Business Models in Food Delivery Business

Life has become much simpler since businesses have gone digital. It just takes a click to do a lot of things which would have taken hours otherwise. Food is the basic necessity for human survival, and when food delivery platforms were introduced, it was indeed a boon for hostellers, working professionals, food lovers, people who are staying away from home and a lot of other people.

Business Models in Food Delivery Business | Business Gamut

In the year 2010, there was a new trend that started in South Korea called Mukbang. Mukbang was live excessive-eating of food, and it garnered exceptional attention instantly. Slowly, it migrated to other parts of the world and became a global hit. Today, the popularity of this practise led a popular video game streaming service to begin trialling a dedicated social eating category. Moreover, the top broadcasters earn as much as $10,000 per month without including sponsorships. Researchers claim the popularity of Mukbang cannot be limited only to the spectacle but also because viewers get a craving when they watch people eat good food. This food craving is the common factor which contributes to the success of food delivery apps, and it is no surprise that food and internet together form an incredible combination.

And this is how they started:

In the year 1995, Worldwide waiter became the first online food ordering service. They initially started in Northern California and slowly expanded to several states. By the late 2000’s many of the top pizza outlets and other fast-food chains had their own mobile applications. The dot com boom and the penetration of mobile phones helped in the exponential growth of the industry.

In India, Zomato was the first online restaurant discovery service, which was founded in the year 2008. By the year 2015, online food ordering business witnessed a potential growth and reached $15 billion. Startups like Zomato, Tiny owl, Food Panda, Inner chef rose with a significant focus on apps.

The current scenario in the Food Delivery Business:

The revenue of online food delivery is projected to reach $136,431 million by the year 2020 and $182,327 million by the year 2024. 

The online food delivery model can be broadly classified into two categories, and they are platform-to-consumer delivery and restaurant-consumer delivery.

Revenue of Food Delivery Business in US Billion dollars | Business Gamut

Currently, there are around 704.7 million users of Platform-to-consumer delivery users and 760.24 million restaurant-to-consumer users. Both segments are expected to reach approximately 960 million users by the year 2024.

Number of Users in million : PTC and RTC | Business Gamut

Out of the total 1169 million users in the year 2019, the majority of the users belonged to the age group 25-34 years and constituted 36%. 52% of these users were male, and 48% of users were female. (Source: Statista)

Classification of food delivery business users by Age group and Gender | Business Gamut

Business Models in Food Delivery Business

Platform-to-Consumer Model

In this type of model, third-party apps list the available restaurants nearby to a customer through a mobile app or a website. Consumers get their food delivered by the driver of the platform. Here, the platform act as an intermediate between a customer and the local restaurants. Typically, the platform charges around 20% to 30% on every order. Very few restaurants have tried the subscription model.  Zomato and Swiggy, are prominent examples.

Restaurant-to-Consumer Model

Pizzahut was the first company to deliver the food in the year 1995. In this model, the restaurant delivers the food directly from its own location. These restaurants have their own website and apps and also join a third-party platform. Examples include Dominoes, McDonald’s etc.

Full-Stack Model

Full-stack model is an in-house model where cooking food, building the app and delivering happens within. They have ghost or cloud kitchens where people can not dine-in, and the primary purpose is to get food delivered. This model would find some difficulty in finding customers but can be profitable because the break-even can be attained much faster than the other models as the initial investment is low. However, this can be achieved only if the business is successful in attracting a lot of customers.

Final Key Takeaways

Even though development and maintenance of a food delivery applications are complex and is a costly affair, the potential they possess is tremendous. This is because the brand loyalty of the customers is very high.

McKinsey reported around 80% of the users do not change the application once they have signed up. Network effects and time taken for delivery also influence the success of a food delivery business.

Growing spending power and changing lifestyle have an incredible influence on the change in customer behaviour and has helped in the exponential growth of the food delivery business. Most of the orders are placed on the weekends, and it was also noted that a significant number of orders are from homes rather than the workplace.

In India, the major players are Zomato and Swiggy. Zomato is valued at $3.25 billion, whereas Swiggy is only $350 million behind. This shows how fierce the competition is in the platform-to-consumer model. Luxury hotels like Taj have also entered the food delivery business with an application called Qmin. Even though the market is pretty mature now, we can always expect a new entrant which can disrupt the whole industry.

Hope you guys engaged yourself with the article well. If you like it please share it with others who would like to read this article. Also, do checkout our other blogs on distinct businesses. Let us know your thoughts on this topic in the comments below.

Thanks to Mr Srujin for this wonderful piece! He is a technology and digital transformation enthusiast. Do checkout his LinkedIn and connect with him for discussion on digital transformation.

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