By 2023, the online food delivery market is projected to hit $137 billion globally.
Food delivery has become an intrinsic part of our daily life whether it is pre-meal kits, ready-to-eat meals, and meal plans. Considering the growing food delivery market, it’s the best time to enter this market for starting your own food delivery business.
However, starting a new food delivery business from scratch is not child’s play as you will face many challenges like which food delivery business model is perfect, how can you provide the best customer service, and how can you effectively measure the success of your business?
For that, you need to have a complete understanding of various food delivery business models available in the market to make a perfect decision. To make things easier, we have discussed different business models for online food delivery businesses.
Table of Contents
Important Stats on Food Delivery Business Model
- The size of the online food delivery market is estimated to reach 33.2 billion USD during the period 2018-2022.
- Around eight percent of foodservice sales is predicted to rise to 8.9 percent by 2022.
- The U.S. grocery and restaurant delivery dollar volume are anticipated to rise to $99 billion by 2022.
- The search for food delivery software has increased 179% on their website between February and March 2020.
- 1/3rd of consumers surveyed said they are willing to pay more for faster food delivery.
- Food delivery startups have raised a combined $15 billion in over 800 rounds of venture capital funding.
Types of Food Delivery Business Model
Let us go through all of the food delivery models one by one. But remember, most online food delivery businesses follow the marketplace business model.
The Order Only Model
The order-only model is the perfect choice for the first generation of on-demand food delivery services. It allows the customers to connect to the local restaurants quickly.
With the help of this platform-to-consumer model, your online platform will work as a bridge between your customers and local restaurants. In addition, this model makes it easy for the customers and local restaurants to place and deliver orders successfully.
Remember that the restaurant will be only responsible for delivering the food to the customers. The restaurants will receive 7 to 15 percent of commission on every order.
Challenges of The Order Only Model
- You need to do detailed research on what exactly you need to offer to the customers.
- As the commission is the only revenue stream, you need to put extra effort to reach as many as eateries, including small local restaurants.
- They cannot control and optimize the speed, delivery and food quality.
- Highly scalable
- It doesn’t include any upfront costs
- You can enhance your restaurant’s base slowly and gradually
- You’ve limited menu items to offer.
- You can charge a fixed fee from the restaurant for the orders placed, but not more than what is decided.
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The Order and Delivery Model
Unlike the order-only model, the restaurants are not concerned with delivery in this business model. Instead, the delivery is entirely taken care of by a third-party courier or delivery logistics company.
Some of the most popular food delivery apps for this model are UberEats, DoorDash, and Zomato.
The delivery service provider collaborates with the platform owner to provide faster food delivery services to the customers. The delivery service provider sets the delivery charges on orders.
Challenges of The Order and Delivery Model
- Having a systematic delivery system in place
- The service provider must keep food at a consistent temperature to stay fresh and tasty
- No need to invest in employing a delivery fleet
- You have more chance to earn more commission
- You have an option to set your prices without being concerned about the restaurant prices
- You can easily attract more restaurants by comforting them with logistics
- Customers need to pay a flat delivery rate.
- You will need to invest time and money in setting up your team of delivery executives.
- There are already many big players functioning in this business model, so you might have to face intense competition.
The Fully Integrated Model
The fully integrated model is an ideal choice for food delivery startups. In this model, the platform owner does everything from preparing meals to delivering the food to the customers.
This integrated food delivery model serves only the particular area, and the meal service usually partners with the chefs.
Challenges of Fully Integrated Model
- You need to buy or rent the equipment necessary to run your food delivery business.
- The overall cost is very high as it includes refrigerated trucks, coolers, ice packs, heaters, and other costly investments to prepare your food or delivery meals.
The best way to reduce the operating expenses is to increase the number of orders and accept multiple deliveries. And it is made possible when you can provide instant delivery to the customers.Pros
- You’ve complete control over the food quality
- You can keep up with the promised delivery time
- You can skip the dine-in facility
- You must compel your target audience to switch their attention from their favorite restaurant to your app.
- Hiring resources to manage the kitchen and logistics can be an expensive endeavor.
- If you fail to meet any of the quality or delivery standards, it could work against you.
Cloud Restaurant Model
If you plan to start your food delivery business from home, the cloud restaurant model is a perfect choice.
This model doesn’t need a restaurant. Instead, the order placed by the customer will directly go to the central kitchen to prepare the food. Then, finally, the delivery boy will deliver the food to the customer.
Generally, there are six types of cloud kitchen models:
Cloud Kitchen Model Working Independent (One kitchen, one brand, and one location)
- Specializes in a single cuisine only.
- Uses professional cooking tools to optimize delivery-oriented operations.
- Foods are delivered only through online food delivery apps.
- An in-house staff of the kitchen handles delivery.
Multi-brand (Multi-brand (cuisine), a single kitchen, multiple outlets, no storefront)
- It specializes in multiple cuisines through various brands.
- Every brand possesses a separate establishment in dealing with various specialties like a single dish or cuisine.
- Identifies the most frequently ordered dish in a given area.
- Supply it in an area where competition is low or brands deliver the same item.
- The demand is analyzed by tracking the online ordering records, demographic details of native residents, and even social listening.
- Only online orders are accepted, and the food delivery is fulfilled through delivery staff.
Hybrid (Single brand, single kitchen, multiple outlets, with a storefront)
- Depending on customer demand, create a multi-cuisine menu.
- They also provide seasonal menus to meet the needs of their customers on an as-needed basis.
- Customers visit the store and see how foods are prepared, and services are managed.
- Customers can only pick up their orders or place them online.
Delivery app owned “shell” (Aggregator owned, multi (restaurant) brand, rented coworking kitchens, no storefront)
- It serves as a commercial kitchen.
- Restaurants, whether new or established, can rent a kitchen and operate alongside other restaurants.
- The owner delivery app offers a vacant kitchen space with basic infrastructure.
- Each restaurant must bring its cooking equipment, recipes, and staff.
- They can use the delivery records of the delivery app to personalize their menu to customer preferences.
- Furthermore, such partner restaurants benefit from additional visibility on the delivery app, increasing customer reach.
- Only the owner app will manage and execute the deliveries.
Delivery app owned “fully-stacked” (Aggregator owned, multi-restaurant brand, rented kitchens, with a storefront)
- The owner delivery app provides the kitchen space.
- Delivery app owners provide customized cooking stations, cooking equipment, and other necessary facilities to optimize food preparation.
- Rent a kitchen space while the restaurant is open, and they will have an online presence on the owner delivery app where customers can place orders.
- People visit a kitchen store and see how their food is prepared.
- Orders from such restaurants, however, can only be placed online through the owner’s food delivery app.
Fully outsourced (Cooking and delivery fully outsourced)
- Orders from all sources.
- The cloud kitchen buys and stores your raw materials.
- Then “pre-prepares the food in its centralized kitchen.
- Send it over to your kitchen for final touches.
- The delivery person picks it up again and delivers it.
Challenges of Cloud Restaurant Model
- There are more chances of late delivery as the delivery personnel find it challenging to deliver during a busy schedule or peak seasons.
- Due to unfortunate situations, if internet access is unavailable, restaurants will not complete basic operations such as taking orders, accepting payment details and tracking orders. They also tend to lose access to data, thereby losing vast amounts of money in the system.
To overcome the issue of late delivery, the delivery person must use a software solution that can provide accurate driving direction for multiple stops, and plan and optimize multiple routes and have the capability to fulfil more deliveries with every route. In addition, it can help them save time, fuel, and money.Pros
- You’ve complete control of the business activities
- Requires less investment
- Customers may take time to adapt your services
Meal Kit Delivery Model
This is the profitable model that you can consider in your food delivery business plan. However, this model is different as it allows you to deliver premium quality ingredients to your customers.
With the help of this model, the customer has an option to check vegetarian and non-vegetarian meals. Also, they can easily select the number of recipes they want on a daily or weekly basis.
41% of consumers said they would purchase a make-at-home meal kit from their favorite restaurant if they were offered.
For this business model, you’ll require:
- A team of chefs to prepare unique recipes
- A team of delivery person to deliver the meal kits
- Suppliers that provide premium quality ingredients
- Your customers will be people who prefer to cook a variety of dishes at their home
In this model, the primary role of the delivery person is of utmost importance. They need to carry the meal-kit and provide faster deliveries to the customers. They are taking the fresh and healthy meal-kit to reach multiple customers at a time. To make it easy, you can include route planning and optimization software to accommodate more stops with each route to do more deliveries.
Challenges of Meal-kit Delivery Model
- The meal-kit industry has the capability to deal with only small population areas. Still, many meal kit businesses are struggling to reach more customers in different areas.
- High cost of customer acquisition and the difficulty of retaining those customers.
- Revenue per user will increase as it is dependents on the subscription
- You’ll have a limited customer base (who want to prepare food at home)
- Customers need to pay higher prices for meals
To start a food delivery business from your home, you need to take care of the following steps:
- Perform detailed research on your target market
- Get your essential materials (either buy or rent)
- Build a strong marketing strategy
- Create a business and meal plan
- Make your business legal
Generally, a business licensing and a food-vending license are sufficient to start your food delivery business. In addition, you may also need a food-handling permit. All the essential business information related to licensing can be obtained from your local department of licenses and inspections.
A Right Business Model Can Make Your Business Reach Success
Whatever business model you choose for your business plays an essential role in determining its growth because it defines its operations. As a result, selecting a suitable food delivery business model for your startup is critical.
So, if you’re new to the food delivery market, it’s better to go for an order-only model, and once you feel that you are now ready to deal with more eateries, include another model as per your needs. In every business model that we’ve discussed, you need to include route planning and optimization software solutions that will make it easy for delivery drivers to find the shortest route.
If you need route planning and optimizing software for multiple drivers, helping you save up to 95% of your planning time and increase customers by 40%, then I suggest starting your FREE trial with Upper Route Planner. Try out this software and know it benefits your business.