The number of food delivery app startups in the last six to twelve months have drastically increased.
Just to make sure we’re on the same page: A food delivery application is one which takes an order on the app and transfers it to a restaurant or its own kitchen, which then a delivery boy picks up the order and delivers it.
The core focus of most food delivery businesses is the convenience for customers so they often ignore to do food quality control. And unfortunately, the core focus of most customers is bit different: the quality and the taste of food is something that the customers can’t influence.
The important question to be asked here is this:
Can a food delivery app startup generate more revenue on each order than the cost of delivering an order?
Currently, most of the food delivery businesses are suffering three times the cost in delivering each order as compared to profit being generated from it. So obviously, these startups are unprofitable.
Although, there is still hope that in near future, the revenue on each order would exceed the cost in delivering an order and it would finally become one of the most profitable business.
However, it has now become even harder to execute.
The on-demand food delivery business is tough. There is a lot to take care of if you’re trying to manage all aspects of the experience such as sourcing the food in your own kitchen, cooking the food as per order, and delivering it.
Due to this, the Sprig did not work out as well.
Sprig, the food delivery startup that makes and delivers the food has been shut down on 26th May 2017.
Like any other business in on-demand industry, food delivery businesses face similar obstacles of unknown location of demand creation and demand completion.
Therefore, if you’re trying to figure out how to start a food delivery business successfully and avoid the business burnout, you must take care of the following important operating constraint.
- Most customers want their food to be delivered within 60 minutes of order. If food is delivered beyond 60 minutes, the production tends to go cold and lose its taste and people hate that.
So below, we’re sharing 3 different types of food delivery business models to get started with your food delivery app.
#1: Order Only Model
This model was used by the first generation of food delivery apps like JustEat, GrubHub, and Delivery Hero. These apps act as a pure software layer that displays the offering of independent restaurants, which manage delivery itself.
The main point of such food delivery mobile apps is to bring in a lot of new orders with the mobile platform.
How does it work?
- Customer places an order in the mobile app.
- Restaurant receives the order through email.
- Restaurant then notifies that the order was received.
- Restaurant makes the order and hands it to the delivery driver employed by the restaurant.
- The delivery driver delivers the food and completes the order.
As the platform won’t be responsible for either cooking the food or delivering it, it’s possible to start generating revenue by charging a fee of 10-15%. These kinds of platforms tend to be highly scalable and have remarkable growth in future.
#2: Order and Delivery Model
This model usually takes care of 1 and 3 step of the procedure. It brings more orders in, manages the delivery of them by its own fleet of delivery couriers connected by an Uber-like app for drivers.
How does it work?
As usual, ordering occurs at the app by customers. The order is then transferred to the restaurant. When it comes to delivery, the startup provides its own fleet of delivery couriers. This means, when the food is ready, restaurant notifies to a courier on duty. They’re online through their courier app that tracks their location.
Once a courier receives an order, the courier decides whether they can or cannot complete the job. The first courier who claims the job gets the job. And delivery is done.
Such food delivery platforms, on average, charge commission fees between 20-30% on each order. Plus, some platforms also charge a flat delivery fee to customers.
#3: Fully Integrated Model
Maple, SpoonRocket, and Sprig have opted for full integration of the process. They have a limited number of meals on their app, reheated in their delivery trucks or cars. As an order comes in, the food is delivered as fast as possible or within a time window stipulated by the customer.
How does it work?
Generally, the app opens to receive orders after preparing meals. As soon as orders are received, delivery is done through hired couriers almost instantly with a specified time. The ready meals are kept in heater in the courier vehicles to make sure that the order is delivered hot and fast to customers who ordered them.
While managing all aspects of delivering food and completing order can become stressful at times, but the revenue is generated at much higher scale. Since the platform is responsible for everything, it’s easy to do the food quality control as well as delivering the order on time.
For any food delivery business to succeed, promoting on the right platform is important. While it’s possible to use low cost promotional tools, but you can also opt for effective strategies such as social media marketing on different social platforms.
In addition, you can also use word-of-mouth advertising with the help of referral program.
Online discount codes are also quite popular. You can negotiate with the restaurants for good discount rates.
Lastly, remember that the most crucial factor for any business to succeed is to focus on spending as much time as possible on revenue generating activities. This helps to grow cash flow and further expand your offerings.
And if you’re sure which business model to start with, you can consult with an app development company to get the detailed idea about how each model actually works and which meets your budget.
This page was last edited on May 15th, 2020, at 10:29.