How Deliveroo Works: Revenue Model Explained

in today’s fast-paced world, convenience reigns supreme. And when it comes to satisfying your hunger pangs, there’s nothing quite like the ease of online food delivery. Deliveroo has become a household name for foodies around the globe, but have you ever wondered how exactly they keep those meals steaming hot and cyclists cruising?

This blog post will crack open the Deliveroo business model, exploring how they connect restaurants with hungry customers and turn a profit in the process.

What Makes the Deliveroo App Worth Talking About?

Founded in the UK in 2013, Deliveroo has carved a prominent niche in the international online food delivery landscape.  Boasting over 9 million users and partnerships with more than 140,000 restaurants across 800 cities in 13 countries, it stands as a testament to the growing consumer demand for convenient and high-quality food delivery options.

A Differentiated Approach:

Deliveroo distinguishes itself from competitors through a strategic focus on established restaurants with a proven track record for quality. This approach prioritizes user experience by offering a wider variety of cuisines and a familiar dining experience, delivered with impressive speed – averaging 32 minutes.

Additionally, Deliveroo invests heavily in technological advancements. Their robust algorithms optimize delivery routes, ensuring food arrives fresh and hot. They even explore innovative solutions like robotic delivery trials to further enhance efficiency 

Learning from US Market Leaders

While Deliveroo is yet to enter the US market, established players offer valuable insights:

• DoorDash: This US giant dominates the market with a laser focus on speed and user-friendliness. Their success highlights the importance of a user-centric app and a robust logistics network.
• Grubhub: Another major US player, Grubhub emphasizes offering a diverse range of restaurants and cuisines. They demonstrate the value proposition of catering to specific user preferences.

Key Market Takeaways of the Online Food Delivery Market

The worldwide online food delivery market reached a value of USD 221.65 billion in 2022 and is projected to grow at a compound annual growth rate (CAGR) of 10.3% from 2023 to 2030, according to GrandViewResearch. This surge is fueled by several key factors:

America’s growing internet and smartphone penetration is a recipe for online food delivery success. A recent Pew Research Center survey found that 85% of Americans now own smartphones, constantly connected and ready to embrace the ability to order restaurant meals with a few taps.

 Advancements in technology are constantly innovating the online food delivery experience.  DoorDash announced a partnership with self-driving car company Waymo to pilot autonomous delivery vehicles in select markets. This pilot program exemplifies how tech giants are pushing boundaries to ensure faster deliveries.  On the customer end, user-friendly apps like Grubhub’s revamped interface with AI-powered recommendations make the ordering process a breeze

Strategic Plays by Market Leaders

The US online food delivery market is a competitive landscape, with major players constantly vying for a larger slice of the pie. Here’s a glimpse into their strategies:

• Mergers and Acquisitions:  Industry leaders are actively pursuing inorganic growth strategies. Just in February 2024, Uber Eats confirmed it was in acquisition talks with rival company Postmates. This potential merger would create a formidable competitor in the US market, highlighting the ongoing consolidation efforts.

• Broadening Horizons:  Leading companies are looking beyond just food delivery. Partnerships and strategic acquisitions are paving the way for a more comprehensive service portfolio.  For instance, DoorDash partnered with convenience store chain Wawa in late 2023 to offer on-demand delivery of snacks and beverages. This strategy enhances customer engagement by catering to a wider range of needs.

How Does Deliveroo Work?

Deliveroo has become a masterclass in streamlined food delivery, offering a smooth experience for customers, restaurants, and riders alike. Here’s a breakdown of how this innovative service benefits each party:

For the Diner:

• Effortless Exploration: Diners can browse a curated selection of restaurants near them, offering a diverse array of cuisines. Deliveroo’s app or website allows users to search by location, specific dishes, or desired cuisine, putting a world of culinary options at their fingertips. 
• Streamlined Ordering: Once a customer finds their perfect meal, adding items to their cart and making a secure payment through the platform is a breeze. Deliveroo ensures a smooth and efficient transaction process, with various payment options for added convenience.
• Real-time Transparency: Deliveroo’s live order tracking keeps customers informed throughout the process. They can see their meal’s preparation stage and the delivery rider’s estimated arrival time.

For Restaurants:

• Expanded Reach: Partnering with Deliveroo opens a restaurant’s doors to a wider customer base. Restaurants gain access to a vast pool of potential diners actively searching for establishments like theirs. This allows them to amplify their brand awareness and boost sales. 
• Simplified Management: Deliveroo provides a user-friendly platform for managing a restaurant’s profile. Restaurants can easily upload menu items with detailed descriptions and pricing, set their opening hours, and receive real-time notifications of incoming orders, giving them complete control over their online presence.

For Delivery Riders:

• Opportunity on Demand: Deliveroo’s app allows riders to choose their work schedule. Riders can browse available delivery tasks based on location, preferences, and distance, ensuring they maximize their earning potential while maintaining flexibility. 
• Seamless Navigation: The intuitive Deliveroo app equips riders with all the necessary tools. Using the app’s integrated GPS system, they can efficiently navigate to restaurants for pickups and ensure timely deliveries to customer addresses. 

Deliveroo’s Revenue Model

Understanding how Deliveroo generates revenue is valuable for online food delivery businesses seeking to implement similar strategies. Here’s a breakdown of their model and its key takeaways, along with available cost figures and numbers:

Commission Charges:

• The Core Revenue Stream: Deliveroo’s primary revenue stream comes from commission charges for restaurants for each order placed through their platform. This commission typically ranges between 10% and 20% of the order value.  While exact figures can vary based on negotiation and agreements, industry reports suggest an average commission rate of around 15%.
• Higher Rates for Multi-Partner Restaurants: Their tiered commission structure is an interesting strategy. Restaurants that partner with multiple delivery services might face slightly higher commission rates on Deliveroo, potentially from 17% to 20%. This incentivizes restaurants to prioritize Deliveroo deliveries, potentially leading to faster customer order fulfillment.

Delivery Fees:

• Monetizing Last-Mile Delivery: Deliveroo charges customers a separate delivery fee on top of the restaurant’s menu price. This fee can vary based on factors like distance and order size. While specific cost details aren’t publicly available, reports suggest delivery fees typically range from £2.50 to £5.00, with higher fees for longer distances or larger orders. This allows Deliveroo to recoup the cost of delivery services (estimated to be around £3.00 per delivery on average) while generating additional revenue.

Subscription Services:

• Deliveroo Plus: Following a subscription model popularized by streaming services, Deliveroo offers “Deliveroo Plus” – a monthly subscription that provides customers with benefits like unlimited free delivery on orders exceeding a certain amount. This subscription typically costs around £3.49 per month. As mentioned earlier, a study by McKinsey & Company revealed that subscription models can increase customer lifetime value by up to 3 times compared to non-subscribers.

Onboarding Fees:

• Streamlining Partner Integration: There is limited publicly available information on whether Deliveroo charges onboarding fees to restaurants joining their platform. However, some reports suggest such fees might range from £100 to £500 depending on the restaurant’s size and location. This one-time fee helps offset the cost of integrating new restaurants and ensuring a smooth onboarding process.

How Deliveroo Creates an Edge in the Online Food Delivery Market?

Deliveroo has carved a successful niche in the competitive food delivery market. Here’s a deeper dive into the key factors propelling them forward:

1. Technology at the Core:

• AI-powered Optimization: Deliveroo’s success hinges heavily on its “Frank” algorithm. This AI marvel utilizes machine learning to optimize delivery routes based on real-time factors like restaurant location, rider availability, and traffic conditions. This translates to faster deliveries (reportedly 20% quicker) and a smoother overall experience for customers and restaurants.
• Seamless User Experience: Deliveroo prioritizes a user-friendly experience. Their app boasts a clean interface for easy browsing and ordering and real-time order tracking. This transparency builds trust and keeps customers informed.

2. Strategic Partnerships:

• Restaurant Powerhouse: Deliveroo collaborates with high-quality restaurants, including popular chains and beloved local favorites. This curated selection ensures customers access a diverse range of cuisines and dining experiences.
• Delivery Network Optimization: Deliveroo partners with a network of independent riders. This flexible approach allows them to scale their delivery force efficiently based on demand.

3. Customer Centricity:

• Affordability Focus: Deliveroo recognizes the importance of price sensitivity. They strive to offer competitive delivery fees and work with restaurants to provide reasonably priced meals, ensuring that food delivery remains accessible to a broad customer base.
• Loyalty Programs and Promotions: Deliveroo understands the power of customer retention. They offer loyalty programs and targeted promotions to incentivize repeat business and engage users.

4. Recent Developments and Industry Buzz:

• Deliveroo IPO and Expansion: Deliveroo’s successful Initial Public Offering (IPO) in 2021 marked a significant milestone. The company is now actively expanding its reach into new markets, further solidifying its global presence.
• Innovation Beyond Food: News suggests Deliveroo might explore ventures beyond food delivery. Potential forays into grocery delivery or partnering with other retail sectors could be on the horizon.

Must-Have Features of an Online Food Delivery App like Deliveroo

Here are some of the must-have features of an online food delivery app,

For Discerning Diners:

• Advanced Search & Filters: Search by cuisine, dietary needs (vegan, gluten-free), price, or ratings (similar to Grubhub’s “Top Eats”).
• Seamless Ordering: Mobile-friendly interface with one-click ordering for frequent restaurants (like DoorDash’s “Dash Again”).
• Flexible Payment Options: Major credit/debit cards, digital wallets (Apple Pay, Google Pay), and contactless payment options (Venmo).
• Live Order Tracking: Map-based tracking with estimated arrival time (ETA) like Uber Eats.
• Detailed Order Customization: Add specific instructions, choose spice levels, or opt for extra toppings (like Domino’s “Special Instructions”).
• Rewarding Engagement: Review system with rewards for frequent reviewers or high-value orders (increases spending by up to 20%).
• Social Login & Profile Management: Easy account creation with social logins (Facebook, Google) and profile management for saved addresses and preferences.

For Restaurant Success:

• Real-Time Inventory Management: Track ingredients to avoid stockouts and ensure order fulfillment.
• Menu Control: Easily update and customize menus based on availability and seasonality.
• Order Visibility: Access order history and upcoming scheduled orders for better planning.
• Real-Time Communication: Communicate directly with customers and delivery agents to address issues and ensure smooth order fulfillment.
• Earnings Insights: Track earnings and revenue sharing through detailed analytics for informed business decisions.
• Simplified Compliance: Upload necessary documents for certifications and licensing directly through the platform.

For Empowered Delivery Agents:

• Clear Delivery Details: Access customer location, order details, and restaurant contact information for efficient deliveries.
• Optimized Routes: In-app navigation with route optimization to save time and maximize earnings.
• Profile Management & Verification: Manage profiles and upload required documents for a secure platform.
• Performance Tracking: Track earnings history and performance analytics to optimize delivery efficiency.
• Real-Time Communication: Communicate with customers for seamless order fulfillment and provide proof of delivery through the app.
• Traffic Awareness: Get ETAs and real-time traffic details for assigned routes to enhance safety and efficiency.

For Powerful Admin Control:

• Centralized Management: Manage user profiles (customers, restaurants, delivery agents) from a central dashboard.
• Data-Driven Decisions: Access detailed analytics on revenue, deliveries, cancellations, and other operational data to optimize the platform.
• Revenue Sharing Management: Estimate revenue sharing and disburse payments to restaurants efficiently.
• Document Verification: Validate documents and contracts of delivery agents to ensure platform security and compliance.
• Geofenced Delivery Areas: Assign delivery areas to agents based on restaurant locations for optimized operations.

How do You Develop an Online Food Development app like Deliveroo?

Developing a food delivery app like Deliveroo requires a well-defined plan and execution across various stages. Here’s a breakdown of the process, focusing on the US market and incorporating technical considerations:

1. Market Research & Planning:

• Competitor Analysis: Deep dive into established players like DoorDash, Grubhub, and Uber Eats. Analyze their features, pricing models, target audience, and operational strengths/weaknesses. Identify a niche or unique selling proposition (USP) for your app.
• Target Market: Define your ideal customer base. Consider factors like demographics, location, food preferences, and mobile app usage habits.
• Regulatory Compliance: Research US regulations related to food delivery, data privacy (like HIPAA and CCPA), and business operations in your target states.

2. Feature Selection & Prioritization:

Core Features:

• User App: User-friendly interface for browsing restaurants and menus, placing orders, tracking real-time orders, processing secure payments, and communicating in-app with restaurants/riders. Consider mobile wallet integration (Apple Pay, Google Pay).
• Restaurant App: Menu management, order acceptance/rejection, order updates, basic rider tracking, and analytics dashboard.
• Delivery Rider App: Order acceptance/rejection, optimized navigation with mapping tools (e.g., Google Maps integration), delivery confirmation, and in-app communication with customers.

Advanced Features (post-launch):

• Loyalty Programs: Implement reward systems to incentivize repeat business.
• AI-powered Recommendations: Utilize machine learning to suggest personalized food options based on user data.
• Group Ordering: Enable convenient ordering for groups with split payment options.
• Multi-language Support: Cater to diverse audiences in the US, especially in multilingual cities.

3. Technology Stack Selection:

• Front-End (User App): Popular choices include React Native or Flutter for cross-platform development, or native development with Swift/Kotlin for iOS/Android respectively.
• Back-End: Scalable and reliable options like Node.js with a database like PostgreSQL can handle high order volumes. Cloud platforms like Amazon Web Services (AWS) or Google Cloud Platform (GCP) offer robust infrastructure solutions.
• Real-time Communication: Implement solutions like Firebase or Pusher for real-time order updates and in-app chat functionalities.
• Payment Processing: Integrate secure payment gateways like Stripe or Braintree to handle transactions.

4. App Development & Testing:

• Agile Development Methodology: Break down development into sprints to ensure continuous improvement and user feedback incorporation.
• Security & Compliance: Prioritize data security by adhering to industry standards and regulations. Implement user authentication, data encryption, and penetration testing.
• Rigorous Testing: Perform thorough user acceptance testing (UAT) on various devices and operating systems to ensure app functionality and a smooth user experience.

5. Launch & Marketing:

• App Store Optimization (ASO): Optimize app store listings with relevant keywords, compelling descriptions, and high-quality screenshots to improve discoverability.
• Marketing Strategy: Develop a targeted marketing plan using social media campaigns, influencer partnerships, and strategic location-based advertising.
• User Acquisition: Implement referral programs and offer launch promotions to attract initial users.

Additional Considerations:

• Restaurant Onboarding: Develop a seamless process for restaurants to sign up, integrate their menus, and manage orders. Consider offering commission structures that are competitive with the US market.
• Delivery Network: Establish a reliable network of delivery riders in your target area. Explore partnerships with logistics companies or independent contractor models.
• Customer Support: Provide efficient customer support through multiple channels like in-app chat, email, and phone.

Cost of Developing an Online Food Delivery App

Stage	Estimated Cost Range (USD)
Market Research & Planning
Competitor Analysis	$3,000 – $10,000
Target Market Research	$2,000 – $5,000
Regulatory Compliance Consulting	$0 – $5,000
Feature Selection & Prioritization
Core Features (Per App)	$30,000 – $100,000
Advanced Features	$10,000 – $25,000+ each
Technology Stack Selection
Front-End Development
– Cross-platform (React Native/Flutter)	$40,000 – $70,000+
– Native (Swift/Kotlin)	$50,000 – $80,000+ per platform
Back-End Development	$30,000 – $50,000+
Cloud Infrastructure	Variable
Real-time Communication	$5,000 – $10,000+
Payment Processing	Variable
App Development & Testing
Development & Testing	$50,000 – $100,000+
Security & Compliance	$5,000 – $15,000
Launch & Marketing
App Store Optimization (ASO)	$5,000 – $10,000+ (ongoing)
Marketing Strategy & Implementation	$10,000+ per month
Additional Considerations
Restaurant Onboarding	$5,000 – $10,000+
Delivery Network Management	Variable
Customer Support	$5,000 – $10,000+ per month
Total Estimate Range	$208,000 – $448,000+

Variable Costs

Building a food delivery app in the US involves a dynamic cost structure. Here’s a fresh look at the key elements that can significantly impact your development budget:

App Functionality and Features:

• Core vs. Advanced Features: There’s a clear cost distinction between essential features like user ordering and restaurant management and advanced features like AI-powered recommendations or multilingual support. Adding these complexities requires more development effort, translating to higher costs.
• Customization Level: Heavily customized features or unique functionalities demand more development resources, driving up the price compared to using pre-built templates or existing APIs.

Development Approach:

• Team Location: The geographic location of your development team significantly impacts cost. US-based developers typically have higher hourly rates compared to some offshore locations. However, weigh this against potential communication challenges and time zone differences.
• Team Size and Experience: The number of developers, designers, and testers directly affects the cost. Hiring senior developers with specialized skills commands a premium compared to junior developers.
• Development Methodology: Agile development offers flexibility but can lead to cost increases if the scope creeps. Waterfall methodology provides a structured approach but might not adapt well to evolving requirements.

Technology Stack:

• Front-End Development: Cross-platform frameworks like React Native or Flutter can be more cost-effective than native development with Swift/Kotlin for each platform. However, native development might offer better performance and user experience.
• Back-End Development: The complexity of back-end functionalities and chosen database solutions (scalability needs) will influence the cost. Cloud infrastructure usage (storage, processing power) can also vary depending on app usage and data volume.
• Third-Party Integrations: Integrating with existing services like payment gateways, mapping tools, or real-time communication platforms usually involves subscription fees or transaction costs that add to the overall development expense.

Additional Variable Costs:

• App Store Fees: Both the Apple App Store and Google Play Store charge registration fees and commissions on in-app purchases.
• Marketing & User Acquisition: Marketing campaigns, user acquisition strategies, and ongoing app store optimization efforts can vary greatly depending on the chosen channels, target audience, and campaign duration.
• Regulatory Compliance: Legal consultations and ensuring compliance with data privacy regulations might incur additional costs depending on the features and the specific US states you operate in.

Tech Stacks to Develop an Online Food Delivery App Like Deliveroo

Building a food delivery app like Deliveroo requires a robust tech stack that caters to the frontend, backend, database, real-time features, and scalability needs. Here’s a breakdown focusing on popular options in the US market:

Frontend:

• React Native: This popular framework allows you to build native-looking apps for iOS and Android using a single codebase. It’s efficient, has a large developer community, and integrates well with other tools.
• Flutter: Another strong contender, Flutter offers benefits similar to those of React Native, which has its own Dart programming language. It might be a good choice if your team has experience with Dart or wants to explore a different approach.

Backend:

• Node.js: This JavaScript runtime environment is known for its asynchronous nature, making it ideal for real-time functionalities like order tracking and live updates. A large community backs it and has a rich ecosystem of libraries and frameworks.
• Python (Django): A mature and versatile language, Python offers the Django web framework for rapid development. Django provides pre-built features for authentication, user management, and database interactions, streamlining backend development.

Database:

• PostgreSQL: This open-source object-relational database (ORDBMS) is popular for its scalability, reliability, and support for complex queries. It excels at handling geospatial data, which is crucial for managing restaurant locations and delivery zones.
• MySQL: Another widely used open-source option, MySQL is known for its ease of use and strong performance. While not as feature-rich as PostgreSQL, it might be sufficient for smaller projects or those with simpler data needs.

Real-time features:

• WebSockets: This communication protocol enables real-time two-way communication between the app and server. It’s essential for features like order tracking, live driver locations, and instant messaging between customers and restaurants.
• Push Notifications: Utilize cloud-based push notification services like Firebase Cloud Messaging (FCM) or Amazon Simple Notification Service (SNS) to send real-time alerts to users about order status, promotions, and driver updates.

Scalability and Infrastructure:

• Cloud Platforms: Cloud providers like Amazon Web Services (AWS), Microsoft Azure, or Google Cloud Platform (GCP) offer scalable infrastructure that can grow with your app’s user base. These platforms provide virtual machines, databases, and other services that can be easily provisioned and managed.

Additional Considerations (US Specific):

• Payment Gateways: Integrate secure payment gateways like Stripe, Braintree, or PayPal to enable seamless in-app transactions. These services handle secure card processing and comply with Payment Card Industry Data Security Standard (PCI DSS) regulations.
• Mapping and Geolocation: Utilize mapping services like Google Maps or Mapbox to display restaurant locations, delivery zones, and real-time driver tracking. These services offer US-specific features and ensure a smooth user experience.

Top 5 Deliveroo Alternatives in the US

While Deliveroo may be a major player in other regions, the US food delivery landscape is different. Here’s a breakdown of the top 5 alternatives for US businesses looking to develop their own app, considering recent news and trends:

1. DoorDash for Merchants:

DoorDash boasts the largest market share in the US, exceeding 50% in some areas. Integrating with them offers businesses access to a vast customer base.

Businesses can negotiate commission rates that work for their specific needs. Recent news suggests DoorDash is piloting a tiered commission structure, potentially offering lower rates for high-volume merchants 

Businesses can explore DoorDash’s marketing tools to reach new customers. Their “DashPass” subscription service can drive repeat business, as members get free delivery on qualifying orders.

2. Grubhub for Restaurants:

Grubhub offers extensive national reach, especially in urban areas. Their recent acquisition of LevelUp strengthens their point-of-sale (POS) integration capabilities, making it easier for restaurants to manage orders.

Grubhub+ offers a subscription program similar to DoorDash’s. Businesses can consider offering exclusive promotions or discounts to Grubhub+ members to incentivize orders.

Businesses can explore offering both delivery and pick-up options through Grubhub to cater to customer preferences.

3. Uber Eats for Business:

Brand Recognition: Businesses can leverage the established brand recognition of Uber for a seamless customer experience. Their recent partnership with ChowNow expands their offering to independent restaurants, potentially increasing the business’s customer pool.

Businesses can utilize Uber Eats’ robust delivery tracking features, so customers can see their food in real-time. This builds trust and improves customer satisfaction.

Businesses can explore co-marketing opportunities with Uber Eats to reach new customers in their area. Bundling offerings with Uber promotions can attract attention.

4. ChowNow (Independent Option):

While recently acquired by Uber, ChowNow caters specifically to independent restaurants. They offer a white-label solution, allowing businesses to maintain their own branding within the app.

ChowNow generally boasts lower commission rates than major players like DoorDash. This can be particularly attractive for businesses with tight margins.

Businesses have a high degree of customization with ChowNow. They can control menu items, pricing, and promotions, giving them more control over their brand experience.

5. Olo (Delivery Management Platform):

Olo doesn’t directly compete with DoorDash or Grubhub but offers a delivery management platform (DMP) to integrate with multiple delivery services.

Businesses can manage orders from various delivery providers through a single platform, streamlining operations and reducing errors.

Businesses can use Olo’s analytics to gain valuable data and insights, optimize their delivery strategy, and improve customer satisfaction.

Conclusion

So there you have it, a comprehensive breakdown of how Deliveroo operates! From connecting restaurants with customers to generating revenue, this blog post has shed light on the intricate web that keeps your favorite meals conveniently delivered.

Remember, the next time you order through Deliveroo, you’re not just getting a delicious meal – you’re supporting a complex ecosystem that involves restaurants, riders, and the platform itself.

Looking to Develop an Online Food Delivery App for Your Business?

Partner with Idea Usher and gain a competitive edge. Expand your reach, boost sales, and enhance customer satisfaction with a user-friendly app tailored for the US market. Contact us today and let’s turn your online food delivery vision into a delicious success story!

FAQs

Q1: How does Deliveroo generate revenue?

A1: Deliveroo operates as a marketplace, connecting customers with restaurants and riders. Their primary revenue stream is a commission on each order, typically ranging from 10% to 45%. They also charge delivery fees to customers and onboarding fees to restaurants. Additionally, they offer services like Deliveroo for Business and potentially earn more from restaurants utilizing their network of delivery-focused kitchens.

Q2: What kind of business model is Deliveroo using?

A2: Similar to other food delivery services, Deliveroo focuses on a strong network of local restaurants and fast delivery times. They achieve this by strategically placing riders close to partnered restaurants, allowing for quick pick-up and delivery within a targeted timeframe.

Q3: How does the Deliveroo system work?

A3: The core of the Deliveroo system lies in its user-friendly app. Customers browse menus, place orders, and track deliveries. Restaurants receive orders, prepare the food, and hand it off to riders. Deliveroo manages a network of riders who pick up prepared meals and deliver them to customers

Q4: What technologies are used by Deliveroo to support its business model?

A4: Technology plays a vital role in Deliveroo’s business model. Their app facilitates communication and transactions between all parties. They likely utilize logistics optimization software to efficiently assign deliveries to riders and ensure timely arrivals. Furthermore, data analysis tools are crucial for understanding customer preferences and optimizing restaurant recommendations.