Starting a Food Delivery Service? Five Things to Consider

food deliveryThanks to the success of companies like Uber, home food delivery service is all the rage now. Companies such as McDonalds (NYSE: MCD), Walmart (NYSE: WMT), and Panera have all announced home delivery initiatives over the past year. In fact, Panera projects that they will boost same store sales by 250,000 with home delivery services.

As for building out your food delivery business you have 2 options:

Option A: Hire drivers and provide food delivery services in-house
Option B: Use an outside company for your food delivery services

As you research food delivery for your business, you should consider these factors:

1. Resources Required for Food Delivery

With the in-house option, you will have to recruit, train and manage your drivers. Hence, there will be initial startup costs as well has higher overhead. In addition, you will have to create policies and procedures that govern how these employees operate. If you outsource, you will avoid upfront costs and the need to devise policies and procedures because you can plug into an existing infrastructure.

2. Operating Costs

If you hire drivers in-house, you will have upfront costs and a new set of expenses associated with managing the operation. If you use a 3rd party, you will be paying a percentage of your deliveries to the third party provider (often up to 30%).

With in-house, most of your costs will be front-loaded and fixed going forward. When outsourcing, most of your costs will be on-going and variable. If you are doing higher volumes, it will ultimately become less expensive to do it in-house. If you are doing lower volumes, outsourcing might make the most sense.

It would be best to put together detailed financial projections with high, low, and middle scenarios to determine your revenues and expenses. It would also make sense to setup the operation under a separate P&L to ensure that you accurately track the profitability of the operation outside of your traditional business.  We have seen many examples where companies “test the waters” by using a 3rd party service until volume grows to a point where it makes more sense to bring the operation in-house.

3. Quality of Service

This is the most important aspect of your planning. You have likely spent thousands (if not millions) of dollars building your brand. You want to ensure that your products arrive in the same condition as if the customers ordered inside your restaurant. For example, if you deliver food, you want to ensure that the product is at the right temperature and condition upon delivery.

You want to also ensure that the driver has the right demeanor and interaction with the customer, because it will reflect on your brand. If you outsource the delivery, this will be harder to control. If you manage it in-house, you can define policies and procedures to ensure that it is at the level of quality that you desire.  With tools like Goose, you can also collect feedback from your clients to better monitor the customer’s experience with your products and services.

4. Exposure to Liabilities

By running an in-house operation, you now expose your business to new liabilities that you haven’t encountered in the past. You will have to ensure that your employees are properly trained, that you have adequate insurance policies, and you are using a method, such as a GPS driver management system, to monitor driver safety. If you are outsourcing, it is not a direct liability, but you may be exposed if an incident occurs while the third party is delivering your product. It is also difficult to control the behavior of third party drivers because you are one step removed.

5. Operations Fit

Do you have the tools to manage home deliveries? If you are like most restaurants, you may have a point of sale system that is designed specifically for a brick & mortar operating environment. If you go in-house, you will likely need a dispatching tool such as Goose to ensure that your deliveries are routed and dispatched efficiently. If you are outsourcing, you may need to link your POS system to the third party’s operational system. Obviously, linking with a third party system presents security and resource challenges and may extend the amount of time to setup the operation.

As you are likely aware, starting a food delivery operation is high risk endeavor, but also presents opportunities for high rewards.   You can also get instant access to our GPS driver policy guide by completing the form below.

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