The convenience of ordering food on-click coupled with the necessity arising out of COVID-19 pandemic has enabled the proliferation of food delivery start-ups in recent times. Multiple food options at tips of the fingers and quick delivery at any time and place have made such start-ups popular among millennials and Gen-Z. Therefore, the growth of food delivery is supposedly expected to continue in India.
However, this opportunity is subject to high level of competition in this space. This demands the service differentiation on part of the start-ups to create their own niche. This requires the understanding of:
Order only model
In this model, the listing is available for restaurants close to the customer’s proximity, normally through a website or a mobile app.
The objective of this model is only to connect customers with the restaurants and procure orders for the restaurants. Either the restaurant itself manages delivery or uses third party delivery services.
In its first avatar, Zomato was operating on this model as a restaurant listing platform.
Order and delivery model
This is the most dominant business model among Indian food delivery start-ups today. It not only supports online order but also provides delivery services.
They may also provide interface for customer support on behalf of these restaurants in case there are problems with deliveries or the order itself.
Most popular food delivery start-ups are working on this model including Zomato, Swiggy, UberEats, etc.
Full stack model
In this model, food delivery business not only procures orders and delivers but also cooks foods in-house. These are also called cloud kitchens. The dining place is not available with the business. They only serve the order to-go by getting the orders online or offline.
In comparison to traditional restaurants, the cloud kitchen saves money in terms of dining area rent and maintenance.
Restaurant to consumer model
These are traditional restaurant businesses, which have developed the capabilities and platform to order food online and have their own networks for delivery of their food.
They are different from the cloud kitchen as they still operate the brick & mortar business in addition to their online food delivery business.
The most famous examples include the likes of McDonalds, Burger King or Domino’s.
Key business metrics
The food delivery businesses use various kinds of metrics or key performance indicators (KPIs) to evaluate their business, identify trends affecting their business, formulate business plans, and make strategic decisions.
Below is the performance of DoorDash (food delivery start-up in US) based on metrics used by it:
In this case, contribution profit / (loss) is Revenue less Cost of revenue (which includes order management costs, platform costs and personnel costs) less Sales & Marketing costs (which consist of advertising, referral fees, brand marketing, etc.). The contribution margin is contribution profit / (loss) as a percentage of revenue.
In this case, adjusted EBITDA is net income (loss), adjusted to exclude non-cash items, financial items (interest, etc.) and certain other items not related key operations of the business (loss on disposal of asset, forex gain / loss, etc.). The adjusted EBITDA margin is adjusted EBITDA as a percentage of revenue.
The quarterly analysis of the above financial metrics gives indication of the trend in operational profitability of the business at two levels – contribution level and adjusted EBITDA level.
In addition to above, DoorDash also uses certain other non-financial metrics like total orders, marketplace gross order value, etc.
The trend analysis of these financial and non-financial metrics helps the business in making decisions regarding future plans of the business.
In another example, below is the business metrics, which is used by GrubHub (another food delivery start-up in US):
Active Diners are the number of unique diner accounts from which an order has been placed during the period through the Platform.
Daily average Grubs are the number of orders placed daily on the Platform.
Gross Food Sales are the total value of order including delivery fees processed through the Platform
GrubHub relies on these metrics to analyze its business performance, determine financial forecasts and develop long-term strategic plans.
In addition to above, food delivery businesses can use various other metrics / KPIs, such as Average profit per delivery, Average order duration, Percentage of drivers on order, etc. This can help identify the weaknesses as well as the strength of the business, which guides the decision-making in business.
You may also want to read article on Revenue streams and Cost structure of food delivery startups.
Do let me know your views and comments on above analysis.