food-delivery-business-model

Food On Demand: The Food Delivery Business Model Explained

In the food delivery business model companies leverage technology to build platforms that enable users to have the food delivered at home. This business model usually is set up as a platform and multi-sided marketplace, where the food delivery company makes money by charging commissions to the restaurant and to the customer.

Origin Story

The history of food delivery stretches back further than many realize, with the ancient Romans delivering takeaway meals in clay pots to keep them warm.

The first online food order was accepted by Pizza Hut in 1994, one of the relatively few businesses at the time to utilize a revolutionary food ordering platform. Today, the online food delivery industry is vast, innovative, and no longer confined to fast-food restaurants. Much of the growth in the industry has been driven by millennial and other time-poor consumers desiring convenient yet high-quality food delivery.

Consumers can now order virtually any cuisine they desire from countless participating restaurants. How food is ordered is also rapidly changing. Food orders are now placed through social media, smartwatches, cars, and television screens. What’s more, food delivery is no longer the exclusive domain of traditional vehicles, with robots and drones now playing an important role.

Forbes estimates the online food delivery industry will be worth $200 billion by 2025. With that said, let’s take a look at some of the companies vying for a lucrative slice of this market.

Uber Eats

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Uber Eats is a three-sided marketplace connecting a driver, a restaurant owner and a customer with Uber Eats platform at the center. The three-sided marketplace moves around three players: Restaurants pay commission on the orders to Uber Eats; Customers pay the small delivery charges, and at times, cancellation fee; Drivers earn through making reliable deliveries on time.
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Uber Eats is an online food ordering and delivery platform launched by Uber in 2014. 

Though it was not the first company to offer online food delivery, the growth of its ridesharing service and the sharing economy more generally resulted in food delivery companies receiving more attention.

Uber Eats uses machine learning to suggest specific cuisines and restaurants to consumers based on their order history and other contextual information. Restaurant managers using the platform also get access to data enabling them to refine their food quality and delivery strategy to increase user satisfaction.

Now operating in more than 32 countries, Uber Eats utilizes car, scooter, bike, and foot transport to courier meals to consumers.

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Grubhub 

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Grubhub is a Chicago-based company founded in 2004 by Matt Maloney and Mike Evans, with the service initially created to provide an alternative to paper menus. Some consider Grubhub to be the first modern food delivery company as most define them today. 

In 2011, Grubhub merged with Seamless, an even earlier iteration of online food delivery launched in 1999. Around the same time Uber Eats was launched, Grubhub had been in operation for a decade and was starting to offer delivery to restaurants without a delivery service. 

In June 2021, leading online food delivery marketplace Just Eat Takeaway acquired Grubhub for $7.3 billion. The acquisition created the largest online food delivery company outside of China.

DoorDash

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DoorDash is a platform business model that enables restaurants to set up at no cost delivery operations. At the same time, customers get their food at home and dashers (delivery people) earn some extra money. DoorDash makes money by markup prices through delivery fees, memberships, and advertising for restaurants on the marketplace.

DoorDash was founded by Stanford University students Tony Xu, Stanley Tang, Andy Fang, and Evan Moore in January 2013.

The company is known for its technology and innovation, opening its first ghost kitchens in 2019 and becoming one of the first to offer contactless delivery during the early days of the COVID-19 pandemic. 

DoorDash also partnered with Starship Technologies to offer robot-assisted deliveries, with the technology being used to make contactless delivery to frontline healthcare workers in the United Kingdom. 

DoorDash and its various subsidiaries are the market leader in the United States, capturing approximately 57% of meal delivery sales during July 2021. 

Instacart

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Instacart’s business model relies on enabling an easy set up for grocery stores, the comfort for customers to get their shopping delivered at home, and an additional income stream for personal shoppers. Instacart makes money by charging service fees, via memberships, and by running performance advertising on its platform.

Instacart is another American food delivery service founded in 2012 by Apoorva Mehta, Max Mullen, and Brandon Leonardo. The company has a focus on grocery delivery and pick-up, with orders assembled for the customer by a personal shopper.

Instacart works with supermarket chains and also local grocers, servicing around 40,000 stores across 5,500 cities in North America.

While the company offers the largest such service in the United States, it suffered from chronic inventory shortages as a result of increased demand during the pandemic in 2020. Instacart is also besieged by a growing cohort of competitors, with CEO Mehta now focused on warding off Amazon in particular in his quest to digitize the grocery retail sector.

Postmates

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Postmates is a food delivery service built as a last-mile delivery service platform connecting locals with shops. Postmates makes money by collecting fees (commission, delivery, service, cart, and cancellation fees). It also makes money via its subscription service (called Unlimted – $9.99/month or $99.99 annually) giving free delivery on every order of more than $12.

Postmates is a food delivery service founded in 2011 by Bastian Lehman, Sam Street, and Sean Plaice. The company has an on-demand goods delivery platform enabling consumers in metropolitan areas to get almost anything delivered to their doors for a small fee.

For this reason, Postmates is often referred to as the Uber of food delivery. Comparisons between the two companies have also been drawn because Postmates couriers get order notifications on their smartphones. The company then uses GPS to match demand and supply in the shortest, most convenient way.

Postmates was acquired in July 2020 by Uber for $2.65 billion in an all-stock deal.

Key takeaways:

  • Food delivery as a service began in Ancient Rome, with the first online food order reputed to have been facilitated by Pizza Hut in 1994. Today, the online food delivery industry is vast and innovative, driven largely by millennial consumer expectations around quality and convenience.
  • In North America, DoorDash enjoys market dominance with approximately 57% market share. Uber Eats and Grubhub are also significant players in North American, with the former leveraging its ride-sharing success to increase awareness and popularity of online food delivery.
  • Two companies with a more unique product offering are Instacart and Postmates. Instacart is a grocery delivery and pick-up service utilizing personal shoppers, while Postmates is an on-demand goods delivery service similarly utilizing couriers to deliver almost any type of item in metro areas.

Read Next: Uber Eats Business Model, GrubHub Business Model, DoorDash Business Model, Instacart Business Model, Postmates Business Model.

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Published by

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"