Restaurant spending hit a new high in 2019, with Americans dishing out upwards of $863 billion in various eating and drinking establishments. And even before COVID-19 and social distancing kept patrons at home, a good chunk of change was being spent on off-premises orders such as delivery, carry-out, and drive-through.
The popularity of takeout and delivery — and continued caution regarding in-restaurant dining — means our penchant for ordering take-out meals is likely to increase.
New food delivery businesses are cropping up everywhere to meet the demand and help restaurants keep their kitchens open. If you’re interested in getting in the game, here’s some advice on how to start a food delivery business from those who have done it.
How to start a food delivery business
- Find your niche
- Define your approach
- Work out the logistics
- Build a customer base
1. Find your niche
Food delivery businesses run the gamut, from farm-to-table to meal kits to straight-up restaurant delivery orders. The first order of business is to find your niche. What will be your unique approach?
Stephanie Scherzer, the cofounder of Farmhouse Delivery, started her business 11 years ago. She was a part-time farmer who saw the need to get quality food into people’s homes, an issue she’s trying to address through her business.
“I tried my hand at growing vegetables in Austin, took them to the farmer’s market, and realized [the sales process] was hard,” Scherzer says. She didn’t know anything about what she was doing when she first started but decided — with a partner — to just jump in.
On the other hand, Andy Wang, founder of food delivery business Spread, worked for Groupon building delivery and takeout products for restaurants prior to starting his company. He saw how difficult it was for restaurants to work with the popular food delivery services, which charged 20- to 30-percent commissions on every order.
“Restaurants should be willing to pay a good amount of money to win a customer,” Wang said. “but they shouldn’t have to keep paying for the second, third, fourth, fifth, and sixth orders.”
He also recognized the uphill battle most restaurants face when it comes to marketing. “Only a small percentage of restaurants have the marketing savvy to build their own websites and maintain email marketing lists the same way the larger chains do,” Wang said. “And things like Facebook ads don’t really work for hyper-local restaurants.”
Spread offers a different business model. It’s essentially a dedicated ad network for restaurants — something Wang thinks is missing in the current market. Restaurants can use this commission-free platform to target the best prospective customers and win repeat customers much more cost-effectively.
2. Define your approach
Wang says there are multiple ways to approach restaurant food delivery:
- Start a new marketplace. Grubhub and DoorDash are examples of marketplaces. It seems like a relatively simple concept. You sign up restaurants, build a product, get users, and pass orders along to restaurants. But building a successful marketplace means getting the details right, like accepting payments and making sure restaurants fill the orders correctly. To convince restaurants to come on board, you’ll need some kind of angle that differentiates you from other marketplaces.
- Start a white label ordering service. This approach involves building and selling software that restaurants can use on their own site to take orders. Wang estimates there are probably over 100 companies currently in this space. It has a low barrier to entry — simply write the code and sell it.
- Start a food ordering and delivery platform. This full-scale approach to food delivery (like Uber Eats) involves building out the logistics end. It covers everything, from building an app to take orders to establishing a restaurant network and creating a delivery service.
Whether you’re doing restaurant delivery or some other type of food delivery service, your approach may change over time. Scherzer’s business started strictly as a produce box company and later evolved into the delivery of groceries, dairy products, and clean pastured meats. But even though the company’s offerings evolved, her focus stayed the same: to support Texas ranchers and farmers, and serve as a “green convenience” delivery service.
3. Work out the logistics
Food delivery is all about logistics. When Farmhouse Delivery was still small, Scherzer and her partner simply pulled products off the shelf and delivered them locally around Austin in an old DHS van.
But as the number of orders climbed above 100 and spanned other nearby cities, it was clear they needed another solution. “Ten new customers across four cities instead of 10 customers living on the same street — you can see the complexities there,” Scherzer explained.
Today her business has an entire fleet of vans and box trucks. The box trucks go to the big cities in central Texas and transfer food to vans, which deliver to customers’ doors. Though 90 percent of deliveries are handled in-house, she also sometimes uses contract drivers from TaskRabbit if they’re behind on deliveries or need some support.
Not only did Farmhouse Delivery need more vans, but they also needed routing software (Onfleet) to deliver more efficiently. In addition, Scherzer’s drivers use the Delivery Biz Pro app, which includes a mapping feature and texts customers 10 minutes before a delivery arrives.
“We try to avoid delivering too late in the day. From Tuesday through Friday, we work in teams from about 4 a.m. until 2 p.m. to get everything out. For out-of-town markets, we’ll send a truck early in the day so it arrives by noon, and vans can deliver for six or seven hours before it gets too late.”
Other big learning curves involved how to keep food cool and what type of receptacles to use to stack deliveries in the vans. It took more than a few deliveries before they could open the doors of the van and not have products spread out everywhere thanks to one too many hard turns and bins that didn’t stack well.
Knowing that logistics were difficult, Wang’s company initially worked only with restaurants that could handle delivery themselves. Today, Spread partners with a logistics company called Relay.
For those just starting out, Wang says, “you could hire your own staff and pay them an hourly wage, but you need to hit a certain volume of orders for that strategy to make sense. Using a third-party logistics partner solves for that.”
Scherzer’s advice: “Consider partnering with someone on the delivery side so you don’t have to mess with procurement, fulfillment, and delivery. Focus on what you do well and let somebody else handle the delivery, and work that into the cost of your goods.”
4. Build a customer base
Scherzer admits they didn’t put much money toward marketing for several years. In the beginning, they focused on word-of-mouth marketing strategies, doing things like hosting farm-to-table dinners and attending relevant markets so they could explain what they do.
“We literally cooked gumbo for large groups and passed around a legal pad to get addresses [for new customers]. We also spent a lot of time meeting farmers and building relationships, doing price negotiations, and figuring out how to bundle products so we could pay each farmer what they needed to make,” she added.
Make sure you have an ordering mechanism in place to communicate with potential customers. JotForm has a variety of food delivery order forms — including restaurant order forms, meal kit delivery forms, grocery delivery forms, and more. You can embed these forms on your site to collect orders and payment information safely and securely.
Spread links directly to restaurant sites, where people can place orders online, but Wang noted that some restaurants still don’t have an online ordering mechanism in place. In that case, his site simply lists the restaurant phone number. But he notes that online ordering is beneficial: “There’s no miscommunication around orders, and it offers better security.”
Wang’s advice on how to start a food delivery service: “You can validate your idea without doing much. Simply create a landing page — design a nice website and explain your angle — around whatever crazy idea you have and see how many people sign up.” That’s how he started. You can do the same.