The food delivery industry has undergone significant change in recent years, with technological advances and innovative business models playing a key role in shaping the landscape. One such model that has gained traction is dropshipping, which offers new food delivery entrepreneurs the opportunity to test their hypotheses, streamline operations on a small scale and grow incrementally through self investment. In this article, we will explore the dropshipping model for food delivery and how it can be effectively used to improve the efficiency and profitability of food delivery businesses based on software services such as Playfood.
What is the dropshipping model?
Dropshipping is a retail fulfilment method where a meal or grocery delivery service doesn't need to stock the products it sells in stock, build relationships with restaurants or open its own ghost kitchen. Instead, when a customer buys an item, marketplace couriers purchase the item from a real business and have it shipped directly to the customer.
In the context of food delivery businesses, the dropshipping model eliminates the need to establish relationships with restaurants and stores. Of course, food delivery marketplaces can partner directly partner with restaurants, suppliers, or cloud kitchens to offer a wide range of menu options, but this even though it allows entrepreneurs to operate without the overhead of managing their own kitchens and inventory.
Undeniable advantages of dropshipping for young food delivery services
1. Low upfront cost
Traditional food delivery services often face significant upfront costs related to the negotiation, legal and technical issues of partnering with other entities. In the context of dropshipping, the main upfront costs are primarily related to your software platform subscription and marketing budget. This significantly lowers the financial barrier to entry.
2. Quick start
Launching a food delivery service traditionally requires significant investment in branding, hiring a large team of back office staff, a Call Center and a fleet of couriers. In contrast, dropshipping allows you to initiate operations far more swiftly. The absence of responsibility toward the restaurants/stores and a large team speeds up the launch process.
3. Menu expansion
As a newly launched food delivery service, you can experiment with expanding your menu offerings without committing to the costs and risks associated with setting up and managing new restaurants, dark kitchens or stores. You can test the popularity of different cuisines, dishes and grocery items by adding a variety of establishments to your catalogue.
4. Geographic expansion
Dropshipping allows for rapid geographic expansion without the need to establish physical locations. This can be used to test the demand for food delivery services in new markets and assess the feasibility of entering them on a larger scale.
5. Gradual growth and scale
Dropshipping allows you to grow gradually and flexibly. You can start with a limited menu or in a specific geographic area and then gradually expand your offering and reach as you build your customer base and refine your operations. This incremental approach to growth is particularly beneficial for start-ups and businesses looking to reduce risk.
The disadvantages of the dropshipping model for food delivery
1. Lower profit margins
While the dropshipping model reduces upfront costs, it can result in lower profit margins due to the increased costs associated with ordering individual dishes/items from multiple sources. Traditional food delivery services can achieve economies of scale by partnering with restaurants (lower cost per item + restaurant commission) or by preparing items in-house (lower cost per item + markup), which can lead to higher profit margins.
Solution: Increase the volume of orders by effectively marketing your food delivery service. As the number of orders increases, your total revenue increases, potentially offsetting lower profit margins per order.
2. Longer delivery time
Because the dropshipping model doesn't require relationships between food delivery services and 'suppliers', there is no fast, automated connection. So the courier has to come to the facility, place the order, wait for it and then deliver.
Solution: Call Center managers can pre-order for the couriers so that when they arrive at the site the order is ready, or almost ready, to be picked up and delivered.
How can dropshipping help to break even in food delivery ASAP?
Traditional food delivery models often face the daunting task of building relationships with restaurants and shops, which leads to additional time and money costs, including technical and legal issues, hiring and training new staff. The dropshipping model offers a way to skip this complicated task and start generating profit from the very beginning.
This is how the order flow works:
After successfully testing the hypothesis based on the dropshipping model, you can build partnerships with local restaurants and eateries, open your own cloud kitchen or a virtual restaurant. This will significantly shorten the delivery time and reduce some costs for your customers.
70% of newly launching Playfood partners are using dropshipping model. Our product and marketing team helps to analyze the data, formulate new hypotheses and test them to tailor the growth strategy together with our partners. Playfood is therefore a complex business solution with a highly dedicated team of professionals.
The food delivery dropshipping model is a game changer for new food delivery startups. It allows them to test hypotheses, expand offerings and optimise operations without the need for extensive infrastructure or inventory management. By using a variety of restaurants, cloud kitchens and stores, your service could offer a wide range of cuisines and dishes to your customers. This not only expands your menu options, but also allows you to test various hypotheses regarding customer preferences and geographic expansion.