deliveroo-business-model

How Does Deliveroo Make Money? The Deliveroo Business Model In A Nutshell

  • Deliveroo is a British online food delivery company founded by Greg Orlowski and Will Shu in 2013. Shu developed the platform in response to a lack of high-quality food delivery in London.
  • Deliveroo makes money by collecting 25-45% of every order it facilitates. It also charges delivery fees and onboarding fees for restaurants that wish to be featured on the platform.
  • Deliveroo for Business is a service designed for corporate clients needing to order food in bulk. The company also charges a higher commission to businesses that utilize a network of digital kitchens to process orders.

Origin Story

Deliveroo is a British online food delivery company founded by Greg Orlowski and Will Shu in 2013.

After moving from New York City to London and working long hours at a desk, Shu was surprised to find that it was nearly impossible to get high-quality food delivered. He observed that existing takeaway food was subpar at best and limited to low-end restaurants already providing a takeaway service.

Deliveroo was then launched in February 2013 by Shu and childhood friend Greg Orlowski with the motto “proper food, proper delivery“. Shu initially worked as the first Deliveroo rider, picking up food from restaurants and delivering it to customers to get a sense of how the whole process worked.

Starting with just three restaurant partners, Deliveroo secured a critical round of funding in mid-2014 to allow it to operate in the British seaside city of Brighton. By January of the following year, the service was launched in Berlin and Paris. At this point, Deliveroo had approximately 1,500 restaurants onboarded with over 500 delivery drivers.

In 2019, the success of Deliveroo caught the attention of Amazon who subsequently invested $575 million to secure a stake in the fast-growing European food-delivery space. The company also successfully navigated the coronavirus pandemic in 2020, adding over 15,000 couriers to cope with increased demand.

Today, Deliveroo operates in 12 countries with more than 115,000 restaurant and grocery partners.

Deliveroo’s flywheel and business model explained

deliveroo-flywheel
The Deliveroo claimed flywheel moves around a wide selection of products on the platform, which brings in consumers, thus making the platform also more appealing for riders, as they have the option to choose what food to deliver. As more riders join in, the service improves thus making it more valuable for restaurants looking to expand their customer base, by providing quick deliveries. Therefore, the positive feedback loop is triggered by a wider selection, at better value, with a wide range of partners (riders and restaurants) – Image Source: Deliveroo Financial Prospectus.

To kick off its operations Deliverro needs to build up local network effects. Indeed, one of the limitations of a platform that operates locally is the fact that in each new location it needs to kick off its network effects, by attracting enough riders to make the service valuable for consumers and therefore the platform valuable for restaurants. The positive side is that as the brand grows in various locations, it becomes easier to kick off operations in new ones, thus triggering local network effects more quickly.

The loop is straightforward. As more local consumers join the platform, and orders flow in, restaurants and groceries also join in more easily and in greater numbers. This improves product selection and gives choices to consumers in terms of pricing. Thus generating also earnings opportunities for riders, who might use Deliveroo as the go-to platform to earn an additional income.

Thus, a wider network of riders, with a wider selection, better prices, makes more consumers join in, making the platform even more valuable to restaurants and grocery partners.

Deliveroo revenue generation

deliveroo-income-statement
Deliveroo Income Statement – Deliveroo Financial Prospectus.

Deliveroo has a revenue generation model typical of many food delivery companies.

This model is discussed in more detail below.

Order commissions

Deliveroo collects a commission of 25-45% for every food order it facilitates. The exact commission depends on the particular restaurant partner and the country of operation.

Delivery fees

Deliveroo customers must also pay a delivery fee which is then forwarded to the courier by the company. 

Delivery fees are based on the distance between the restaurant and the customer and also the estimated travel time.

Onboarding fees

Deliveroo also charges an onboarding fee for new restaurants wishing to be included on the platform. 

Ostensibly, this fee covers the cost of photographing the menu and also the equipment that connects with online ordering software. A typical onboarding fee is in the vicinity of $300.

Deliveroo Plus

Deliveroo Plus is a subscription membership plan for members giving them access to free delivery, 24/7 customer service, and exclusive restaurant offers.

Prices vary according to country. In Australia, for example, the cost of Deliveroo Plus is:

  • $14.99/month for the Gold plan, which offers free delivery on all restaurants, takeaway, and grocery deliveries.
  • $6.99/month for the Silver plan, which offers the same free delivery provided the order amount is at least $40.

Deliveroo for Business

Deliveroo for Business is a service provided to corporate customers who wish to order food in bulk for their employees.

The fee structure for this service is unclear, but the company likely earns a commission from its existing restaurant partners. Given the bulk nature of these food orders, the commission is likely to be significant.

Deliveroo Editions

Deliveroo Editions is a network of kitchens where several restaurants and food brands work together in a single space to streamline the food delivery process.

These kitchens are built and fitted out by Deliveroo and leased free of charge to the restaurants and brands. However, the company takes a higher commission for every order placed through the app. This commission may be as high as 50% in some cases.

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Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"