Chances are you’ve probably ordered food online at least once or twice this month and have already seen a food delivery courier on the road today. According to research from Frost & Sullivan, the online food delivery market is projected to exceed $200 billion in value by 2025. As companies continue to invest heavily in the industry, it should come as no surprise that even Uber’s delivery business — better known as Uber Eats — has recently exceeded its original and core ride-hailing division.
The food delivery industry is booming, and its rise is accelerated even further by COVID-19 and the following lockdown. As a lot of people switched to remote work and started avoiding physical contact as much as possible, online food delivery has seen substantially increased spending and frequency. Not only is ordering delivery more convenient, but it is also much safer, especially with contactless payment.
As the theme of food delivery is hot, we will dive into its ecosystem and talk about business models as well as the main players. But most importantly, we will answer the question: is it worth trying to enter the market as an entrepreneur and get a piece of that tempting food-delivery-pie?
Food delivery market overview
The food delivery market is huge, and so is the number of players operating in the industry. However, although there are a lot of quite successful local food delivery solutions, only a few giant global players dominate the market.
In the U.S., for instance, DoorDash accounts for 46% of all monthly sales in the industry, UberEats — for 23%, and Grubhub — for 21%. Yet, as the following graph shows, the market share distribution is not static, so companies try hard to innovate and outperform their competitors. End-users are flexible and demanding, so should one company introduce something compelling, they will switch to it from incumbents without a doubt. The fact is certainly good news for aspiring founders nursing the hope to develop a food delivery company!
Monthly sales in food delivery, Second Measure
Another important thing is that investors are very enthusiastic about the food delivery industry and bullishly invest in promising young companies. According to Crunchbase, food delivery startups have raised a combined total of $17.4 billion in over 1000 rounds of venture capital funding.
How does a food delivery app work?
In its essence, a food delivery app is a marketplace. A typical one has three types of customers:
1. Users. Those are companies ordering for their employees or ordinary people who don’t want or are simply too busy to cook meals. They enjoy the convenience of fast delivery, tasty meal from a favorite restaurant as well as no-hassle experience.
2. Restaurants. Those can be successful restaurants that want to get a wider audience, small restaurants with no seating, and/or those who don’t have their own delivery.
3. Couriers. Delivery app couriers are usually students or young people who want a flexible day job or some extra money.
Users typically download an app, look through the restaurants available in their geography (usually filtered via type of cuisine), choose desired food and beverages, and place an order. The restaurants confirm orders, cook them, and hand over to couriers, who then deliver still warm meals to the end-users. Users get tasty food at their doorstep, restaurants enjoy demand acceleration, couriers get their pay for a delivery, and an app itself keeps a service fee (usually no more than 15% of an order’s subtotal).
When talking about food delivery apps, we usually refer to the Platform To Consumer Model, when a third-party app is listing available restaurants close to the customer’s proximity. It is indeed the most popular business model, and notable companies using it include UberEats, Deliveroo, and DoorDash. However, food delivery businesses are not limited to the Platform To Consumer Model.
The Full-Stack Model is another example of how food delivery businesses can operate on the market. If such a model is employed, the food delivery business does everything in-house — from building an app and hiring drivers to the very meals cooking. Quite often, the food is done in so-called ghost or dark kitchens — delivery-only restaurants. People cannot sit and dine in such facilities as the main purpose of a dark kitchen is to prepare food for delivery. The major drawback of such a model is that it requires substantial investments to launch.
The Restaurant To Consumer Model is another way for restaurants to gain a larger customer base and get additional revenues. Companies employing such a model usually start out serving food via their own locations and then go on to expand to delivery services. The most prominent examples include Domino’s, McDonald’s, and Burger King.
The food delivery market is growing at a rapid pace, especially when millennials mature and gain more buying power. There are quite a few qualitative food delivery apps available to users around the world, and it may seem that there is no point in entering such a saturated market as an entrepreneur. However, as we always say at Idealogic, when the industry is gaining popularity plus you have some innovative idea, there is certainly a way to jump into the market and reap the benefits of the growing sector. Quite often, aiming global is not the best way of developing a new solution. You may offer a convenient localized solution to customers in a certain geography or offer something niche — whatever brings added value to end-users. Don’t be afraid of entering big markets — they are the very source of huge profits!
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