As most of the food delivery app advertisements go – a person orders via smartphone enjoys doorstep deliveries, and both the platform and the person is happy. But the work that takes between the click and the food at the doorstep is often invisible and, this goes without saying, a major chunk of effort goes unnoticed. A back-end team works meticulously in transferring the order to the restaurant, organizing the delivery executive to reach the eatery on time, and navigate the executive throughout the way in reaching customer locations.
Most food delivery apps like UberEats, DoorDash, etc., follow this strategy. But did you know that these platforms are spending more than what you get? There’s no doubt in the fact that these platforms are growing in numbers in terms of customers and popularity. But the real burning question is if these apps are profitable?
E-commerce giants like Amazon are profitable in delivering couriers to the right audience at the right time. But food delivery apps following the same model are, literally, struggling to achieve even the break-even conditions. Is there a way to tweak the delivery model? Are there business models that are thriving or promising a better possibility of success other than the existing ones?
Are you an entrepreneur who needs answers to these questions? If so, this blog is channelized to reach you, helping you achieve unparalleled success and profits in the food delivery segment.
The Costs Involved
The pricing system for any UberEats Clone food delivery app consists of different components adding up to the total value. Here’s the optimal breakdown of the different prices,
- Prices on the menu
- Service fee incurred
- Delivery fees
- Tips for drivers (optional)
All these prices add up to the Total Meal Cost (TMC).
Restaurant Listing Price (RLP) – A Key Indicator
There’s no hiding in the fact that food delivery platforms elevate menu prices for food items when compared to ordering from restaurants directly. Different popular platforms vary this Restaurant Listing Prices (RLPs) based on their business needs. In an extensive research study, here are some key findings of food delivery apps and their proportionate relation between TMC and RLPs.
- Seamless – 17% variation
- UberEats – 29.7% variation
- Caviar – 32.2% variation
- DoorDash – 32.8% variation
- Postmates – 40.5% variation
For instance, if a customer ordered $50 worth of food from Seamless, the TMC will rise to $58.49. For the same $50, one needs to pay $70.23 when ordered via Postmates.
A Dive into the Unit Economics
Unit Economics, in simpler terms, helps entrepreneurs determine the sustainability of businesses in the long run. The term involves calculating the revenues and costs for one particular unit. If the income is more than the net spends, one can conclude that the business is steering towards positive growth. Contrastingly, if the net spend is more than the revenue earned, the platform is running on losses.
Considering a relatable scenario is one of the best ways to understand Unit Economics comprehensively.
- Let’s assume the Average Order Value (AOV) of a platform like Grubhub is $30.
- Considering a commission percentage of 27.5%, restaurants give up $8.25 to the platform.
- The average delivery value paid by customers during checkout is anywhere around $2.75.
- This leaves the UberEats Clone food delivery platform with net revenue of $11 per order.
- The platform spends a dedicated sum of money on customer care for round-the-clock support. Assume such expenses to be $1.10.
- The platform hires a delivery executive to drop food orders at customer doorsteps. The delivery executive receives $6.50 per order.
- Summing up the direct expenses, the platform receives $3.40 per order as profit.
But, in reality, the scenario is much more complicated. The platform makes indirect expenses in the form of marketing and advertisements. Besides, the platform also rolls our exclusive discounts by taking a cut from its own margin.
According to a report from the investment firm Cowen, UberEats is currently losing $3.36 per every order. The firm has also mentioned that this number will shrink by $0.46 per order in 2024.
Thus, unless the delivery fees and other operating expenses get reduced drastically, it becomes increasingly challenging for food delivery platforms to satisfy customers and make profits concurrently.
A Shift in delivery modes?!
The least a food delivery platform can do is collaborate with ‘gig’ workers as a measure of reducing the delivery fee. But, thinking outside the box can do wonders in the current scenario here. Some platforms are already investing heftily in their R&Ds to work out a sustainable mode of delivery. Here are some options to consider in your UberEats clone.
- Food delivery through Drones: The relaxation of Federal Aviation Administration’s (FAA) regulations to entertain drones for local deliveries comes to a major boost. Promising accurate delivery timings and waiting for drivers to arrive is one significant pain point that needs instant resolutions. Drones, using the aerial way, can be the ideal way out in numerous aspects. With the market for drone package delivery forecasting a tremendous CAGR of 44.7% between 2019 and 2025, it is only a matter of time until this delivery mode receives the green signal.
- Delivery by Robots: In today’s technologically-driven world where advanced cameras and sensors are an instant possibility, delivery by robots can be a gamechanger. DoorDash is one platform that is working extensively on adding starship robots to its delivery fleet. After having completed 20,000 miles of testing and connecting over 4 million people in due course, DoorDash promises a bright future for delivery by robots.
The Final say – Cloud Kitchens!
While the changing UberEats Clone delivery modes can be a long-term alternative, industrial or cloud kitchens have gained massive importance in striking the chord between revenue and net spends. Uber’s co-founder, Travis Kalanick, has launched a new venture named CloudKitchens that has received a $400 million funding recently and cites a $5 billion valuation.
To survive, sustain, and succeed in this highly-competitive market space, a food delivery platform needs to maintain a balance between popularity and revenue. Leveraging cloud kitchens and switching to other delivery modes become the need of the hour!