What Is the Best Business Model for an Online Food Delivery Startup?

What Is the Best Business Model for an Online Food Delivery Startup

We round up the four most popular online food delivery business models to help you launch a successful startup.

As per a McKinsey report, the food delivery business was worth over US$150 billion in 2021. The global food delivery markets are four to seven times larger than they were in 2018. Every day, more and more people rely on apps to get their food delivered home. It is convenient, fast and affordable for customers. What’s more? Once people find a food delivery app, 80% rarely switch to a new app. Evidently, this is a lucrative industry; however, breaking into it is not an easy undertaking. Online food ordering company DoorDash’s Chief Operating Officer, Christopher Payne, noted, “This is a cost-intensive business that is low-margin and scale driven.” 

Given that, here’s a look at the top business models to consider if you want to enter the food delivery industry:

Platform-to-Consumer Model

As the name suggests, this model refers to online food delivery companies that have set up virtual platforms featuring a range of restaurants from which people can order. The company acts as a mediator between restaurants and consumers. It arranges drivers and customer service executives to make the delivery process smoother. Uber Eats and DoorDash are some companies that follow this model.

In this business model, ‌revenue is generated from commissions charged for every order served by a restaurant on the app. The more orders a restaurant receives, the higher their commission will be.

Integrated Model

Akin to the platform-to-consumer model, companies use the integrated model to host restaurants on their virtual platforms. However, along with the company, the restaurant, too, is responsible for the platform’s functioning, thus giving it the name of the “integrated” model. Some restaurants have their own delivery partners and do not need those of the company. So, they use the virtual platform solely to connect with consumers. Other restaurants might not have their own delivery partners. That’s where the platform admin steps in to help.  

A remarkable benefit of this business model is that it allows restaurants that don’t have a delivery fleet to be a part of the platform, along with those that do. Besides providing more choices to consumers, it creates a level-playing field for various restaurants.

Inventory-to-Consumer Model

This model is popular among well-known food chains, such as McDonald’s and Pizza Hut. In this business model, also known as the restaurant-to-consumer model, the restaurant sets up its own app to connect with consumers and deliver food. The user would directly visit the restaurant’s app, browse the menu, place their order and pay for it. There is no mediating platform or company. The only third party involved is the delivery provider the restaurant ties up with for home deliveries. 

In this model, revenue is generated from orders placed. Restaurants also charge delivery fees for their services.

Full Stack Model

“Full-stack” companies are responsible for the complete value chain of their service—from its inception to delivery—in-house. For food delivery companies, that means that they must cook food, set up their app and hire their own drivers instead of collaborating with delivery providers. Their primary focus is to cater to the main customer needs of convenience and speed while lowering their costs and increasing their reach. To do this, they use cloud, or ghost, kitchens. These are co-working kitchens for various restaurants where employees cook, package and deliver food. As there’s no physical outlet of the restaurant for customers to dine in, the costs are drastically reduced. Companies can offer a broader range of food at affordable prices. 

In this business model, the food delivery company takes care of proper planning, marketing and distribution to ensure maximum reach. It also connects consumers with restaurants. 

It seems simultaneously like years ago and just yesterday that online food delivery transformed how we dine. All things considered, its adoption will only increase in the years to come, making it the ideal time for startups to make their mark in this industry. So, if you find yourself thinking about venturing into the world of e-commerce, now is probably the right time to begin your journey.

Header Image by Freepik

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