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A Complete Guide on Food Delivery Business Model – Costs, Features, Types And Challenges in 2021

Home » Blogs » A Complete Guide on Food Delivery Business Model – Costs, Features, Types And Challenges in 2021

Food Delivery Business Model

In today’s hectic life, you need to have someone to assist your business model to achieve additional revenue. Online food delivering business models help to engage customers conveniently to increase revenue.

In this competitive world, customers are highly motivated to use online services. It offers ease and convenience. Therefore the on-demand app provides additional value to your customers. This model helps efficiently to manage the peak business hours. Also, it prevents the painful experience of wasting time in a long queue.

Conveniently, the on-demand model provides a hassle-free experience for the customers. Moreover, it makes them engaged by saving their time and effort.

To reach success, it is vital to choose the right business model. However, developing a successful product is not easy. This guide lets us know about the online food delivery business models.

Why are Food Delivery Business Models Based on the App?

The food delivery model app will help you to fuel your business and better reach out to your business on completion. Here are some reasons why users are more interested to use a mobile app for ordering meals.

Decision Convenience

Convenience offers a better customer experience. Using the business model, the online delivery app can achieve success. The primary objective is to keep the user’s experience that helps to improve your business. Besides, users can easily view the ratings and reviews of any restaurant. They can decide where to order from. Thus, this makes choosing the best restaurant fast and easy.

Access Convenience

The mobile app is easily reachable and allows users to order food instantly. The dedicated app for the customers made it easy to access from anywhere. As a result, they get hot meals as fast as possible. Fast delivery options are available where the order can be tracked easily. Hence, many of them use food ordering apps.

Transaction Convenience

It is easy to pay where there are multiple payment options. The users can pay cash on delivery or with a card or digital wallets.

Benefit Convenience

It is convenient to order for teammates or family members from different restaurants at the same time and get it straight to your home or office. It makes it fast and easy to enjoy.

Post-Benefit Convenience

Once your order, you can save your address and payment details, so that you can re-order in seconds. It is a fast option to repurchase.

By adopting a full-cycle approach, the on-demand food industry has disrupted traditional markets. You can experience a meal at a restaurant by three basic components: ordering, cooking and delivering.

Ordering

Once the customer orders, the restaurant makes sure to prepare and deliver food. All food-on-demand businesses connect the users via an app. Once the order is received they also need to check the order is for their own kitchen or another meal provider with who they partnered.

Cooking

Some restaurants pre-cook the meals and some prepare after receiving the order, depending on the food preparation the cooking time is estimated on the food delivering app.

Delivering

For any on-demand business, the transportation of delivery is the backbone. Delivering on time helps to build the reputation and makes the customers stay engaged. Depending on the business, there are various food delivery models.

Pros and Cons of Delivery Business

Pros of Delivery Business

Product Stickiness

Once customers become acquainted with a platform, they rarely switch to a new app.

Network Effects

Since product delivery platforms are, in a bigger sense, marketplaces that connect buyers with suppliers, they end up benefiting from network effects once sufficient scale is hit.

While networks are hard to build, they are even harder to replicate. This yields substantial benefits for those who can build a big enough business.

Supply Prioritization

As a food marketplace, your business can decide which restaurants and suppliers it would like to promote. This allows you to push products with higher margins and good customer ratings.

Pricing Monopoly

Next to prioritizing supply, food delivery businesses can also set prices and commission at will once they’ve hit sufficient scale. 

No Legal Commitment to Drivers

While ethically questionable, drivers are generally not employed by food delivery businesses, but rather work on a contractual basis. This greatly minimizes operational costs as they only get paid when executing jobs.

Furthermore, there is no requirement to pay medical insurance or allow for paid vacation.

Cons of Delivery Business

High Operating Cost

DoorDash supposedly lost $400 million in 2019 while Postmates had to lay off dozens of employees and close some offices.

Those are just two examples of food delivery businesses that had to pay the price for their massive operating cost and thin margins.

Companies that operate under the full-stack model suffer from this especially since everything is kept in-house.

Operational Complexity

Developing the app, finding suitable restaurants and drivers, equipping them with the necessary equipment, or optimizing delivery routes are just some of the many problems food delivery businesses have to invest in.

Perfectively running such a business is not only extremely costly but a highly complex task involving many parts to be running perfectly.

Why are Users more Inclined to Use a Mobile App?

Apart from the major factors like convenience, time-saving, and easy accessibility. Some factors ensure the importance of an application. Those are:

  • Interface
  • Payment systems
  • Faster performance
  • Easy visibility
  • Can be downloaded

Types of Food Delivery Business Model

Generally, in today’s market, there are three types of food delivery models present. If you want to succeed follow the marketplace business model. Let us see these three models one by one.

1. The Order Only Model

online food order application

At first, this model was used by restaurant delivery services like JustEat, FoodPanda, and more. It is one of the impressive food delivery models. Between the users and the local restaurants, your online platform should act as a bridge.

By following this model you can allow the customers and restaurants to connect to place and deliver orders.

By making use of the software you can bring a lot of new orders that integrate with the kitchen workflow. The goal of the good delivery business model is to reach out to the maximum number of customers.

This model, let users order their food conveniently from their favorite restaurant.

This food app business model works in two-phase,

For Order allocation

The innovation of technology has made the companies easy to receive and communicate the order to the restaurants conveniently. The process tends to work like this:

  • Consumers can place an order on the website anytime
  • Restaurants can receive the order through fax, email, etc.
  • Once the order is received, the restaurant notifies the customers by sending a message
  • Companies start sending orders into a Smartphone app or web app
  • In some cases, the companies print the order directly into the kitchen using the restaurant’s POS system.
For Delivery

Delivery varies in two scenarios.

  • A restaurant employs the delivery boy
  • A restaurant delivery service employs the delivery boy to deliver the order to the customer’s doorstep

Advantages of Order Only Bussiness Model

Firstly, in this type of business model, you don’t have to face any issues that are related to food delivery. Secondly, it’s purely a software business. Hence, for every order placed you can charge a flat commission fee from the restaurants.

Challenges of Order Only Business Model

At first, attracting customers to your platform is a challenging task but this delivery model has paved the way for your business opportunity. However, you need to do some research on what exactly you need to offer to the customers. Therefore, know that your success depends on the services that restaurants give to their customers.

2. The Order and Delivery Model

online food delivery system

This model handles restaurants, customers, and delivery where it is one of the marketplace solutions that is used by businesses. With this type of food delivery apps, most of the eateries are engaged where they don’t have to deal with the delivery thing.

For order allocations
  • The restaurant should register on your online platform
  • Using your platform customers can easily place an order from the restaurant
  • The restaurants receive an order through website or app notifications
  • As per the convenience, the customers can pay online or cash on delivery
For delivery
  • To deliver the order to the customer place, the nearest delivery boy receives the notification
  • A delivery fee is fixed based on the customer’s distance
  • Customers can add instructions like place an order outside, don’t ring the doorbell, and more

Advantage of Order and Delivery Model

This model’s success highly relies upon the user’s experience that they get from the restaurants and delivery boys. If the order is below a certain amount or far from the customer’s delivery location, you can charge a flat commission to the restaurants on every order. Also, you can charge a delivery fee to the customers. By delivering quality food on time, you can get higher ratings of your food delivery business. As a result, you can achieve success.

Challenges of Order and Delivery Model

The challenge of this delivery model is to deliver the food on time where most customers expect on-time delivery. Therefore, you must improve the ways to deliver food on time. The other challenge is to manage all your business resources.

3. The Fully Integrated Model

Integrated Food Delivery App

The third category of food delivery order has revolved around meal delivery startups. This model differs from the above two. If you like to start your own venture, this model completely integrates the process by limiting the number of meals and as fresh as possible within a stipulated time. This model serves only the particular area and the meal service usually partners with the chefs.

Scheduled Delivery

This model receives orders for a particular duration and delivery is scheduled later in the day. After the order is received, the food preparation starts. To avoid waste, this model accepts pre-orders, predicts demand accurately, and schedules delivery on time. The delivery man delivers the packed food instantly hot on time.

Allocation
  • Automatically the order is allocated to the nearest delivery boy
  • Automatically allocate the order to the delivery boy whose zone lies near the customer.
Delivery
  • The delivery is based on the first-come, first-serve basis
  • For customers who are near to the delivery boy’s location, the delivery boy serves them first.

How Does Food Delivery Application Works & Workflow?

Sign Up

When a user opens your food ordering app on his/her mobile for the first time after downloading, a sign-up/sign-in page appears on the screen. Keep the process easy with third-party (Social media platforms and Google)  integration.

Profile Page

Once the user signs in, he/she must be directed to the profile page. Here the user can add more details to his/her profile such as office address, number of employees, favorite food item, etc. Also, let the user save his/her bank details or other preferred payment methods.

Food Search/ Restaurant Locator Page

It is the very first thing that the user sees on his/her mobile screen after logging in to your food ordering mobile application. It has a search bar that allows the user to search for his favorite food or restaurant or both. Also, it displays “meal of the day” for breakfast, lunch, and dinner.

Easy Order Placement

After selecting their choice of food, make it easy for the user to order the food. Let them edit the order by adding or deleting food items before choosing the payment method and confirming the office address.

Multiple Payment Method

Ensure your users that the payment processing is secure and fast. Let your user leverage the facility of multiple payment methods via PayTM, Amazon Wallet, PayPal, Credit/Debit card, or Cash on delivery.

Real-Time Tracking

Send food order confirmation notification to the user. Also, provide details about the predicted arrival of the ordered food at his/her office.  Real-time tracking keeps the user updated about the location of the delivery boy.

Communication Capabilities

There should be an easy way to communicate for users and the delivery team. The user can inquire about the food to be delivered and the delivery boy can contact the user when he arrives at the office address.

How to Make Money with Own Delivery App?

For those who want to start an online office food delivery platform, the margins on food are always a concern, which is why it is always advised to have multiple streams of revenue.

Moreover, the delivery charges should not make the value of the food rise to a level where the consumers do not consider it value for money.

One aspect that falls in favor of such a  business idea is that you have to deliver all the orders in a single time. This reduces the delivery logistics as well as cost.

The following are the main revenue models that such a startup can incorporate:

  • Online Advertisements – Google AdSense can be one of the primary sources of generating revenue through advertisements.
  • Offline Advertisements – Advertisements can be displayed on the company’s Food packages. In addition to this, more advertising can be made by sending printed pamphlets along with the meal.
  • Strategic Partnership – People willing to open a restaurant or small kitchen can sign up by paying a small fee to the platform.
  • Commission of Selling – Online office food delivery businesses can collaborate with restaurants on pre-decided commission rates based on the number of food orders.

FAQ’s of Food Delivery App Development

Wrapping it up

Consider these reasons and develop your own food ordering app with the technology expert in your area. Also, choose the right business model and make the customers engage to reach success.

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Kush P

Kush Patel is the Chief Technical Officer and Managing Director of Echo Innovate IT – a software development company. He is responsible for the overall operations of the company and has played a major role in making Echo innovate IT the top-notch IT services provider and transforming it into a globally trusted web and app development company.
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