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Startups | 6 min read
Today we introduce three major types of food delivery platforms, comment on their advantages and disadvantages, and help you to make a suitable business-wise decision.
As you all know, a person can’t live long without eating and drinking. It’s one of the laws of nature that hasn’t changed from the very beginning of human beings’ history. Starting from the first days on the Earth and until now, people need to consume food. Otherwise, it may lead to fatality. But okay, let’s change the mood of our story.
Though the importance of food still remains the same, the way we get this food has changed dramatically. Now we do not need to go to the forest and hunt to eat meat (yes, we can do it, but it’s not the only possible variant). Now we can just go to the nearest shop and buy something, go to a cafe or restaurant or just use the services of one of the numerous on-demand food delivery platforms that exist today.
According to social studies, the popularity of such services is growing drastically. The number of food delivery startups is growing as well. And it is still a quite promising sphere to start your business.
But, yes, we can’t say that such services are something absolutely new and revolutionary. In the US and some European countries, clients could enjoy tasty fresh pizza without leaving a house already in the second half of the 20th century. But of course, today a food delivery service looks not the same. Now, this comprehensive system has gone much beyond the previously existing scheme.
Not only startups but also famous restaurants are investing impressive amounts in the development of efficient, reliable, and easy-in-use (for both sides) food delivery software.
With a good delivery management system, a restaurant has an opportunity to continuously work on the improvement of its services and, consequently, on the enhancement of the customer experience.
But not only restaurants themselves are directly interested in the development of the food delivery industry. As you know, if there is a demand, there comes a supply. So, the demand for food delivery services has become a great ground for the development of order aggregators and other platforms as well. Even if you have never used the services of any order aggregator, you definitely heard about these intermediaries between restaurants and clients.
Below you can find the major differences between all the existing categories of on-demand food delivery platforms. It will help us (and you) to come to a conclusion which type better meets the expectations and needs of clients today (and consequently, which model will be a better choice for a startuper).
As we have already mentioned the first delivery services had appeared long before some of the delivery startups founders were born. Initially, to get food delivered by a courier directly to your place, you needed to call a restaurant and place an order. Is such a scheme still being applied today? Sure, it is. Many restaurants still offer just the same traditional model of food delivery.
But with more technologies that are constantly being brought into our lives, the traditional delivery model had no chances to remain the only option for ordering meals when you do not feel like leaving your home.
The food delivery sector is very tech-friendly. Today's society and especially young people (who are definitely among the most active users of on-demand delivery services) prefer to do everything online without any need to dial a number and call anyone.
That’s why the fact that web-based and mobile on-demand food delivery services are gaining popularity nowadays does not seem to be surprising. For us, it is extremely convenient to take a gadget and to turn to the web and mobile food ordering options. Nevertheless, this way of food ordering is beneficial not only for customers but for companies working on the food delivery market as well. Digitalization allows reducing person-to-person interaction in the process of ordering delivery or take-out services which, consequently, ensures a possibility to streamline and facilitate all the related procedures and processes.
Though restaurants and cafes offering a food ordering service still have a very good chance to increase their profit via this option, especially if they do not forget to invest in the digitalization of their offering, they have serious competitors on the food market.
These rivals are on-demand delivery startups. These platforms (or it’s better to say - their founders) are working on bringing the industry to a completely new level. And let’s admit that they have already made good progress.
Today there is an impressive number of them but we can group them according to the business models that they are applying.
As for a business model, such services apply the traditional one. But the main peculiarity of such a service is that it provides customers with an opportunity to place online orders for meals from a great number of cafes and restaurants. It means that using just one mobile app or website, a customer can choose what he or she wants from different cuisines without spending too much time on it.
An aggregator acts as a middleman between restaurants and customers. Choosing among an available variety of restaurants and cafes, comparing prices, meals, and reviews, customers place their orders in the system. An aggregator collects all the received orders and then passes them to the restaurant. Then the orders are delivered by the restaurant’s couriers.
Many customers are interested in whether it is feasible for them to use aggregators as it is clear that platforms themselves also want to get profit. Nevertheless, digital ordering services of these platforms are to be paid not by customers but by restaurants. Usually, aggregators have fees for processing orders.
As the examples of food delivery startups working in accordance with this model, we can name Just Eat, Hero, GrubHub, Foodpanda. They are really big players that managed to enter the international arena. Nevertheless, each country has its own market participants. There can be 2 or 3 of them competing locally.
At first glance, it may seem that logistics-focused food delivery services have much in common with aggregators. Such platforms offer their users the possibility to make a comparison of different cafes, prices, and cuisines and to place an order using just one smartphone application or a web site.
New delivery platforms: peculiarities
But the startups building their business according to the ‘new delivery’ model also offers logistics to the restaurants that they cooperate with. It means that there is no need for cafes to hire their own couriers. It is especially convenient and beneficial for the restaurants that have never had their delivery guys (so, now they do not need to start doing it, to expand its team and to buy cars, everything will be done for them).
For restaurants, there are a lot of advantages: no drivers, no salaries for drivers, no vehicles, and their maintenance. For customers, it is good as well. Even if their favorite restaurant has never delivered food earlier after this restaurant enters in a collaboration with a food delivery startup, that is building in accordance with these principles, customers will have a chance to enjoy their preferable meals at home.
As bright examples of the projects belonging to this category, it’s worth mentioning UberEATS and Postmates.
How do platforms get profit?
Unlike aggregators, these services take fixed fees not only from restaurants, that have decided to establish a partnership, with but also from customers.
Usually, customers do not have to pay very high fees, but thanks to a constantly expanding client and restaurant base, such platforms have good chances to make good money.
According to experts, the total volume of all ordered processed by this sector may get higher than $20 bln by 2025.
See also: 5 Benefits of a Food Delivery App
When it comes to comparing these food delivery players, many of us may say that the scheme applied by the platforms belonging to the third category has the biggest number of advantages. The following ones are usually named:
Full control over all processes and over customer's experience (you do not depend on outsourcing logistics or chefs of other restaurants, you always know what food is delivered and when it is happening);
Financial feasibility (yes, you have to bear a lot of expenses but at the same time you do not need to share your profits with partners or other third parties);
Great flexibility (you have direct interaction with your clients which means you can listen to them and satisfy their needs without the involvement of external contractors or companies).
But if you are thinking about launching a food delivery service, you should know all sides of this business. The full-service meal delivery business is not so easy and so perfect as it may seem. Despite the fact that it can bring a lot of benefits not only for its owners but for clients as well, we can't forget about the full-stack business model drawbacks. They are:
Large initial funding;
Big staff (with wages and insurances);
A lot of software, equipment and vehicles;
Various certifications and licenses.
All these make the model not the best choice for beginners. Though the first point that we have mentioned in the list of advantages is full control over everything, can a starter be sure that he or she will manage to control everything (especially, if he or she does not have any experience in this sphere)?
Though running such a business can be a reasonable idea from the perspective of potential profits, you should also bear in mind the operational costs.
Launching an aggregator food ordering and delivery platform could be considered to be a very easy option as in this very case you do not need to have a big staff (you even do not need to maintain vehicles unlike a ‘new service’ delivery).
But we still ask you not to forget about the competition that today exists among such players of this market. There are real giants that have already managed to win their share, clients and positions and to survive in a battle with them may become not the easiest task for a new company.
The same issue with rivals exists for companies that have in-house couriers as well.
Moreover, in the case of these two categories, your growth opportunities have some limits. You will fully depend on the capacities of your partnering restaurants, but you will have little (if any at all) influence on them. Nevertheless, these two options (especially, the aggregators model) do not require such a huge initial capital as a full-stack delivery service does.
So, if you are considering a variant of creating a food-delivery startup, you really need to think twice in order to make a good choice after having evaluated all the pros and cons.