Food is the basic necessity of life and hence the grocery and food delivery areas are two hot concepts for startups, ensuring some level of success, provided other players don’t use “Burn Cash” techniques to penetrate the market volume. The probability of success associated with food and grocery based startup is quite high as the market volume is huge for your products/service depending on the affordability limits of targeted mass.

Day in & out internet is getting jammed with screaming food sellers. They make your plate at a reasonable cost (Plate makers declare so). They get your plate served to you within 45 minutes that too with a content demand. (Catch is – Serve hot & customer will pay anything).

Have you ever thought why you can order only from one restaurant & not from several restaurants? What if you want a “KFC- Fiery grilled” & your “not carrying wallet” friend wants a” Crunchy Prawn Salt & Pepper – Yo china”.

Here is FS Labs Analysis of Food Delivery Startups – How They Manage the Show?

Food based startups can be divided into three groups-

Model A. Those which only facilitate ordering.

Model B. Those which facilitate ordering + delivery.

Model C. Those which facilitate ordering + cooking + delivery.

FS Labs Food Ordering and Delivery Startups - Profit Margins

The faction of profit increases as the business model includes other verticals; hence the sustainability of “ordering + cooking + delivery” is more as compared with others. As compared the three vertical with each other’s, the profit percentage is highest in “cooking”, so the profit margin is highest if all the three verticals are captured.

In this article we will focus on the generic structure of this industry.

At the beginning Founder need to decide on following essential planning part:

  1. Deciding Market Base

Deciding which area will be covered for food delivery requires a deep insight of kind of people residing in that area. College students, bachelor groups, working couples, office based customers being the hot spots. These areas are termed as “Serve Areas”. Serve areas act as the booster for any business. Getting bumper response at the very beginning kick starts the proceedings.

Even Snapdeal built its empire of group buying based on the hot serve area of cyber city Gurgaon.

Read here more about Snapdeal – Business Model Expansion Strategies.

Read here more about the market size estimation of startup.

  1. Bringing Restaurants Onboard:

Once area is decided, next quest is to catch those eating points which are quite famous among the crowd. Next criterion is the proximity of these restaurants from serve areas. Availability of good eating joints near to hot “Serve areas” is an opportunity up for grab. Planning of last mile delivery and quality of customer service depends upon the distance between serve areas and eating joints.

Tough part of bringing restaurant onboard is to negotiate commercials with restaurants/eating points. Founder’s share varies from 5% to 20% on the order value (w/o tax). Though margins are good often food startups complain about bigger operational cost as the customer base booms.

If the model is self-cooking based, then to arrange the optimum kitchen is essential for sustainability of model. The security deposit, monthly rent, electricity cost, water supply cost etc. are the major cost factors to be considered during initial planning itself.

  1. Gathering Menu & Contact Information for Publishing on Website

This can be termed as basic data collection. Gathering menu of all the restaurants and then bringing them to same platform is one of the major tasks of starting a food based startup. While making an interface of menu on the website/ app, clarity and simplicity of data is most important. Any ambiguity with regard to Menu can be detrimental.

Here the role of user interface becomes important. More handy the interface is lesser will be the customer bounce rate from website and hence better conversion.

If the model is self-cooking based, then deciding the menu as per local needs is essential. Initial feedback of targeted market volume is essential to understand their food requirements.

  1. Website / App Design and its Release –

The next basic requirement of “food serving platform” is a user friendly Website/App. and getting cards circulated among the restaurants. It invariably helps in marketing of food startup.

FS Labs Food Ordering and Delivery Startups - Generic Analysis

  1. Deciding MOV:

MOV here stands for minimum order value. It depends upon operating cost of the supply chain. We can broadly classify incurring cost as – Operational cost, marketing & promotional cost, Profit margin, Discounts and overheads. Most of the existing startup keeps MOV as a function of distance of Restaurant from Serve Area. It may vary from 200/ Order to Rs 400/ order.

  1. Setting up Support Facility & Staff:

Food startups need supporting staff as per their business model, cooks/helpers to prepare required food, for taking fresh order, conveying order to respective restaurant, getting report on ready order, tracking the order status, coordinating order delivery and getting customer feedback. And then startup needs hardware to make all this digital magic happen.

  1. Building Delivery Team:

Most crucial part of delivery business is managing the supply chain. Delivery hot order to a customer is quite challenging.

Let’s break this into short action –

  • Customer puts an order.
  • Food startup operator places order in respective restaurant.
  • Operator looks for delivery guy in the hub.
  • Operator asks delivery guy to collect order from Restaurant and invoice from hub.
  • Delivery guys runs through the traffic.
  • Order is delivered hot to the customer.
  • Delivery guy collects the cash and returns to hub.

This whole delivery sequence (delivery areas in 5 kilometer diameter) takes around 30-40 minutes / order. A single delivery guy could serve at most 8 orders @ 80% efficiency during evening shift (From 6PM to 12 AM). Number of delivery guys increases exponentially with rising customer base.

  1. Operational cost –

Main area where food delivery segment leaks money is order delivery. At an standard delivery man salary of Rs 8k/ month(without petrol charges & perks) operating cost of delivery man/ hr is 53 Rs/Hr. Minimum order value has to be around 266 Rs/ Order (53/20%) to attain no gain no loss status. Apart from this office rent, petrol expenses of the delivery man, other overheads are the major operational costs associated with this business model.

  1. Why Delivery from a Single Restaurant –

Above we have discussed how a delivery man costs around 53 Rs/ hour. For facilitating order from more than one restaurant, it will require either of the two things –

a.) Increasing involvement time per order for delivery guys

b.) Involving more than one delivery guys for a single order.

Both these situations will lead to more operational cost to food startup. And in case of involvement of 2 delivery guys MOV shoots up to 550 Rs/ Order, which is quite high, provided the players are not just trying to penetrate the market base by “Cash Burning”

FS Labs has analyzed the food delivery startups and upon initial brain storming it seems that serving from one restaurant is most apt option. Anyone looking for “food from more than one restaurant” will have to set MOV to quite higher side or need to optimize its processes very precisely or need to burn cash to penetrate the market.

Stay tuned with FS Labs for more analysis.