How To Start A Food Delivery Service – Planning Profitable Logistics

November 29, 2019

As a business owner starting up a food delivery service, you already have more than enough on your plate – you’re running a business, and you’re preparing good food at scale. In the end, the quality and deliciousness of your food might be the one thing that makes you stand out from your competitors.

But if you do have your own delivery fleet, you can sleep better knowing you can fully control your destiny and tweak your operations in many ways in an attempt to achieve profitability. You can find a configuration that has a very low delivery cost while maintaining a high level of customer happiness.

There is a huge customer service aspect that is personal and unique to every individual company, and often considered way too important to be outsourced. Everyone is familiar with the “UPS experience” of being told that your package is going to be delivered between 9 a.m. and 6 p.m.; or worse, receiving that dreaded missed delivery notice on your front door, even though you took the day off to stay at home and wait for the delivery. Imagine how this kind of customer experience reflects on your company?

If you’re taking the dive into the world of food delivery service, looking for new ways to stay competitive, or interested in learning how to build a sustainable food delivery business, this post is for you.

You might already know that planning your food delivery logistics plays a huge part in your operations, and in many cases, can make or break a company. So let’s look into how it can help grow your food delivery service.

Food Delivery Business Model - Important Logistics Questions

Should you invest in your own delivery fleet? Or do you outsource to a third party?

This is a question every delivery business will face. Starting your own delivery fleet and hiring your own drivers might sound like a big investment, but there are some benefits to this option.

Having your own delivery drivers allows you to ensure customers are receiving your products just the way you want them to – at the right time, and in the right way. You have the power to meet smaller delivery time windows, so customers aren’t waiting all day for their food to arrive. This kind of improved customer service could go miles to winning customer loyalty.

In the long run, as your food delivery service grows and your volume of deliveries increase, having your own fleet will actually be cheaper than hiring a third party fleet since many couriers charge based on the number of deliveries they make.

If you’re a food delivery service with your own in-house delivery fleet, you have the freedom to decide exactly how to differentiate yourself in this crowded market.

Who is your target market?

Do you serve consumers? Or focus on corporate customers? From a logistical standpoint, the consumer market is a larger one, but it is far more spread out. A corporate food delivery service has the benefit of built-in density; you can complete dozens of orders with a single delivery due to the nature of business parks and office buildings.

So keep this in mind when you’re planning who to target logistically: The more densely focused you serve, the higher number of orders you can deliver per hour, which leads to a decreased cost-per-delivery.

How soon do you promise your deliveries?

We know that the faster turnaround you promise for a delivery, the more it will cost you.

But running an on-demand delivery service is costly. You have to have enough resources roaming the city to meet market demand. At the same time, you better have enough volume to keep everyone busy. Otherwise, you’re paying wages for drivers to sit idly around.

An on-demand delivery service requires more drivers, higher wages (to compensate for the headaches), more distance traveled and higher fuel consumption (because you’re constantly chasing after demand), all of which contribute to an increased cost of delivery.

Scheduling deliveries can generate the same amount of revenue with fewer drivers, lower wages and less distance traveled. It dramatically increases operational efficiencies and, hence, profits.

That’s why, unless you’re a restaurant, we recommend you opt for a purely scheduled model. That is, customers should place their orders well ahead of time so you have space to plan, prep, and delivery your food as fresh and efficiently as possible.

In the end, it’s about maximizing asset utilization. How many deliveries can you do per driver? Knowing in advance where you need to go will, by definition, put you in a better position to maximize your profits.

What are the cut-off times?

If you offer purely scheduled deliveries, when is the latest that the customer can place their order? Do you plan all your delivery routes a few days before or the morning of the delivery run? Do you allow for last minute orders? How last minute?

Do you offer tight delivery time windows?

When can customers choose to receive their food delivery? Do you offer one hour delivery time windows? Or can the customer select an exact time with a 10-minute buffer on either side? From a customer’s perspective, the tighter the time window the better – but that makes things harder for you, leaving you with less flexibility to plan and optimize your routes.

If customers are completely flexible as to the timing of delivery, then you could completely optimize your routes in a way that minimizes total driving time.

It’s a good idea to incentivize customers to select wider time windows, and potentially charge a higher delivery fee for very tight ones. If you do, you want to make sure that you have access to good route optimization software in place that would enable you to actually meet such strict time-windows efficiently.

Keep in mind that selecting a wide time window doesn’t mean that the customer has to wait at home all day. In fact, it’s quite the contrary. If the cut-off for placing scheduled orders is one day

prior, for example, you can plan your routes in advance, and communicate a very accurate ETA to the customer the day before. A good route planning software will even help you automatically communicate these ETAs to your customers.

Enroute to a profitable food delivery business

In most cases, it is considered best practice to outsource whatever you can so you can focus on your own core competence. As the market is getting more competitive, a food delivery company cannot afford to get distracted with anything outside of what you choose to be your differentiating factor.

So you need to ask yourself: Is it your branding? Is it the quality of the food? Is it your stellar customer service? Amazing delivery service? Competitive pricing? Business model?

What makes your food delivery service stand out from the crowd? How can you be smart about innovation so your food delivery business can get on the road to profitability?