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#food delivery
#strategy
January 19, 2023
9 min

5 Most Efficient Business Models for the U.S. Food Delivery Market and How to Develop Apps for Them

Giving an overview of the best strategies for food delivery apps

SEO copywriter

Before 2019, American food delivery faced a market downturn and companies were looking for ways to increase profits. The pandemic boosted the industry: in 2020, Americans began ordering delivery 30% more often than before the lockdown.

Restaurants that lost income due to lockdown measures started massively connecting to aggregators. Aggregators responded to the demand and increased fees: at the height of the pandemic they reached 30%. Restaurants that didn’t want to pay the fee opened ghost kitchens or launched their own delivery.

The market was divided between four aggregators: DoorDash, Grubhub, Postmates, and Uber Eats. To undercut the competition, they expanded and absorbed each other. For example, in 2020 Uber Eats bought Postmates. And DoorDash, which occupies 50% of the delivery market in the United States, thought about buying Instacart.

Users wanted to get their food delivered as quickly as possible, so the demand for express delivery increased. GoPuff partnered with Uber Eats to deliver goods from its MFC. Retail chains have also started launching their express delivery services. For example, Walmart and Amazon launched express delivery from supermarkets.

Now, the United States is the world’s second-largest food delivery market. In 2021, it amounted to $22 billion and continues to grow, second to only China. Every year, the services become more functional and competitive. Take Walmart, that launched delivery straight to the kitchen.

In this article, we will analyze the dominant business models of the food delivery market and tell you how to develop profitable apps for them.

Model #1. The virtual restaurant model helps reduce operating costs

Virtual restaurants, or ghost kitchens, are the restaurants that are focused only on delivery. They do not have their own outlets with seats or pickup. There is only a kitchen where cooks prepare dishes and pack them. Orders are then handed over to couriers, and they deliver them to customers.

The virtual restaurant business model allows restaurants to reduce operating costs. They save on rent, since a virtual restaurant does not need large premises on a passable street. And they spend less on employee salaries, as such restaurants do not need to keep a staff of waiters, managers, and administrators.

CloudKitchens offers ghost kitchens to restaurants

CloudKitchens buys premises, equips them for ghost kitchens, and then rents them out to restaurants. The company places kitchens in densely populated areas to make it easier for the restaurants to deliver dishes to customers.

CloudKitchens manages the equipment of the premises, their maintenance and logistics. For example, in 2020, CloudKitchens bought 40 properties in 24 cities for $130 million.

CloudKitchens developed an IT platform to manage kitchens, orders, and couriers. CloudKitchens connects small local restaurants and chain restaurants to the service. Using it, restaurants can take orders, make payments, automate the work of employees, analyze business indicators, and cooperate with delivery aggregators.

Model #2. The express delivery model uses an MFC network

Express door-to-door delivery services for groceries, cigarettes and alcohol use MFC (micro-fulfillment centers), i.e. small warehouses in densely populated urban areas. A wide network of such warehouses allows them to deliver orders to customers within thirty minutes.

Gopuff connects new suppliers and expands to Europe

Gopuff express delivery service was founded in 2013 by two students from Philadelphia, Yakir Gola and Rafael Ilishayev. Initially, Gopuff delivered shisha tobacco, but then switched to delivering food, and home essentials.

Gopuff developed a website, an app for customers, and an app for drivers. Customers order groceries in the app, the order pickers collect the orders in the warehouses and hand them over to the couriers.

Couriers use the app to select shifts, confirm orders, and deliver them to the customers. The app automatically calculates weekly earnings and tips.

Gopuff has a fixed delivery cost of $2.95 per order. The service strengthens customer loyalty with a subscription. The user pays $5.95 per month and gets free delivery.

The service is growing due to inviting new suppliers and partnering with large retail chains and aggregators. Gopuff works both with major players such as the Morrison supermarket chain, and with small local businesses.

In 2021, the service expanded to other countries. Gopuff bought Fancy and Dija express delivery services and entered the UK market. And in March 2022, it launched in France. Now, Gopuff operates in 1,000 cities in the U.S., France and the UK.

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Model #3. Delivery from stores is growing due to the engagement of leading retail chains

Aggregators of delivery from stores collaborate with large retailers. Partnership with aggregators allows retailers to expand their customer base and reduce the cost of their own courier services.

Instacart follows this exact pattern. The service works with such leading retail chains as 7-Eleven, Costco, and Safeway.

Instacart’s main competitor, Amazon, launched the Amazon Fresh Marketplace service in 2021 and also delivers goods from supermarkets.

Instacart engages leading retailers and sells its IT solutions to partners

Instacart develops an app for customers and order pickers, as well as advertising, and analytics services.

Customers order goods in their apps and then the orders go to the picker apps.

Order pickers head to the store, search for the goods, check the added ones and contact the customers if they want to replace anything. Then they hand the orders over to the couriers or deliver them to customers themselves. The app automatically calculates earnings, and order pickers can deposit them into their accounts.

Instacart is expanding by inviting new retailers. Now the service offers three hundred thousand products from twenty-five thousand grocery stores in the United States and Canada.

Another growth driver is selling their own technological solutions to retailers. In March 2022, Instacart brought together all services and tools for partners into one technological platform. The websites and apps of such supermarket chains as Publix, Wegmans, and The Fresh Market are now powered by Instacart. The platform also offers digital solutions for stores. These include smart carts with built-in goods scanners, and self-checkouts.

Model #4. Retailers partner up with aggregators and launch their own delivery

Supermarkets collaborate with such aggregators as Instacart, and large retail chains launch their own delivery. For example, Walmart is developing two delivery services: InHome and Walmart Express.

Walmart delivers groceries straight into customers’ fridges

In 2019, Walmart started testing InHome, a direct-to-fridge food delivery service. A user buys a smart lock from Walmart for $50 and installs it on their front door. Then the user orders groceries in the Walmart InHome app and selects a preferred delivery time. The cost of delivery is fixed at $20 per month.

On the appointed day, the courier arrives at the customer’s home. The courier enters a one-time access code from the app on the lock and opens the door. Then they put the groceries on the shelves in the fridge. Before leaving, they disinfect all the surfaces they have touched.

Walmart insured employee liability for $1 million. It also developed a video tracking system for couriers. As soon as the courier enters the house, the app notifies the customer about it. A camera attached to each courier’s vest turns on automatically during the delivery.

The user tracks all the actions of the courier in their house on a video. As the courier finishes arranging the products and closes the door, the broadcast ends. A video record of the delivery remains available in the app within a week.

Walmart solved the last mile problem and beat its competitors, Shipt and Instacart delivery services. InHome is now available to 6 million households in the U.S., and Walmart plans to connect 30 million more households by the end of 2022.

Express delivery is another direction that Walmart is developing. Users make orders in the app, order pickers collect the goods in the store, and couriers deliver them to the customers within two hours. Now Walmart delivers 160,000 products from 3,400 stores of the chain. According to the company data, express delivery covers 70% of the U.S. population.

Model #5. The aggregator model allows to connect a chain of restaurants and earn a commission

Aggregators connect restaurants to their platforms, manage customer engagement and logistics. Restaurants save on advertising, customer support and couriers.

Aggregators capitalize on delivery, service fee, and commission from orders made through the app. It ranges from 15 to 30%. Aggregators also charge restaurants for advertising and promotion.

There are four major aggregators in the U.S.: DoorDash, Grubhub, Postmates, and Uber Eats, which compete for local markets. For example, DoorDash prevails in San Jose, Houston and Philadelphia, while Uber Eats and Postmates lead the markets in Los Angeles and New York.

Grubhub partnered with Just Eat and delivers food to 70 million users worldwide

Grubhub has three apps: for customers, drivers, and restaurants. Users register in the app and make orders from the nearest restaurants. Grubhub accepts the orders and hands them over to the restaurants. The orders are delivered either by Grubhub couriers or by the delivery service of the restaurants.

Grubhub displays the menus of partner restaurants in the customer app. After the user places an order, it appears in the restaurant app. When the dish is ready, it is delivered by a courier.

Grubhub connects to its service both brick-and-mortar and virtual restaurants. For the first month, the restaurant can use Grubhub for free. After the trial period, the aggregator charges the restaurant a commission.

The aggregator also offers its partners tools for business promotion and development. For example, Grubhub partners can connect the analytical service Grubhub Direct, open a virtual restaurant or integrate Grubhub with their POS system.

The company has 300,000 partner restaurants in 4,000 U.S. cities. Grubhub processes 745,000 orders per day and serves 32 million active users.

In 2020, Grubhub was bought by Just Eat Takeaway, a European online food delivery company. The merging brought together two leading food delivery services in the United States and Europe, and now the company has 70 million users worldwide.

Conclusion

A virtual restaurant model helps reduce operating costs and save on rent and employees.

Aggregators connect restaurants and profit from commission and delivery. Retailers either use the services of aggregators, or develop their own delivery services.

At HeyInnovations, we know how to increase customer loyalty in the food delivery market and reduce costs using digital services. We will help you analyze the business model, propose a design concept, release an MVP, and develop a food delivery service from scratch.