to do more than just creating an app or hiring delivery drivers. Often, you will have ghost or cloud kitchens cooking the meals.

The primary aim of these facilities is to prepare meals for delivery and not facilitate dine-in. It is possible to create meals at lower-cost locations while merely paying for the kitchen in these “cloud kitchens.” Individual customers and business clients, both, can adopt this platform.

This model offers customers a higher degree of customization as they can create metabolic meals, run special corporate meal programs, and deliver nutritious treats straight to workplaces. In contrast to the other two business models, the admin is the only owner of the cloud restaurant, which employs a staff of cooks and delivery drivers. This means that a restaurant owner’s on-demand food delivery app will have all the admin functions built right in.

How Do Such Apps Work?

• Provide in-app food menus to customers to decide on their orders.
• Once an order is placed, a notice is sent to the cloud kitchen.
• Once the order is complete, the restaurant’s courier brings the meal to the customer’s door.

👉 Challenges

Creating an app and offering food delivery services at the same time is difficult. The expense of getting this all done can be very high. Since it takes more than simply an app and delivery workers to implement this strategy, it might be more difficult for a new business to get off the ground.

Because it costs more than simply an app to get a delivery network up and running, the total implementation expenses are larger. Also, if you fail to satisfy the expectations of your customers, you risk the reputation of your whole brand.

💰 Monetization Options

Charge customers a one-time price and provide them with a loyalty program to encourage them to purchase from your app. For food delivery, customers should be charged a fee. Restaurants may choose to pay for premium placements to be prominently featured in the app’s top-feature listing.

Examples: Faasos, Pizza Hut, Domino’s Pizza, and more.

#4. Grocery Delivery Business Model

The way people buy food, eat meals, and buy groceries has changed a lot because of modern technology. The concept of grocery delivery is not new, but it has been given new life in recent years. Grocery shopping apps let users buy anything from milk and vegetables to frozen foods from their favorite supermarket right from their phone.

Groceries will be delivered to customers’ homes in a set amount of time using a grocery delivery business model. It lets consumers place orders online and then pick them up from a supermarket. They may also choose delivery services. The delivery partner picks up the requested items and delivers them to the user.

However, in terms of service time, grocery delivery applications provide greater flexibility, i.e., between 15 minutes and 24 hours.

How Does It Work?

• Using your app, the consumer may choose the groceries they need and add them to their basket.
• As soon as they finish checking out, they’ll get a push notice with the delivery’s expected arrival time.
• When the groceries are ready to be picked up, they’ll get an email.
• The delivery partner will pick it up from the store and deliver it to the consumer.

👉 Challenges

If you choose a grocery delivery business model, your application’s success will depend on how well you manage your inventory. If the user’s requested item is out of stock, it may affect their experience and may lead to a bad app review. It will be your responsibility to maintain your inventory and make sure the products listed on your app are in stock.

💰 Monetization Options

Start by charging a delivery fee to your customers based on the type of membership they have or based on order value. As a second option, you can charge a fee to grocery stores for premium placements in your app.

Examples: InstaCart, BigBasket, etc.

#5. Meal Kit Delivery Business Model

Many meal kit services deliver pre-measured, labeled, and pre-cooked meals directly to your door. These services save customers time and effort by allowing them to pick and choose from various pre-planned recipes, add any additional ingredients they may want, and deliver the finished product to their door. This company is thriving because it is a combination of two businesses.

How Do Meal Kits Work?

• Customers sign up for a meal plan via an app.
• Further, you will prepare the items for your meals.
• Send the required supplies and recipes to the customers.

👉 Challenges

The cost of meal kit delivery may be high because of the specialized packaging that must be maintained at all times. You must invest time and money into finding the finest logistics partner. Your meal kits should have the freshest possible ingredients. You will also need to keep track of the inventory to ensure that you don’t fall short of supplies while maintaining the quality and taste of food.

💰 Monetization Options

The best approach to implementing this on-demand food delivery model is to offer a subscription-based service to your customers. You can offer them monthly, quarterly, half-yearly, or yearly plans and charge for pre-cooked meal deliveries to their doorstep.

Examples: Hello Fresh, Blue Apron, etc.

Factors to Consider When Choosing a Food Delivery Business Model

Here are some factors to consider while selecting a food delivery business model:

1. Target Market: Understand the preferences and behavior of your target audience.
2. Resources and Capabilities: Assess your available resources, including technology, logistics, and manpower.
3. Revenue Model: Consider how you will generate revenue (commissions, delivery fees, subscriptions, etc.).
4. Competition: Analyze the competitive landscape and identify gaps you can fill.
5. Customer Experience: Prioritize delivering a seamless and satisfying customer experience.
6. Scalability: Ensure the model you choose can scale as your business grows.
7. Partnerships: Evaluate potential partnerships with restaurants, grocery stores, and logistics providers.

Conclusion

Choosing the right food delivery business model is crucial for the success of your food delivery startup. Each model comes with its own set of challenges and benefits. By carefully considering your target market, resources, and revenue strategies, you can select the model that best aligns with your business goals and customer needs. Whether you opt for an order-only model, a delivery service aggregator, a full-stack approach, or any other model, the key is to provide a seamless and satisfying experience for your customers.