Last Updated on June 20, 2022

The on-demand economy is growing at a staggering pace. And food delivery platforms are performing exceptionally well by offering unprecedented ease and convenience to the customers. So, if you plan to start an online food delivery marketplace, right now is a good time. 

As per statistics, online food delivery sales are anticipated to grow as high as $220 billion by the end of 2023. This accounts for 40% of the total restaurant sales. Also, Statista reported that different online food delivery services captured 13% of the U.S. restaurant market during Covid-19. 

Indubitably, the pandemic accelerated the hypergrowth of online food delivery services. However, its success is the technological advancement and recent proliferation of different delivery models and fleet types. All this gave an immense boost to the online economy and made entrepreneurs flee towards the online food delivery market. 

Understanding Food Delivery Business Models

Determining a suitable business model is one of the primary requirements for starting an online food delivery business. And to do that, it is important to closely analyze your target audience, define business goals, and thoroughly study your competitors. It becomes easy to choose the suitable business model for your online food delivery business based on the gathered insights. 

Today, we will look at the different food delivery app business models that you can choose from. Understanding how each model works will help you make the right choice for your startup. 

Popular Business Models For Food Delivery App 

Popular Business Models For Food Delivery App 

1. Order Only Business Model OR Platform To Consumer 

This is a good business model, especially for players that are just starting. In this, the application owner connects several restaurants and eateries to the end-users. In other words, the app owner provides a platform where multiple restaurants can register themselves and offer their food delivery services to the customers. 

However, this is an order-only business model. The delivery of the meals to the customers rests on the restaurant’s delivery fleet or any hired third-party courier service provider. The app’s owner is not responsible for any logistics. 

The most significant benefit of this business model is that it requires minimum capital investment. The business owner can start on a trim level and gradually scale up by adding more restaurants. Also, the owner does not have to face any hassles related to preparing or delivering food. 

Examples – Grubhub, JustEat, FoodPanda 

How Order Only Business Model Works?

The working of this platform is pretty straightforward and involves the following steps:

  • Customers can check out the menu and place the order from within the app. 
  • Once the order is received, the restaurant will send a confirmation message to the customer. 
  • A restaurant delivery boy will deliver the order to the customer’s doorstep. 
  • In case of any issue, the delivery boy can directly contact the customer to make the delivery. 

In most cases, the app owner charges a flat commission fee from the restaurant on every order placed through the unique app

Limitation Of This Business Model

Mostly, the meal options are limited with this business model. This is because the app can only list items that the restaurant can prepare. Also, the app owner has no control over the quality of food or packaging. Therefore, if the customers are not satisfied with the food quality, they are very likely to retain them. 

The best way to overcome these limitations is by running strong PR campaigns to attract new customers and target restaurants. Additionally, creating your loyalty program to retain users can also prove to be beneficial. 

2. Order With Delivery Business Model OR Delivery Service Aggregators 

This is just like the above business model, except that it also takes care of logistics. Thus, the app owner accepts the orders from the end-users and provides delivery of the food. 

This is a highly feasible business model for restaurants as they don’t have to manage their fleet service. Besides, they can also benefit from the pre-existing customer base of the app. 

In this model, the app owner typically works with several individual courier service providers to deliver the food to the customer’s doorstep. 

Examples – Doordash, Postmate, UberEat, Zomato 

How Does Order With Delivery Business Model Works?

The working of this model involves the following steps:

  • Customers can check out the menu and place the order from within the app. 
  • Upon receiving the order, the restaurant will send a notification to the customers. 
  • Once the order is ready, the restaurant will notify the network of couriers. 
  • The delivery courier that is present nearby will collect the order and deliver it to the drop-off point. 
  • A delivery fee will apply to the customers based on the distance. 

With this business model, the app admin can charge a flat commission from the restaurants on every order and charge a delivery fee from the customers based on their precise location. 

Limitation Of This Business Model

One of the biggest food delivery business challenges of this model is setting up an effective and swift transportation fleet. The delivery team should be not only well-trained but also quick enough to ensure timely deliveries. Any delays can lead to a poor user experience and an unsatisfied customer base. 

Timely deliveries are important, especially during the lunch hours. This is because most office professionals have a limited lunch window. So, to overcome this challenge, it is advisable to hire more delivery personnel to cover a larger region. 

3. Fully Integrated Business Model OR Full Stack Business Model 

As the name suggests, a single service provider takes care of the entire food chain in this business model. In other words, from preparing food to delivering it to the customer’s doorstep, everything is done by one party. 

This business model is very different from the above two and warrants a considerable capital investment. Typically, popular restaurants that offer added ease to their loyal customers opt for this business model. This enables them to further boost their sales by allowing customers to order food while sitting in the comfort of their homes. 

Alternatively, some business entrepreneurs hire ghost or cloud kitchens to prepare meals. Then, they opt for this business model and deliver the food to the customer under their banner. But in this case, the restaurant does not offer the facility of dine-in. It simply takes orders on the platform and delivers the food to the customers.

Example – Pizza Hut, Dominos 

How Full Stack Business Model Works?

  • Customers can check out the menu and place the order from within the app. 
  • Upon receiving the order, the restaurant will send a notification to the customers. 
  • Once the order is ready, a delivery agent from the restaurant will deliver the food to the customer’s doorstep. 

Limitation Of This Business Model 

The biggest challenge of this app business model is cost. It involves a lot of upfront capital investment as one service provider has to manage all food preparation and delivery aspects. Also, even if the cost aspect is taken care of, acquiring new customers and keeping them engaged is not easy unless the restaurant has a tall reputation in the market. 

Lastly, the courier costs are also very high in this business model, which costs many businesses their profitability. The best way to tackle this challenge is by securing a suitable investment. You must prepare a remarkable pitch to attract investors and get them on board. With that, it becomes a lot easier to serve the customers in a better way. 

Why Is Delivery Service Integrated Business Model Most Preferred?

All service providers most prefer the Delivery Service Integrated business model, and for a good reason. 

As for the app owner, the platform offers a higher potential to earn revenue. They can quickly charge a flat commission from the restaurant partners for every order placed through the app. Alternatively, they can charge the customers a delivery fee, depending upon their location. 

On the other hand, several restaurants prefer this business model as they don’t have to deal with any logistics. With this business model, the app owner takes care of all the courier services. Thus, the restaurants only need to prepare their food while all the logistics are managed by someone else. 

Essential Metrics & KPIs Of Food Delivery Business 

KPIs to Measure in Your Food and Drink App

Food delivery is a multifaceted process that involves several parties at one time. To gauge your food delivery business’s natural growth and success, it is essential to pay attention to specific KPIs, i.e., Key Performance Indicators. Here, we will look at the most popular apps KPIs

  • Number Of Food Deliveries

One of the most critical metrics of the food delivery business is the number of complete deliveries. Typically, the number is expressed as the sum of deliveries completed during a month or a quarter. 

Knowing how many orders you are receiving is crucial to assessing the growth rate of your food delivery business. In a venture capital world, stakeholders strive for significant growth in the number of deliveries. Typically, a growing business is expected to double the number of deliveries they fulfill every month. 

  • Average Profit Per Delivery

The ultimate aim of every business is to become profitable. Therefore, knowing how much profit you are making on every delivery is essential. This information helps to identify the most beneficial restaurants and alter the delivery routes for the non-performing ones. 

This metric also takes into account expenses such as payroll, advertising, cost of operations, etc. 

  • Average Order Duration

The average order duration is an indicator of how fast your business can fulfill a customer’s order. An order is noted the moment the customer purchases a meal on the app and is marked completed when he sends the order received confirmation.  

The average order duration KPI is calculated by sum totaling the time taken to complete all deliveries and dividing it by the total number of orders fulfilled. The KPI is important as it helps to weed out the slow performing restaurants and delivery personal and further boost the app’s performance. 

  • Transit Time To Distance

This KPI measures the time couriers spend to complete the delivery. This involves the time taken to pick up the order and drop it off at the customer’s doorstep. 

Measuring this metric enables you to gauge the delivery agents’ speed and the efficiency of the delivery routes. Consequently, the information obtained can be used to improve the delivery periods and boost customer satisfaction. 

  • Percentage Of Driver Is On Order/ Idle

The KPI measures the percentage of drivers that are either occupied with a delivery or waiting to get another at a particular moment. This helps the app to gauge the efficiency of the driver network. 

Furthermore, the metric makes it easy to identify the time of the day that gets the maximum number of orders. This helps to determine how many drivers must be active throughout each period of the day. 

  • Customer Lifetime Value

Customer Lifetime Value (CLV) denotes how much revenue, on average, a user generates during their membership. The longer a customer sticks to the app, the higher CLV they are likely to develop. 

All these metrics make it easy to track the performance and efficiency of the food delivery system and find out newer ways to boost user experience. 

Which Delivery Service Model Is Best For You?

All the food mentioned above delivery business models are pretty popular and widely in use. Each one comes with its own set of advantages and disadvantages. First, you need to identify your precise business objectives and then select a model that best matches your vision. 

That said, it is essential to partner with a knowledgeable and expert mobile app development company. A good company will not only help you determine the best business model but also provide excellent insights on making your application stand out. 

Developing a comprehensive food delivery platform with innovative features is a complex task. Thus, you need to hire a reputed company that has substantial expertise in the domain. 

Also Read: Tech Stack For Developing A Mobile App

Conclusion

If you want to establish your own food delivery business and need an app developed, find the best app development company with skilled iOS app and Android app developers who can turn your unique app ideas into reality.

Author

CTO at Emizentech and a member of the Forbes technology council, Amit Samsukha, is acknowledged by the Indian tech world as an innovator and community builder. He has a well-established vocation with 12+ years of progressive experience in the technology industry. He directs all product initiatives, worldwide sales and marketing, and business enablement. He has spearheaded the journey in the e-commerce landscape for various businesses in India and the U.S.