The current trajectory of the food industry is pretty straightforward: we’re moving exponentially toward maximizing customer convenience and delivery speed. It seems as if each successive generation of customers is becoming less and less likely to eat out, a trend accelerated by the 2020 COVID-19 pandemic.
This US Foods survey found that Americans order takeout or delivery about 4.5 times a month, compared to eating at a restaurant an average of 3 times a month.
Delivery businesses, such as ghost kitchens, are growing at a staggering rate. The restaurant delivery market is projected to reach a market volume of $182.20 billion by 2028. When we also consider the costs of maintaining restaurant space and staff, it becomes clear that the traditional way of thinking about the food business might not be all that applicable in 2024.
The message is simple: there is a lot of money waiting to be collected in the food delivery business. In this article, you’ll learn how to tap into the source and start your first delivery business.
How to Start a Delivery Business in 2024
Starting a food delivery service has never been easier than in 2024. It’s now a well-established and researched restaurant business model, so there is no need to reinvent the wheel.
If you’re a restaurant owner who’s simply looking to start selling online, you’re in a prime position. You should be meeting all legal requirements to sell food, which leaves you with setting up your food ordering system and registering for some of the third-party delivery services (at least at the very beginning).
The end goal, however, is to promote your own website and mobile app and aim to sell the majority of food from there. The reason is simple: third-party delivery fees are simply ridiculous.
That said, even if you already own a restaurant, it’s always helpful to review your restaurant business plan and see if there is demand and resources for delivery services in your area.
In either case, you’re going to have to do a good deal of research, so let’s get straight to it.
Market research and target audience
The first step to starting any business is performing in-depth market research. It might sound complicated, but it isn’t; you’re essentially learning if there are customers in your area willing to pay for your service. It’s the natural first step, and you can immediately learn whether your business idea will stand.
- Segment your market: Identify specific groups within the broader market, such as college students or working professionals, and tailor your research to understand their specific needs.
- Pinpoint your ideal customer: Conduct a survey or pick another way to analyze the demographics of your customers. Is there a certain group that dominates all others number-wise? Are they bankers, blue-collar workers, or maybe students?
- Understand your area: Are there many facilities and places that might be willing to order your food in the area where you deliver? Most of your research can be done by simple Googling. For example, you can estimate local demographics based on how expensive the areas within your delivery reach are.
- Is there anything missing? Analyze competitors: Look into existing food delivery services in your area. Note their offerings, pricing, and customer feedback. Tools like SWOT analysis can be helpful here. See if someone has already nicked your idea to estimate whether you can outcompete them.
- Conduct surveys and interviews: Direct feedback from your customers can provide insights into their preferences and willingness to pay. You might ask how likely they would be to order food directly from you if it were a little cheaper (which is a real possibility when you avoid 3rd party delivery app commissions).
- Use online tools and social media: Tools like Google Trends or social media platforms can help you understand popular dining trends and preferences in your area. Try to see who’s following you on Facebook and Instagram. See who’s leaving you reviews on Google. See who’s most likely to tag your restaurant and generally engage with your content.
- Test the market: Launch a pilot in a limited area or with a limited menu to gather real-world data on your service’s appeal and operational challenges.
- Gather and analyze data: Use the collected data to refine your business model. Look for patterns in customer preferences, peak demand times, and feedback on your test service.
These are just a couple of ideas that can help you understand your market better. If you’re not sure whether your business model will work, you might want to dig deeper and review your restaurant marketing plan. Below are some more statistics that should help you understand the market a bit better.
- Market competition: Giants such as Uber Eats and DoorDash lead the market, overshadowing smaller local services and effectively holding a monopoly in the food delivery sector.
- Direct orders: Over 70% of patrons prefer ordering straight from restaurants over using third-party platforms like Uber Eats or GrubHub.
- Service charges: Third-party platforms can take a hefty 15-30% of the order’s total value in delivery fees.
- Delivery charges: Restaurants or delivery services usually ask for $2 to $5 for delivery, with possible increases for longer distances or busy times.
- Revenue influence: 60% of restaurant owners report that adding delivery services has led to increased sales.
Figuring out your service model: in-house, third-party, or ghost kitchens?
Next, you’re going to have to decide which delivery service model will best serve your interests.
This will depend on a number of conditions. For example, if you already own a restaurant, in-house deliveries might be a natural step forward.
If you don’t own a restaurant and are simply looking to start a food delivery business rather than offering an on-location experience, you might want to consider starting a ghost kitchen, which can then be scaled up into a full-blown restaurant. Let’s go over key delivery service models you should consider.
In-house delivery
Choosing an in-house food ordering system means managing the delivery process within your restaurant’s operations. This model gives businesses complete control over the delivery experience, ensuring direct communication with customers and potentially fostering loyalty.
It requires an initial investment in delivery infrastructure, such as vehicles and staff training, but it avoids the fees associated with third-party services. The main challenge is balancing the delivery efficiency with maintaining quality food service in-house.
Third-party platforms
Utilizing third-party platforms like Uber Eats, Grubhub, or DoorDash can significantly extend your restaurant’s reach. They can also speed things up. You can tap into the user’s massive customer base without having to build your own system.
These services handle the logistics of delivery, reducing the operational burden on the restaurant. However, they come with high service fees, which can eat into profit margins. Additionally, restaurants have less control over the delivery experience and customer service issues that arise.
It’s an offer many restaurant owners can’t refuse simply because they a) don’t understand how easy it is to build their own restaurant ordering systems, and b) they don’t always immediately realize how much money they’re bound to lose in the exuberant commissions these apps charge.
For most folks looking to start a food delivery business, using third-party apps is inevitable. That said, it’s important to also build your own food ordering system along with a website and mobile app and try to drive as much business as possible there. That way, you can remain independent and minimize the amount of money you’re bound to lose in third-party commissions.
Ghost kitchens
Ghost kitchens, also known as virtual kitchens, are a delivery-only model that allows restaurants to operate without a traditional dine-in space, significantly reducing overhead costs. This model is ideal for new entrants and established restaurants looking to expand their delivery services or experiment with new concepts.
Ghost kitchens rely heavily on online orders and partnerships with third-party delivery services to reach customers. The challenge lies in standing out in a highly competitive delivery market and ensuring food quality over potentially long delivery routes.
This model is perfect if you’re looking to slowly scale your business. Follow the link to learn how to start a ghost kitchen. Next, let’s discuss your food delivery business’s legal and financial foundations.
Legal and financial foundations
Once you’ve decided on your delivery service model, it’s time to set up your delivery business structure and deal with all of the legal and financial hassles. It’s not going to be a fun process for most, but since this is going to be your very own delivery business, it should only make sense for you to do due diligence. It’ll pay off in the long run.
Choosing the right business structure
To launch a business is one thing. To launch a profitable business is another. Let’s discuss different business structures and see what will work best for your particular case.
Research the differences between an LLC (Limited Liability Company), a corporation, and a partnership. Each has unique tax treatments, liability implications, and operational flexibility.
- LLC: Combines the liability protection of a corporation with the tax efficiencies and operational flexibility of a partnership. This is by far the most popular business model for most restaurants.
- Corporation (C-Corp or S-Corp): Offers liability protection, allows for easy transfer of ownership, and can sell shares to raise funds. Taxed separately from its owners.
- Partnership: Involves two or more people who agree to share the profits and losses of a business. Offers direct pass-through of profits, but partners are personally liable for business debts.
Evaluating your business needs
When you’re figuring out the legal structure for your food delivery venture, take a moment to reflect on what’s crucial for you—things like how much you want to shield yourself from potential business debts, the way you’d like the IRS to view your earnings, and if you’re planning to welcome investors.
It’s wise to get in touch with both an accountant and a lawyer; they can help tailor advice to fit your unique scenario perfectly. This is especially important when you’re just starting out.
Once you’ve landed on the best fit, make it official by registering with the state, which usually means filling out some paperwork and handling a fee. This step isn’t just about bureaucracy; it’s setting the foundation for your business’s future.
This is also a good place to ask yourself what exactly you’re looking to achieve with your food delivery service business. Consider reviewing your restaurant business plan with a professional.
Understanding food laws and getting the necessary licenses and permits
Food laws are there to keep your customers safe. They ensure the food you sell is clean, good for your customers, and labeled correctly. These regulations cover everything from production to the point of sale, aiming to prevent health issues and guarantee that what people eat is exactly what the label says.
At the federal level, you need to be compliant with the FDA laws that ensure proper labeling and safety across states. State-level regulations might introduce additional permits and standards, including specific guidelines for homemade foods.
Researching food laws is a must, but it’s also something you probably won’t be able to do yourself. It’s just one of those things that are better left to professionals.
Sorting out insurance
Another thing that you have to consider is sorting out all of the necessary restaurant insurance. As always, make sure to discuss it with a professional.
- General liability insurance: Protects against third-party claims for injuries or property damage.
- Commercial auto insurance: Essential for vehicles used in the delivery process; covers accidents and damages.
- Workers’ compensation: Provides benefits to employees injured on the job, including medical care and wage replacement.
- Property insurance: Covers damage to your business property from events like fire, theft, or natural disasters.
- Product liability insurance: Protects against claims related to foodborne illness or injury caused by the food you sell.
Financing your delivery business
The main ways to finance a restaurant business include traditional options like restaurant equipment financing, crowdfunding, seeking investments from friends and family, and exploring private investors’ aid.
Each method comes with its own set of pros and cons, such as tax benefits, flexible payment options, and potential for quicker access to capital, but also risks like collateral risk.
- Brick-and-mortar bank loans: Traditional bank loans can be obtained from either large national banks or small regional banks. These loans typically require collateral and have fixed terms for repayment.
- Alternative loans: Alternative lenders offer financing options that are attractive to many restaurateurs. These loans may not require collateral and can provide more flexibility in terms of repayment.
- Small Business Administration (SBA) loans: SBA loans, provided by the U.S. Small Business Administration, are specifically designed for small businesses. They offer favorable terms and can be a good option for restaurant owners.
- Business line of credit: A business line of credit allows you to borrow funds as needed, up to a predetermined limit. It provides flexibility for managing cash flow and covering operational expenses.
- Merchant cash advance: This financing option involves receiving an advance based on future credit card sales. Repayment is made through a percentage of daily credit card transactions.
- Crowdfunding: Crowdfunding platforms allow you to raise capital by appealing to a large number of individuals who contribute smaller amounts. It’s a way to engage your community and potential customers.
- Asking friends or family members: Personal connections can be a source of financing. However, it’s essential to formalize any agreements and clearly define terms to avoid strain on relationships.
- Commercial real estate loans: If you’re purchasing property for your restaurant, consider commercial real estate loans. These loans are secured by the property itself.
- Equipment financing: Specifically for purchasing kitchen equipment, furniture, or other assets needed for your restaurant. The equipment serves as collateral for the loan.
- Purchase order financing: If your restaurant receives large orders from suppliers, purchase order financing can help cover the costs until you receive payment from the customer.
Building Your Brand and Service
Congratulations if you’ve made it this far. Now that we have discussed all the boring stuff, let’s get to the fun parts. It’s time to discuss making your business as efficient and customer-friendly as possible. Crafting a delivery-friendly menu
One thing that can make or break your food delivery company is your menu. Creating a delivery-friendly menu is a must for anyone trying to get into the online food-ordering game. First, make sure the food you’re going to sell can survive transit. For example, if you’re planning on selling wedding cakes, where the smallest accident might make them unusable, you might want to think twice. You also have to think ahead and consider the weather conditions in your area. Do you have what it takes to transfer raw or frozen foods (such as ice cream or milkshakes) in the summer heat?
Once you have taken all the necessary precautions, build your online menu so that it’s easy to use. Your customers should be able to order food from you with their eyes closed. Don’t dwell on this for too long. Trust me, you’re not going to code your own menu. You have two options: third-party apps or your own food ordering system that already has a built-in menu. You already know all the pros and cons from the previous parts of this article. Building your delivery fleet
You can use third-party food delivery apps like GrubHub and Uber Eats to deliver your orders. As you already know, this option will cost you up to 30% in commissions, which can be tough on your revenue in the long run. You can also build your own delivery fleet. This will require a larger upfront investment but will not cost you as much in the long run. You will also have more control over your deliveries if you ever consider branching out and delivering more than just food (e.g., grocery delivery business). If you can’t deal with such high startup costs, there’s also a middle ground. You can build your own food ordering system and integrate it with a chosen delivery service. That way, you’re still able to have more control over your business while not having to deal with burdens like vehicle maintenance and commercial auto insurance. Consider joining local restaurant communities and learning more about the local delivery business. Deciding on delivery logistics
Customer satisfaction is one of the most important metrics that make food delivery businesses profitable. Unsatisfied customers can murder your business. An average Google score of 4.0 will deter your customers quicker than what Bud Light did with last year’s ultra-woke campaign. The two major drivers of customer satisfaction are the quality of the food and the courier service. You can find key food delivery statistics here.- Order management: You have to make sure that every order matches what the customer requested. Errors are a part of the game, so make sure to refund all missing items.
- Efficient delivery systems: Use food delivery software that allows you to pick the most efficient delivery routes and deliver the food quicker.
- Quality control in transit: Invest in packaging and make sure the temperature and presentation of food from kitchen to doorstep is rock solid. Make sure to match the packaging to your customer base. For example, selling vegan food in plastic packaging is probably a poor idea.
- Customer communication and tracking: Provide customers with real-time updates about their order status and expected delivery time through a dedicated restaurant mobile app.
- Collect essential data: Collect and analyze customer delivery feedback. Talk to your delivery drivers and understand what their main obstacles are. Rememebnr that the satisfaction of your customer depends largely on the satisfaction of your delivery fleet.
Search engine optimization, marketing strategies
The last thing you absolutely need to nail is marketing. I guarantee that there’s no shortage of local businesses in your area who have failed simply because they didn’t know who to market their services to.
- Understand your target market: Understand who your ideal customer is, including their preferences and behaviors. Try to visualize a person who matches your business best and start from there.
- Use restaurant marketing tools: Consider getting dedicated restaurant marketing tools to keep track of your customer behaviors and build loyalty programs.
- Search engine optimization (SEO): Optimize your website for search engines. Otherwise, people won’t be able to find you on Google.
- Marketing strategies: Research and understand basic restaurant promotions and marketing strategies.
In the end, you can’t go wrong with reviewing your restaurant marketing plan. If you’re a restaurant owner, make sure to accommodate it to your new business model. If you’re just starting out, make sure you have a carefully crafted marketing plan.
Key Takeaways
- Americans order takeout or delivery about 4.5 times a month, compared to eating at a restaurant an average of 3 times a month.
- The restaurant delivery market is projected to reach a market volume of US$182.20bn by 2028, making it a rapidly growing market.
- Performing or delegating market research is essential to launching a successful food delivery business.
- Ensure legal and financial foundations are solid, including choosing the right business structure and understanding food laws. Hire professionals to make sure you’ve got everything in check.
- Create a delivery-friendly menu that maintains food quality in transit.
- Optimize delivery logistics for efficiency and customer satisfaction.
- Implement robust marketing strategies to build your brand and attract customers.
- Consider financing options carefully for startup and operational costs.
