The world is seeing a major transformation in the way people buy and consume food. Modern consumers are more likely to order food like pizza, pasta, or a vegan salad from a nearby restaurant while sitting at home and watching The Witcher on Netflix than they are to cook.
The current focus on convenience has created strong and growing demand for web-based and mobile food delivery apps. Meanwhile, the number of people who order food online has grown from 1.32 billion in 2014 to 2.05 billion in 2020. More and more customers are shifting from traditional phone ordering services to digital platforms that allow them to order a wide range of cuisines from many restaurants all within one app or website. These on-demand delivery services also offer ratings and restaurant reviews and allow customers to pay with a single tap on their smartphones and tablets.
What is the state of affairs in the food delivery industry?
According to Statista, the US market is currently dominated by Domino’s and the on-demand food delivery startups Grubhub, DoorDash, Uber Eats, and Postmates. These food delivery companies have quickly reached high valuations. As of 2020, DoorDash was valued at $13 billion, UberEats at $20 billion, and Postmates at about $1.85 billion. These companies together with Domino’s control 90 percent of the US food delivery market. Still, there are 338 food delivery businesses with funding of $5+ million in the US alone that are trying to repeat this success.
But while these companies have attracted a great deal of attention from users and investors and have high valuations, it’s unclear what the future holds for the food delivery sector in general.
In our fullest guide, we’ve compared two of the most popular business models adopted by present-day delivery startups to figure out which business model and must-have features have the greatest potential to win the online food delivery race. Ready, steady, go!
How is the food delivery industry doing today?
The traditional model of food delivery looks like this: customers do the food ordering on phone for local delivery and wait for a restaurant courier to deliver food to their doorstep. Pizza has long been the most common type of food to order using this traditional delivery model.
But as we’ve seen in every other sector, the rise of digital technologies is rapidly changing the food market. Modern customers, accustomed to ordering via websites and mobile applications with maximum convenience and minimum human interaction, now expect a similar experience when ordering food.
Restaurants that provide their own takeout services have to catch up with the times by developing an online ordering app just to retain customers. The digitalization of food ordering allows for fast delivery of takeout with no (or at least little) human interaction. And today, 55 percent of people prefer ordering food without having to interact with a person.
How do food delivery businesses take advantage of digitization?
Famous pizza chains like Domino’s, Papa John’s, and Pizza Hut have been investing heavily in food delivery software for years. These pizza giants have developed ordering systems for smartwatches, connected cars, and even gaming consoles.
But Domino’s has gone even further, introducing a Zero Click standalone ordering app as an extension to its AnyWare ordering service. According to Domino’s, using the Zero Click app, you can really order a pizza without any taps. Here’s how it works:
Download the Zero Click application and link your Domino’s profile.
When you open the app, a saved Easy Order is placed automatically.
To account for accidental app opens, a 10-second countdown starts when the app is opened, giving you a chance to cancel the orders before it’s placed.
Now that Domino’s is present both offline and online, over 65 percent of all pizza sales happen online, driving over $235 million in yearly revenue.
What types of food delivery apps are there?
Pizza chains have been dominating the food delivery market for years, but we’re now witnessing the emergence of on-demand delivery startups that are carefully trying to take on big pizza. There are two types of food delivery services and, accordingly, two basic models of food delivery apps:
Restaurant-to-consumer delivery, which is basically what pizza chains do
Platform-to-consumer delivery, which is what Uber Eats and similar on-demand food delivery businesses offer
Platform-to-consumer delivery services are a combination of order-focused food delivery services (or food order aggregators) and logistics-focused food delivery services (or “new delivery,” according to McKinsey). As for Domino’s and other pizza chains, we can call them full-service food delivery services, as they control the whole process from cooking to last-mile delivery themselves. Let’s look at both types of food delivery models in detail.
Early food aggregators facilitated orders and provided customer support. They were mediators between customers and local restaurants, offering access to various cuisines through a single website or smartphone application.
Using food aggregator apps, people could check out menus and compare prices, see restaurant reviews and ratings, and place orders. That used to be all that aggregators could do: once an order was confirmed, an aggregator would pass it to the restaurant. The actual delivery was handled by the restaurant’s own couriers.
Most big players in the food industry started as food delivery aggregators, including Delivery Hero (Germany), Just Eat (UK), and Grubhub (US). These services have each achieved international scale and provide their services in distant corners of the world.
But as users’ demands grew alongside technological advancement, people no longer wanted to be redirected to a restaurant’s website to complete an order. People expected a food delivery app to handle the complete restaurant checkout and delivery process. That’s why most aggregators have gained their own delivery fleets.
How delivery services and logistics-focused platforms work
Food delivery platforms allow users to compare menus across restaurants and order from a variety of restaurants through a single web or mobile app. But in addition to aggregating orders, so-called “new delivery” platforms also provide logistics to partner restaurants.
By providing logistics services, these food delivery marketplaces open new horizons to upmarket restaurants that have never delivered meals on their own. For restaurants, a partnership with this type of platform can be beneficial, allowing them to offer convenient delivery without having to worry about paying drivers, tracking their movements, covering the costs of vehicle maintenance, and shelling out for insurance policies. Restaurants can instead focus on more important things such as improving their customer service.
How new delivery services make a profit
To cover the cost of the delivery service, new delivery players charge both restaurants and customers a fixed margin for each order. You might be thinking Is this margin enough to keep the whole business with delivery couriers and vehicles going? Your skepticism is quite understandable. But despite the high marginal costs, new delivery platforms have achieved EBITDA margins of up to 57 percent. These margins allow them to succeed. Plus, the more restaurants join a platform, the better it does.
Major players in the market
We’ve already mentioned Grubhub, DoorDash, Uber Eats, and Postmates as the true dominators. However, there are plenty of other on-demand food delivery apps like Caviar, Zomato, and Delivery.com that are doing pretty well within the remaining 10 percent of the US food delivery market. These on-demand services widen the choices available to consumers, making it possible to order elegant and healthy options not only from big and famous restaurants but from local cafes and diners. That’s one of the reasons why the number of active users of platform-to-consumer delivery apps in the US is expected to grow to 62.3 million by 2024.
Unlike other food delivery platforms, full-service on-demand food delivery businesses don’t work with any third parties like restaurants or couriers. Instead, restaurant-to-consumer delivery companies have their own cooks who prepare everything in-house. These businesses also hire their own couriers to deliver food to customers. Domino’s and Papa John’s are the best examples of such services.
Platform-to-consumer delivery vs restaurant-to-consumer delivery
By providing a full-stack food delivery service through delivery management systems, you maintain absolute control over the customer experience. You can ensure that you serve your customers fresh and tasty food and that their orders are delivered without any delays since your own in-house cooks and drivers are responsible for the process. Combine this level of control with reviews and ratings and you have endless potential to improve your services. But there are some drawbacks to such a full-stack business model.
Difficulties with the restaurant-to-consumer delivery model
For starters, a full-service food delivery business requires a substantial amount of initial funding. You’ll also need to pay many employees and maintain lots of equipment. Add to that various insurances and different certifications you’ll need to comply with laws and sanitary standards.
Challenges of using the platform-to-consumer delivery model
Launching a food delivery platform may be harder than you think, first and foremost because of the massive competition. To date, Grubhub, one of the industry leaders, has partnered with more than 300,000 takeout restaurants in more than 3,200 US cities (plus London). For a small company just entering the market, it would be rather hard to outdo this giant. Grubhub’s portfolio of brands, i.e. the list of startups that have already merged with them, now numbers six, including Seamless, MenuPages, LevelUp, and Allmenus.
Another difficulty of launching a food delivery service is limited room for growth. Of course, for restaurants that handle their own logistics, joining an on-demand delivery platform can be a great opportunity to increase their presence without pouring a huge amount of money into developing their own online portal. But how many of those restaurants are left and ready to partner with a new startup?
Problems that platform-to-consumer delivery has to solve
Though on-demand food delivery platforms supply restaurants with a stream of customers, restaurants face some problems related to these platforms.
This is one of the main troubles right now. Uber Eats, for instance, takes about 25 percent of a restaurant’s check. DoorDash and Grubhub can take up to 30 percent. Such an amount of money deducted from orders is especially significant to small restaurants. Some restaurant owners say 10 to 12 percent would allow them to stay afloat while allowing delivery services to keep their clients.
A loyalty program is one more way to retain restaurants on a platform. Grubhub is already working on a similar solution, trying to offer subscriptions and providing 10 percent cash back for restaurants.
Data about users
When relying fully on delivery platforms, restaurants don’t actually know who their customers are and what food they like. With no access to user data and key insights, restaurant owners can’t offer up-to-date food experiences and new cuisine. Moreover, there’s no chance for restaurants to personally engage and build a relationship with customers from platforms. So offering analytics services and customer relationship management systems would be a great idea. Restaurant Manager by Uber Eats is one example of how to do that.
Being listed on delivery platforms has made it much more difficult for restaurants to stand out. That’s why they need tools to attract attention (and food lovers). Great user reviews and high ratings are the best ways to get more customers. But reviews won’t appear until a restaurant is advertised. Uber Eats and Doordash already provide promotional functionality, allowing registered restaurants to be showcased at the top of the list.
Market trends and opportunities
Delivery platforms are popular like never before. The reason is simple — they offer to extend delivery services to a new group of restaurants and consumers. By partnering with restaurants that haven’t delivered before, new Uber for delivery services can expand the overall availability of food delivery on the market. It’s also possible that in the near future, even those restaurants that deliver food on their own may become tech-friendly and start relying on new delivery players since outsourcing logistics can be cost-efficient. Even the CEO of Domino’s has considered such an option, though the company has no plans to switch to an app like Uber Eats and similar services just yet.
Platform-to-consumer delivery services offer the most benefits to all parties involved – restaurants, customers, and the delivery service itself. For restaurants, this delivery model provides a chance to enlarge their customer base and better utilize existing kitchen facilities. This may eventually result in much higher revenue and further business growth. Besides, new platforms offer free marketing and logistics networks to restaurants that couldn’t deliver on their own.
For customers, the advantages of Uber-like food delivery providers include promptness, convenience, and selection. The choice of numerous cuisines is especially appealing for those who are sick and tired of pizza and sushi. And as an app development company, we'd be glad to supply your customers with a wide cuisine selection on your platform.