Leading business models in food delivery services

The food delivery industry employs diverse business models: Aggregator, Logistics-Focused, Cloud Kitchen, and Subscription-Based. Each offers unique advantages and challenges, balancing scalability, cost, and customer experience. Hybrid models and trends like AI, sustainability, and hyperlocal delivery are shaping the industry’s future.

Case Study: Just Eat

Just Eat, one of the largest food delivery services platforms in the UK, exemplifies the Aggregator Model. It partners with thousands of restaurants, from local takeaways to chains like KFC. By focusing on the platform rather than logistics, Just Eat maintains a lean operation. However, it has faced challenges with restaurant dissatisfaction over commission fees, prompting some to develop their own delivery systems.

Future Outlook

The Aggregator Model remains dominant but is evolving. Platforms are investing in technology, such as AI-driven recommendation engines, to enhance user experience and increase order frequency. Additionally, some aggregators are transitioning into hybrid models by offering delivery services to remain competitive.

The Logistics-Focused Model

The Logistics-Focused Model, adopted by companies like Deliveroo and Uber Eats, goes beyond aggregation by integrating delivery services. These platforms not only connect customers with restaurants but also manage the logistics of delivering food, employing or contracting delivery drivers (often gig workers).

How It Works

In this model, the platform partners with restaurants, which focus solely on food preparation. The platform handles the following:

• Order Management: Processing orders through the app or website.
• Delivery Logistics: Coordinating a fleet of drivers to pick up and deliver food.
• Customer Support: Managing complaints, refunds, and queries.

Revenue is generated through:

• Commission Fees: Similar to the Aggregator Model, platforms charge restaurants a percentage of each order.
• Delivery Fees: Fees charged to customers for delivery services.
• Premium Services: Additional charges for faster delivery or priority placement.

For example, Deliveroo employs a fleet of cyclists and motorbike riders to ensure timely deliveries, particularly in urban areas. The platform also offers tools like Deliveroo Editions, where restaurants can operate from delivery-only kitchens.

Advantages

• Control Over Delivery: By managing logistics, platforms can ensure faster and more reliable deliveries, enhancing customer satisfaction.
• Data Insights: Platforms collect data on delivery times, customer preferences, and restaurant performance, which can be used to optimise operations.
• Brand Consistency: Controlling the delivery process allows platforms to maintain a consistent brand experience.

Challenges

• High Operational Costs: Maintaining a delivery fleet, including driver payments and insurance, is expensive.
• Gig Economy Criticism: The reliance on gig workers has led to scrutiny over labour practices, including low wages and lack of benefits.
• Regulatory Risks: Increasing regulations on gig work in markets like the UK and EU could impact profitability.

Case Study: Uber Eats

Uber Eats leverages Uber’s expertise in ride-sharing logistics to offer food delivery services. Its extensive driver network allows it to scale rapidly across markets. However, Uber Eats has faced challenges with driver retention and regulatory pressures, particularly in Europe, where gig worker rights are a growing concern.

Future Outlook

Logistics-focused platforms are investing in automation, such as drone and robot deliveries, to reduce costs and improve efficiency. Additionally, partnerships with grocery stores and convenience retailers are expanding the scope of this model beyond restaurant food.

The Cloud Kitchen Model

The Cloud Kitchen Model, also known as ghost kitchens or dark kitchens, involves food preparation in dedicated, delivery-only facilities without a dine-in option. Companies like Kitchen United and Deliveroo Editions operate cloud kitchens, while some platforms, like Zomato, support restaurants in setting up their own.

How It Works

Cloud kitchens are centralised facilities housing multiple restaurant brands under one roof, optimised for delivery. They operate as follows:

• Shared Infrastructure: Multiple brands share kitchen space, equipment, and sometimes staff to reduce costs.
• Delivery Integration: Orders are fulfilled through delivery platforms like Uber Eats or DoorDash.
• Brand Flexibility: Restaurants can test new concepts or menus without investing in physical locations.

Revenue comes from food sales, with platforms often charging a commission or rental fee for kitchen space. Some cloud kitchens are owned by delivery platforms, while others are independent, partnering with multiple services.

Advantages

• Cost Efficiency: Cloud kitchens eliminate the need for expensive storefronts, reducing overheads.
• Scalability: Brands can expand to new markets without significant capital investment.
• Menu Experimentation: Operators can test new cuisines or virtual brands tailored to local demand.

Challenges

• Customer Awareness: Without a physical presence, building brand recognition can be difficult.
• Dependency on Platforms: Cloud kitchens rely heavily on delivery platforms, which charge high commissions.
• Quality Control: Managing multiple brands in one facility can lead to inconsistencies.

Case Study: Deliveroo Editions

Deliveroo Editions operates cloud kitchens in the UK and other markets, allowing restaurants to set up delivery-only operations. By providing data on local demand, Deliveroo helps brands tailor menus to specific areas, increasing efficiency. However, the model’s success depends on strong partnerships with delivery platforms.

Future Outlook

The Cloud Kitchen Model is gaining traction as restaurants seek cost-effective ways to reach customers. Advances in kitchen automation and AI-driven demand forecasting are expected to enhance efficiency, while partnerships with delivery platforms will remain critical.

The Subscription-Based Model

The Subscription-Based Model offers customers unlimited or discounted deliveries for a recurring fee. Platforms like DoorDash (DashPass) and Uber Eats (Eats Pass) use this model to encourage repeat orders and build customer loyalty.

How It Works

Customers pay a monthly or annual fee for benefits such as:

• Free or Discounted Deliveries: No delivery fees on orders above a minimum amount.
• Exclusive Offers: Discounts or special promotions with partner restaurants.
• Priority Service: Faster delivery or dedicated customer support.

Platforms generate revenue through subscription fees, alongside commissions and delivery charges for non-subscribers. Restaurants benefit from increased order volumes from loyal customers.

Advantages

• Customer Retention: Subscriptions encourage repeat usage, increasing customer lifetime value.
• Predictable Revenue: Recurring fees provide a stable income stream.
• Competitive Edge: Subscriptions differentiate platforms in a crowded market.

Challenges

• High Acquisition Costs: Attracting subscribers requires significant marketing investment.
• Retention Challenges: Customers may cancel subscriptions if they don’t perceive ongoing value.
• Profit Margins: Offering free deliveries can erode margins unless offset by higher order volumes.

Case Study: DoorDash DashPass

DoorDash’s DashPass offers free delivery on orders over $12 for a monthly fee of $9.99 in the US (equivalent services exist in the UK). The programme has driven customer loyalty, with subscribers ordering more frequently than non-subscribers. However, DoorDash must balance the cost of free deliveries with profitability.

Future Outlook

Subscription models are likely to grow as platforms seek to lock in customers. Bundling subscriptions with other services, such as grocery delivery or entertainment, could enhance value and retention.

Hybrid Models and Emerging Trends

Hybrid Models

Many food delivery services combine elements of the above models to diversify revenue and mitigate risks. For example:

• Deliveroo: Combines the Logistics-Focused Model with Cloud Kitchens (Deliveroo Editions) and offers a subscription service (Deliveroo Plus).
• Zomato: Operates as an aggregator but also supports cloud kitchens and offers a subscription plan (Zomato Pro).

Hybrid models allow platforms to cater to diverse customer needs and adapt to market conditions. However, they require significant investment in technology and infrastructure.

Emerging Trends

• AI and Automation: Platforms are using AI to optimise delivery routes, predict demand, and personalise recommendations. Autonomous delivery vehicles and drones are being tested to reduce costs.
• Sustainability: Eco-friendly packaging and electric delivery vehicles are becoming priorities as consumers demand greener practices.
• Grocery and Retail Delivery: Platforms like Uber Eats and Deliveroo are expanding into grocery and convenience store deliveries, broadening their market.
• Hyperlocal Delivery: Focusing on ultra-fast delivery (10–15 minutes) is gaining traction, with companies like Getir and Gorillas leading the way.

Strategic Implications

Each business model has unique implications for scalability, profitability, and customer experience:

• Aggregators excel in markets with diverse restaurant ecosystems but must address commission disputes to maintain partnerships.
• Logistics-Focused Platforms offer superior control but face high costs and regulatory scrutiny.
• Cloud Kitchens provide flexibility and cost savings but rely on delivery platforms for reach.
• Subscription Models drive loyalty but require careful pricing to ensure profitability.

To succeed, food delivery services must balance customer acquisition, operational efficiency, and partner relationships. Technology will play a critical role in differentiating platforms, with investments in AI, automation, and sustainability shaping the industry’s future.

Conclusion

The food delivery industry is dynamic and competitive, with business models evolving to meet changing consumer demands and technological opportunities.

The Aggregator Model offers scalability and variety, the Logistics-Focused Model ensures control and reliability, the Cloud Kitchen Model drives cost efficiency, and the Subscription-Based Model fosters loyalty.

Hybrid approaches and emerging trends like AI, sustainability, and hyperlocal delivery are reshaping the landscape, creating opportunities for innovation and growth.

As the industry matures, successful platforms will be those that adapt their models to local markets, leverage technology, and prioritise customer and partner satisfaction. The future of food delivery promises to be as diverse and dynamic as the cuisines it serves.