How to Build a Food Delivery Startup. A Go-to-Market Strategy for Developing an On-Demand Delivery App Like Postmates

In a world where everyone is busy, food delivery is an everyday necessity and a thriving industry – an industry that has been transformed with the arrival of Uber-like mobile apps. It would seem that the food delivery market is already divided among industry leaders – GrubHub, DoorDash, UberEats, Amazon Prime, and Postmates – but new apps keep joining the competition.

New food delivery startups fight to survive in an overcrowded market and face similar challenges when promoting their unique food delivery service. We decided to look at the most common problems that stand in the way of a successful food delivery app.

Main challenges of building and promoting food delivery apps

Food delivery startups face four major challenges:

1. Choosing the right target audience

Food delivery startups begin with the assumption that everyone likes delicious meals and the convenience of having them delivered to the door; but defining your startup’s target audience goes way beyond that. Within the food delivery industry, there are many types of services you can offer: you can deliver groceries (bread, milk, and eggs); you can deliver curated “menus” that fit a diet, along with the necessary ingredients (everything you need for Pad Thai, including the recipe); or you can deliver prepared foods (caesar salad, burgers and fries). Each of these options meets the needs of a separate target audience.

Who do the most successful food delivery apps target?

Goodmeal websiteApps like Instacart target busy professionals who want healthier options from upscale grocery stores like Trader Joe’s. Instacart doesn’t deliver cooked foods, and it’s not an app that hungry college students will use late Friday night to order pizza.

UberEATS is all about making tech-savvy millennials happy. Operating in the biggest US cities (as well as a number of European cities), UberEATS delivers a wide selection of foods.

Postmates is similar to UberEATS, and shares the same target audience, millennials. But Postmates has widened their reach by offering to deliver anything, not just food. In fact, some orders through Postmates are really small: maybe you forgot dishwasher liquid or a bar of soap when you went to the store. But these small orders are what keeps Postmates running, as they guarantee a constant supply of orders for their couriers.

2. Partnering with restaurants and grocery stores, and building relationships with food producers

It is estimated that barely 10 percent of restaurants in the US take online orders. Any new delivery service has to make sure they are noticed among their competitors, which means that they need to reach out to as many restaurants as they can. A wide network of partner restaurants gives a new app enough of a push to get traction and win over a share of the market. How is this normally done?

Which restaurants and grocery stores to partner with and how to build those relationships is a question each food delivery company answers differently.

Companies such as Eat24 and GrubHub build partnerships with local food establishments, drive their partner’s delivery costs down, and then take a commission off all sales. They work with restaurants after signing a contract, and enjoy a mutually beneficial arrangement that results in good publicity for restaurants and a constant flow of orders for the delivery service. GrubHub is currently one of the leaders in the industry in terms of market share.

Other companies focus on grocery deliveries and source their ingredients directly from local farms. Farmdrop is an example of a grocery delivery app that solves the problem of sourcing high-quality organic ingredients by partnering with farmers in the London area. By partnering directly with farmers, Farmdrop doesn’t have to worry about being overstocked with a certain type of produce; until a user orders a bunch of kale, it will be growing out in the field. This business model appeals to environmentally-conscious users who want to support local organic farming.

Postmates chose a riskier strategy for gathering a client base, one which attracted a lot of criticism and negative reviews. Postmates was found to have delivered from restaurants they hadn’t signed any agreements with. It would appear that Postmates first delivered from a number of restaurants, then gathered feedback, and only if it proved profitable enough did they offer restaurants to join their merchant program.

Uber Eats

[UberEats app. Image source: Uber]

3. Deciding whether to have drivers on your payroll or contract with drivers the way Uber does

There are two primary ways that delivery services find drivers:

  • They hire their own fleet of couriers

  • They contract with freelancers the way Uber does.

The Uber-like method is much more common among food and grocery delivery services, particularly in the US, since almost anyone with a car and who is interested in a part-time job is a potential employee.

But companies that mostly operate in busy urban areas –  like GrubHub and Seamless – opt for working with freelancers. But depending on the size and location of the market, some companies choose to hire their own drivers.

DoorDash is another food delivery service that allows anyone with a car or bicycle to become part of their on-demand courier fleet.

Postmates operates similarly, and they even provide insurance for their drivers. When Postmates drivers are on the clock, they are protected with Postmates insurance, which covers bodily injury and property damage to third parties.

Postmates also offers its drivers free membership to One Medical. One Medical provides primary care and lets clients see doctors the next day. In the US, where you often have to wait for a couple of weeks just to see a doctor, free membership in this startup is a very appealing addition to the driver’s compensation package.

on-demand delivery apps

[Postmates. Image source: Charlotte Agenda]

Amazon, with their AmazonFresh program, has a different business model where they hire “delivery providers” – local companies or individuals already operating in a given area – to deliver goods to customers. In essence, Amazon outsources safety training, insurance, and maintenance costs by contracting with established delivery businesses. Local delivery services benefit from partnering with Amazon because they receive a constant flow of orders.

Working with freelancers is cheaper for a food delivery startup, however, and often means that the startup is protected against any potential legal action, since they aren’t the ones paying for a driver’s insurance. At the same time, after a delivery service grows beyond a certain point, only relying on freelancers might not be enough to provide reliable, on-time deliveries.

For a recently launched food delivery startup, having their own couriers often seems like too much expense and commitment, but it is advisable to hire at least a certain number of full-time employees once your company reaches a stable level of orders.

4. Choosing the right scope of features for your mobile apps

The majority of food delivery services have separate apps for drivers, restaurants, and customers. We analyzed the most successful food and grocery delivery apps on the market and created three templates that include all the essential features that a customer app, restaurant app and courier app need.

The courier version of the app is simpler and only has a handful of most important features:

The version for restaurants includes admin panel and all necessay features for order placement and managing notifications:

 It will take time and effort, but choosing right target audience, building strong partnerships with restaurants and drivers, and focusing on the most essential features in your app will certainly put your business ahead of your competitors.

How to build your food delivery startup the right way:

  • Start by defining your target audience, then build your services around their needs. Customize your services to meet the needs of a certain community, offering options that not all restaurants provide. If your app’s menu includes options for vegetarian, gluten-free, or kosher foods, for instance, it will have a wider reach.

  • Invest in good relationship with restaurants and partner with local farmers and grocery stores. Don’t underestimate the power of word of mouth: building a reputation takes time, but partnerships with restaurants will earn you additional promotion for free. 

  • Combine full-time employees with part-time freelancers. This will give your delivery service enough flexibility while optimizing your expenditures.

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