Routific Food Delivery Ebook

Food Delivery Logistics:
The Ultimate Guide to

Profitability
FROM KITCHEN TO DOORSTEP –
A C O M P R E H E N S I V E T R E AT I S E O N T H E
LOGISTICS BEHIND DIFFERENT FOOD
DELIVERY MODELS
1 Food Delivery Logistics: The Ultimate Guide to Profitability

Table of Contents
What’s cooking? 1
How we define Food Delivery 2
In-house vs. outsourced deliveries 3
Food delivery models 7
• Mobile Inventory: Hyper On-demand 11
• Delivery Platform: Last Mile Logistics Play 12
• Central Kitchen: Full-stack Food Delivery 16
• Hybrid Models 18
On the road to profitability 24
Appendix A 29
Appendix B 30
About the Author 31
About Routific 32
Bibliography 33

What’s cooking?
Food delivery businesses are cropping up everywhere, and the space is

starting to get really crowded. Everyone is focused on making at-home
dining as convenient as possible, either by delivering groceries (anything
from fresh fruits and vegetables to organic cuts of meat), prepared meals
(both hot and cold), or meal kits (raw ingredients and instructions on how
to prepare them).
Notable food delivery startups have reached large valuations 1 – Blue

Apron ($2 billion), DoorDash ($700 million), and Postmates ($500 million)
– and their success is encouraging new competitors to enter the market.
If you’re taking the dive into the world of food delivery, looking for
new ways to stay competitive, or interested in learning how to build a
sustainable food delivery business, this book is for you.
You probably already know that smart logistics plays a huge part in your
operations, and in many cases, can make or break a company. Let’s start
with a few definitions before delving into the merits and pitfalls of the
most popular food delivery models out there.

How we define Food Delivery
Morgan Stanley Research estimates the total addressable market for food
delivery to be a whopping $210 billion. However, not all food delivery
businesses are in control of their own logistics. In fact, two-thirds of total
order volume in 2015 was accounted for by online ordering platforms
like GrubHub/Seamless and Eat24. 2 Since the restaurants themselves
are in charge of the logistics of delivery, they are considered out of the
scope for this book.
This book examines various delivery models from the perspective of a

food delivery businesses that manages its own delivery logistics. Even
though some might interpret DoorDash as an ordering platform, they
actually manage their own delivery network. The delivery logistics
platform model is therefore considered within the scope of this book.
The other major category of food delivery models is the “full-stack”

approach. These businesses not only manage their own delivery network,
but also control their own inventory, preparing their own food in-house
in a centralized kitchen, or owning warehouse in the case of grocery
delivery. This is the most interesting category where startups have
developed rather creative business models in an attempt to please the
consumer quickly, while trying to achieve profitability. More on this in a
later section we’re calling “The on-demand/profitability dichotomy.”

In-house vs. outsourced
deliveries
Should you invest in your own delivery fleet? Or do you outsource to a

third party?
This is a question every delivery business will face. It’s something startups
will ponder when they’re just figuring out their business model, but it is
also an important decision that behemoths must consider – especially
now that everyone is realizing the massively untapped opportunities that
lie in the delivery space.
Traditional supermarket chains have started offering home delivery

services. Whole Foods has invested and partnered with Instacart 3,
outsourcing the logistics of shopping and delivery, meanwhile Western
Canada’s largest grocery chain Save-on-Foods recently brought things
in-house and invested in its own fleet of branded delivery vehicles. 4
There are new players entering the food delivery space, too. Amazon
has been experimenting with its online grocery business, AmazonFresh,
deploying its own fleet in key cities across the United States. 5 McDonald’s
also began trialing a home delivery service, partnering with UberEATS –

a new on-demand meal delivery service launched by Uber. 6
We’ve worked with countless companies that have tried and tested both
models. Some attempted their own deliveries, but after experiencing
first-hand the logistical nightmare that last-mile delivery can be, they
decided to outsource their deliveries to “the experts.”
Similarly, there are companies that have always relied on logistics

partners to deliver their goods. After being at the mercy of a third-party
delivery service, they decided to bring things in-house to guarantee a
top-notch customer experience.
MINI CASE STUDY: COOL BLUE
Coolblue is a Dutch eCommerce company that raked in 850 million Euros

in revenue in 2016. 7 For years, they relied on a network of third-party
delivery partners. Last year, they decided to launch their own branded
delivery fleet. Coolblue wanted to maintain full control over the end-to-
end experience – from factory to doorstep – increasing customer service
levels by promising a smaller time-window of just one hour, customer
notifications 30 minutes before arrival, and the option to provide
additional “white-glove” installation services – all at no extra cost to their
customers. 8
Doing everything yourself isn’t always the best route to take. In fact,
in most cases it is considered best practice to outsource whatever you
can so you can focus on your own core competence; the one thing that
makes you stand out from your competitors. This is especially the case

for commodity services, because the third-party is far more experienced
and specialized, meaning they can do it better and cheaper. 9
At least, that’s the idea.
The problem with home delivery service is that it isn’t fully commoditized
(yet). There is a huge customer service aspect that is personal and unique
to every individual company, and often considered way too important to
be outsourced. Everyone is familiar with the “UPS experience” of being
told that your package is going to be delivered between 9 a.m. and 6 p.m.;
or worse, receiving that dreaded missed delivery notice on your front
door, even though you took the day off to stay at home and wait for the
delivery. Imagine how this kind of customer experience reflects on your
company.
Despite all of this, there are still some good reasons to outsource your
deliveries. For starters, you don’t need to worry about logistics. You
already have more than enough on your plate – you’re running a business,
you’re preparing the food. With so many startups providing delivery-
as-a-service, the delivery experience has already drastically improved
compared to what traditional couriers offer.
The other aspect is the elasticity of cost; a third-party can do it for much
cheaper at lower volumes, and you can scale up that delivery service as
your business grows. This allows you to avoid a large capital commitment
upfront.
And finally, if you can ship your packages (e.g. meal-kit delivery
companies like Blue Apron, Freshly, or Munchery), using a third-party
delivery service allows you to scale up quickly and offer your products

nation-wide.In conclusion, the decision to do your own deliveries vs
outsourcing is a strategic one. There are many pros and cons that will
depend on the vision of your company and what you deem important.
We’ve summarized the benefits in Figure 1 to help make your decision
easier.
Now, let’s delve deeper into the various food delivery models for those
who have decided to take logistics in-house.
IN-HOUSE
Full end-to-end user-experience
Better customer service
Smaller time-windows
Branded cars and delivery personnel
Cheaper at scale
OUTSOURCED
One less thing to worry about
Scaleable cost
No need for investment in infrastructure
Ship (inter)nationally
Cheaper at low volumes
Figure 1. In-house vs. Outsourced

Food delivery models
So, you’ve decided to do your own deliveries, but you are unsure what
kind of model suits your business. No worries. Let’s take a look at a few
popular food delivery models and weigh the pros and cons of the each.
We’re going to cover four food delivery models in this book:
• Mobile Inventory: Hyper On-demand
• Delivery Platform: Last Mile Logistics Play
• Central Kitchen: Full-stack Food Delivery
• Hybrid Models
There isn’t necessarily “one best model” when it comes to food delivery.
There are countless trade-offs you’ll need to consider across a myriad
of parameters. We will help you turn this decision process into a well-
informed one: we’ll present each model, highlight the decisions you’ll
need to make, and weigh the pros and cons for each. In the end, it’s
mostly a matter of how you’d like to strategically position and distinguish
yourself from the crowd.

The decision mostly comes down to a trade-off between delivery
speed and delivery cost. The third dimension to consider is customer
happiness – that’s not to be conflated with delivery speed, which is but
a small aspect of the customer happiness equation. Before we dive into
the delivery models, a quick side-note on the on-demand/profitability
dichotomy framework with which we will analyze the different models.
THE ON-DEMAND/PROFITABILITY DICHOTOMY
The success of Uber spawned an entire on-demand economy built on

the premise of an ever-increasing crave for instant gratification. While
this makes sense for taxis – because you usually need a taxi “right now”
– many startups have followed this trend simply attempting to capitalize
on the on-demand hype in other industries, for better or for worse. We
made “The Case Against Everything on Demand” in a piece published by
Re/code. 10
[...] do you really need laundry pickup on demand?

A keg delivery right now? Groceries within the hour
when you think of it? A massage? Who has hour-
long gaps in their pre-planned calendars these
days to allow for a massage on a whim? I’d
much rather schedule any of the above at a
convenient time.
Marc Kuo in Recode

On-demand food delivery can actually make sense – you are hungry
and you want to be fed as soon as possible. On the flipside, scheduled
food delivery makes an equal amount of sense too – as you are planning
your meals this week, you realize that you have nothing prepared for
tomorrow’s dinner.
Because there are two different needs in the market, some food delivery
startups offer both on-demand and scheduled deliveries, while others
choose to focus on one or the other. You cannot weigh the different
options without considering the oft-neglected notion of profitability.
The bottom line: on-demand comes at a hefty cost.
PepperTap – a food delivery platform that raised $50 million in funding

from prominent investors like Sequoia – shut down its operations in April
2016. “The most fatal [reason for its shutdown], was the amount of cash
burned on logistics and operations. 11
When you look at the leaked unit economics of Maple12, a New York City-
based food delivery company, the largest cost driver – other than the
food itself – is gobbled up by its last-mile delivery operations. It is the
biggest lever you can tweak to lower your marginal cost per delivery.
COST PER DELIVERY
This is arguably the most important key performance indicator for a food
delivery company, so allow us to elaborate a little more on the definition
of “cost per delivery.” Two of the primary costs are driver wages and fuel
costs, as shown in the following equation:

Driver Wages + Fuel Costs
Cost Per Delivery =
Number Of Deliveries
Figure 2. Cost per delivery is the most important metric to improve on for food delivery businesses
to operate profitably.
To be profitable, your revenues need to exceed the costs. Since it is

a very competitive market, you won’t have much room to raise your
prices. In fact, Morgan Stanley research points out that the biggest
reason consumers do not opt for food delivery is because of the price:
“too expensive”, they said. 13 Your best bet is to operate as efficiently as
possible thus lowering your costs.
How, you might ask? The most significant way is to schedule your
deliveries in advance as opposed to promising on-demand “within the
hour” type of deliveries.
On-demand requires more drivers, higher wages (to compensate for

the headaches), more distance traveled, and higher fuel consumption
(because you’re constantly chasing after demand), all of which contribute
to an increased cost per delivery.
On the contrary, scheduling deliveries can generate the same amount of

revenue with fewer drivers, lower wages, and less distance traveled. It
dramatically increases operational efficiencies and, hence, profits.

Cost per Delivery Hyper on-demand
On-demand
Same-day
Scheduled next day
10 min < 1 hour > 2 hours > 10 hours
Delivery Time
Figure 3. There is a convex relationship between cost per delivery and delivery time. The faster
you promise to deliver, the more exponentially higher the cost per delivery. The lesson here?
Take it easy!
MOBILE INVENTORY: HYPER ON-DEMAND
What is it? Speed Cost Customer Experience
Hyper fast-food, Super fast Very expensive Generally bad food

sitting in insulated (~10 minutes) quality
bags
If speed is the primary objective and you want to deliver hyper-fast

food, the mobile inventory model will be your only option. Startups that
have attempted this model include Bento, Kitchensurfing, Kitchit, and
SpoonRocket. Notice the past-tense? That’s because they all shut down.

Let’s look at the case of SpoonRocket. They promised food delivered
within 10 minutes. They would mass-produce a limited selection of
meals in a central kitchen, which drivers loaded up in insulated bags. The
drivers would then roam the city in anticipation of orders being placed
in certain areas. Once an order was placed, the driver who was closest
to the customer would race to deliver the meal within the 10-minute
deadline.
For this model to work, you need to have a lot of drivers in each delivery
area to ensure 10-minute delivery time windows. You’d also need to
prepare ample food in advance to make sure you don’t run out of supply.
Meanwhile, the number of actual orders being placed in each area is
completely stochastic, resulting in major food and time wasted.
Partly due to these reasons, SpoonRocket shut down in 2015, despite

having raised $13.5 million in venture capital. 14 It is simply too hard to
make the unit economics work, even at scale.
The mobile inventory model is an example of delivery speed at all costs.

For SpoonRocket, though, even customer happiness suffered. The quality
of the food was deemed “sketchy” and “gross”. 15
DELIVERY PLATFORM: LAST MILE LOGISTICS PLAY
Delivery service Fast (~1 hour) Expensive Good food from your
from existing favorite restaurants
restaurants

Delivery platforms are companies in the food delivery space that do
not prepare their own food but act as a logistics fulfilment platform for
restaurants that do. There are many delivery platforms that deliver all
sorts of goods in addition to food, such as Postmates, JoeyCo, Alfred,
and Favor. However, in terms of a delivery platform focused purely on
food, Caviar, Deliveroo, and DoorDash are the best examples.
The DoorDash app allows customers to order food from a selection

of restaurants. Once the order is placed, the restaurant is notified and
DoorDash dispatches a driver to pick up the order before delivering to
the customer. Meanwhile, the customer can track the above progress
step-by-step in real-time.
Delivery platforms like DoorDash aim to replace the consumer behavior

of calling a restaurant to place an order. There are also platforms that
focus on scheduled food delivery such as catering. Incidentally, DoorDash
Drive is a new platform they launched in December 2016 to do exactly
this. 16
In terms of delivery logistics, there are many benefits to having your

orders pre-scheduled. Especially during a cool funding market, when
businesses really need to consider profitability over growth, the main
benefit of scheduled deliveries is the fact that you can batch your
orders with route optimization and realize a tremendous gain in density,
efficiency, and a lowered cost per delivery.
If you are a delivery platform catering to restaurants, there is the

expectation and requirement that you should be able to handle on-
demand orders. Maintaining an on-demand delivery platform is costly.
Speed is important, but customer happiness even more so to maintain

a healthy batch of repeat customers. In order to solidify that customer
loyalty, you need to ensure accurate ETAs, a great user experience, tight
partnerships with restaurants to ensure smooth logistics (no one likes a
soggy, cold meal!), and swift conflict resolution policies when things go
wrong.
This is a very hard model that requires a lot of venture money to scale.
The hope is that the unit economics will work out at scale, which is why
the only relevant players in this space are the ones with a financial war
chest.
Managing a delivery fleet for the last-mile is an incredibly difficult

undertaking. Dealing with consumers at the same time makes it even
more challenging. This is why businesses like Daily Delivery – based in
Vancouver – have pivoted away from serving consumers and are now
focused strictly on delivering goods for other businesses. SpoonRocket
has also pivoted to a delivery platform model after they shut down their
on-demand operations in the United States and relaunched in Brazil in
late 2016. 17 Like a courier service, they are only concerned with a B2B
relationship between their delivery fleet and the businesses they work
with. Similar platforms include Stuart in Paris, Sherpa in Sydney, and Jinn
in London.
Companies that offer delivery services for other businesses have more
flexibility to experiment with batching. The second major advantage
they have is a higher consolidated order volume from multiple food
businesses. Both of these advantages will lead to better unit economics.
Foodee is an example that is leveraging both of these advantages by

focusing purely on next-day corporate meals – this model consolidates

large number of orders per location, and because it is pre-scheduled,
lends itself well to route optimization.
If your delivery platform accepts mostly on-demand orders, you can still
use route optimization to batch orders on a real-time basis. There are
many different ways to do this:
• Auto-dispatch for every new order
For every new order that comes in, you can use route optimization
as an auto-dispatcher. It will find the most optimal way to insert
the new order into the fleet in the field, in real-time.
• Dispatch every x seconds/minutes
If you have a high order volume in a specific region, you can achieve
higher efficiencies by deferring your dispatch decisions. The longer
you can wait, the more you can dispatch in one go, and the more
efficient routes you can create with route optimization.
• Dispatch when a driver becomes available
This method defers dispatching until the latest possible moment.

If you don’t want to change a driver’s routes when he’s already
on the road, it makes sense to wait until a driver is finished his
task before creating a new route. For example, you can collect
and hold onto orders until the first driver is back at the central
pickup location. Then you can create an optimized route with all
the orders you’ve collected so far – and even include other drivers
that are on their way back to the pickup location. This approach is
slightly more complex, but you can achieve a lot more efficiencies.

In short, on-demand is hard. But if you insist on going down this route,
these are some ways to improve efficiencies. If, on the other hand, you
are willing to make concessions on delivery speed, we can talk about a
great model that has a low delivery cost and maintains a high level of
customer happiness: the central kitchen.
CENTRAL KITCHEN: FULL-STACK FOOD DELIVERY
Produce own food Varies Cheap Great food at time of

and deliver to the (same-day or choosing. Great end-to-
customer next-day) end experience.
A central kitchen implies that the food is prepared by the company itself.
Food delivery businesses in this category come in many different flavors.
The flexibility and creativity stems mostly from the fact that they control
the entire operation themselves – from kitchen to doorstep.
A few examples of companies in this category would be hot meal delivery

(Sprig, Galley, Maple), groceries (Hello Fresh, Door to Door Organics,
Amazon Fresh), corporate lunch delivery (Zesty). Central kitchens could
also include the delivery of meal kits, but only those that run their own
delivery logistics will be relevant for this section.
These “full-stack” delivery startups have the freedom to decide exactly

what they prepare, how they prepare it, how customers can place orders,
how they deliver, where they deliver, and when they deliver. The great
thing about all these choices is that you can choose exactly how to

differentiate yourself in this crowded market. The downside is a potential
paralysis of choice: which trade-offs are more important to make?
These are some of the major decisions:
• How soon do you promise your deliveries?
We already know that the faster you promise, the more it will cost
you. The beauty of the central kitchen model is that you can go for
a purely scheduled model, with all the logistical, economical, and
sensical benefits that entails.
• Do you serve consumers? Or focus on corporate customers?
The consumer market is a larger one, but it is far more spread out.
Corporate meal delivery has the benefit of built-in density; you
can complete dozens of orders with a single delivery!
• What are the cut-off times?
If you offer purely scheduled deliveries, when is the latest that the
customer can place their order? Do you deliver throughout the day
and plan all your routes once in the morning? Or do you have a
lunch-rush and a dinner-rush? More on this in the next section on
hybrid models.
• How large of a geographical area do you want to serve?
The more densely focused you serve, the higher number of orders
you can deliver per hour, which leads to a decreased cost per
delivery. But, you would lose out on potential market share.

• Do you offer tight delivery time-windows?
Do you offer 1-hour time-windows? Or can the customer select

an exact time with a 10-minute buffer on either side? From a
customer’s perspective, the tighter the time window the better
– but that makes things harder for you, as leaves you with less
flexibility to plan and optimize your routes.
If customers are completely flexible as to the timing of delivery

(not possible with hot meals; instead, think meal kits or groceries),
then you could completely optimize your routes in a way that
minimizes total driving time.
It would be in your best interest to incentivize customers to select

wider time-windows, and potentially charge a higher delivery fee
for very tight ones. If you do, you want to make sure that you have
a good route optimization algorithm in place that would enable
you to actually meet such strict time-windows efficiently.
Keep in mind that selecting a wide time-window doesn’t mean

that the customer has to wait at home all day. In fact, it’s quite
the contrary. If the cut-off for placing scheduled orders is one day
prior, you can plan your routes in advance, and communicate a very
accurate ETA to the customer the day before.
To summarize, the central kitchen has the highest chance of success,

because you can fully control your destiny and tweak your operations
in many ways in an attempt to achieve profitability. You can find a
configuration to that has a very low delivery cost while maintaining a
high level of customer happiness.

HYBRID MODELS
Offer both Fast and slow Cheap if you Great food at time of
scheduled and on- offer selective choosing. Even has the
demand on-demand occasional on-demand
option.
Why choose between purely on-demand or purely scheduled, if you can

choose both?
Hybrid models allow customers to place both on-demand orders as well

as schedule them in advance. Major delivery platforms such as DoorDash,
Deliveroo, and Caviar now offer both options as well. It appears that
some people know that they need to eat more than an hour in advance.
A pure model is logistically easier – with the purely scheduled model

being the easiest of the two. With the introduction of on-demand
orders, you’re also “by definition” introducing a lot of variability into your
logistics, which never is a good thing. Running a food delivery business
is unpredictable enough – are you sure you want to add the on-demand
headache?
If you insist on capturing the on-demand market, a hybrid model is at

least a step up from the purely on-demand model – both in terms of the
ability to meet all needs in the market, as well as the potential to improve
the unit economics of your delivery logistics.
There are many ways to implement a hybrid model; one way would be to

have a set cut-off time for scheduled orders, while offering on-demand
orders at a premium. You can pre-plan all your scheduled orders using
route optimization, to get a clear understanding of how many drivers
you need. At this stage, depending on how large a percentage your on-
demand orders amount to, you can incorporate some buffer capacity in
your route planning.
Throughout the day, as your fleet is out delivering the scheduled orders,
you can accept new on-demand orders, which will then be dispatched to
the best available driver to fulfil. If you are a delivery platform, a driver
could take on that on-demand request as he or she is on their way to
the next delivery. If you are a central kitchen, a driver would need to get
back to the kitchen to pick up those last-minute orders.
The more orders you can collect in advance, the

more you can optimize your routes.
Hybrid models can get quite complex – here are some questions to
consider:
• What is the cut-off time for scheduled orders?
There are three types of cut-offs for placing scheduled orders:

static, rolling, and blocks.
Static: Clear cut-off times, usually in the early morning or the

night before. This gives you ample time to optimize the routes in
advance.

Rolling: Consider this an extended on-demand order; you can
place an order more than 2 hours in advance – which you could
then classify as a scheduled delivery. Logistically, you can then
batch a bunch of scheduled deliveries together more efficiently,
as you collect more orders in advance. The more orders you can
collect in advance, the more you can optimize your routes. You
can even offer monetary incentives to customers to place further
in advance (since it will allow you to lower your cost per delivery).
Blocks: A third alternative would be to have multiple delivery

blocks. In essence, it is the same as static, except you’ll have
multiple runs in one day. You could do a morning run and an
afternoon run, or a lunch and a dinner run. Limiting delivery times
can act as a forcing function for density, but you might miss out
on some market demand.
• How soon do you promise on-demand orders?
The next question is about what kind of on-demand orders you

would allow for throughout the day. Do you promise one-hour
deliveries? 30 minutes? 15 minutes? Remember, on-demand is
costly, especially if you don’t have a huge fleet that blankets the
city.
• How do you incentivize customers to place scheduled orders?
As we have shown in the section on the “on-demand/profitability

dichotomy,” it is in your best interest to have as many scheduled
orders as possible. It will lower your cost per delivery, which means
that part of these savings could be passed along to the consumer –

or alternatively, instead of discounting, you can charge a premium
for the more costly on-demand orders.
The other interesting aspect with the hybrid model – if you don’t
shy away from more complexity – is that you could even calculate
the cost of an order before the customer places it!
After the customer inputs their address and selects a restaurant,

you have enough information to run a dispatching algorithm to
calculate how much this order will cost you, based on the real-time
whereabouts of your fleet.
For example, if a new order comes in and the delivery address

happens to be down the street from an existing order that has
already been scheduled for delivery, you can fulfill that order at a
very low cost since your driver is already planning to be there! You
can distinguish between good profitable orders, and bad orders –
the kind that will cost you an arm and a leg to deliver. 17
• How do customers select time of delivery?
The more flexibility the customer gives you, the better you can
plan and optimize. Refer to the same question in previous section
on offering tight time-windows in the central kitchen model for
more details.
If you’re delivering hot meals, you typically won’t have much

leeway, but if you’re delivering produce or meal kits (which are
less time-sensitive), the way in which your customers select time-
windows can make a profound difference to your unit economics.
For example, if you’re already going to a remote area in the
morning, you would want to incentivize the next customer in the
same area to also select the morning time-slot – that way you can
avoid having to make another trip out there in the evening.

For on-demand orders, you can keep things efficient by revealing
selective delivery time windows. If you have a driver who is heading
to a customer’s part of town anyway, you can present the fast,
on-demand option. Similarly, if no drivers are scheduled to visit a
particular area, you might not even want to give your customers an
option for on-demand delivery. 18
• Do drivers carry surplus meals in anticipation of demand?
To save yourself a trip back to the central kitchen, you could

send additional inventory to areas that are known to have a lot
of on-demand orders (e.g. during dinner-rush in the downtown
core). This opens a whole new can of worms related to demand
prediction and potential for waste, so it is advised to err on the
side of carrying too little. But, if you do it right, it could lead to
a bunch of happy customers and additional revenue that you
otherwise would have missed out on.
• How do you dispatch on-demand orders?
Do you simply assign the incoming orders to the closest driver as

they come in? Or do you mini-batch dispatch every 5 or 10 minutes,
depending on your order volume? Similar principle applies here:
the more you batch, the better the potential efficiencies.
See the section on delivery platform for more details on the different
dispatching models for on-demand deliveries. To learn more, you can also
take a look at our white paper on “Solving the on-demand challenge”. 19

On the road to profitability
Food delivery as a trend is definitely heating up, despite its funding

climate cooling down. Funding to the food delivery category dropped
65% in Q1 of 2016 and dropped further in Q2 of 2016 – the lowest total
since early 2014. 20
With scarce funding, the talk of the town has quickly switched from
growth to profitability. It is the only way to ensure the survival of your
company in the long term. American entrepreneur, venture capitalist, and
Techstars co-founder Brad Feld wrote about the importance of growth
and profitability, and how they relate to each other in his “Rule of 40%”
framework. This framework states that you have a healthy business as
long as your growth rate + profit margin exceeds 40%.
“If you are growing at 40%, you should be generating a 0% profit. If you
are growing at 50%, you can lose 10%. If you are doing better than the
40% rule, that’s awesome.” 21 Catalyst Investors performed an extensive
quantitative study that correlates the “Rule of 40%” to a company’s
valuation. 22
This guide highlighted many different planes along which you can
improve your unit economics and achieve profitability. We’ve also

covered the implicit cost of offering on-demand deliveries in the “on-
demand/profitability dichotomy”. To sum it up, the more you can plan
your deliveries in advance, the more you can optimize your logistics, and
the fatter your margins can be.
The question then becomes: What about the market? Is the on-demand
hype here to stay? Will the instant gratification economy keep growing?
Patrick Asdaghi, Founder and CEO of FoodCheri – one of the fastest

growing food delivery companies in Paris – shared with us that during
the time they were running a hybrid model, about 60% of their customers
chose to pre-schedule their lunch orders. For dinners, it seems to be
flipped: between 70%-80% of the orders were placed as a response to
“Oops, the fridge is empty!”
FoodCheri started off doing purely on-demand orders, then offered both,
and are now moving to a purely scheduled model despite these order
numbers. The unit economics are simply that much yummier.
We recently moved to a completely scheduled approach

because we’ve seen positive unit economics and a
positive customer experience with reliable delivery.
Routific is instrumental in helping us calculate the best
routes for our drivers to deliver those orders on time.
Patrick Asdaghi, Founder and CEO of FoodCheri

This is a good moment to point out that any route planning or dispatching
model mentioned in this book can be implemented using the Routific
API. This guide is the culmination of the various implementations of
route optimization we have successfully executed with our customers.23
FINAL THOUGHT: SPECIALIZATION
If history gives any indication, specialization will lead to greater economic

efficiencies. In the last decade, the “cloud revolution” followed by the
“API economy” has led to many highly specialized companies that provide
commoditized services better, faster, and cheaper, than any company
can build in-house. Building your own server farm simply does not make
sense anymore.
We see a similar trend of specialization happening in the food industry.

The full-stack vertically-integrated central kitchen model is one of the
most popular food delivery models today because everything is within a
company’s control. You are in charge of the way you manage your kitchen,
your delivery fleet, your customers, and all the operations that it entails
as shown in Figure 4.
Inventory
Kitchen Packaging
Order Management
Managment
Route
Delivery Driver App
Optimization
Ordering Customer
Customer
Platform Notification
Figure 4. Full Stack Delivery
Since this is a relatively new marketplace, all of these components are

open for innovation. There aren’t many commoditized services that you
can outsource parts of the stack to – but this is changing.
As we saw in the section on delivery platforms, there are already many

startups around the world that will do the deliveries for you. Some offer
dedicated drivers, others offer APIs. Last-mile delivery is extremely
hard, and there are a lot of advantages to be had by leveraging these
specialized platforms. As they continue to experiment with different ways
to manage the delivery fleet, they will discover an optimized process
much faster than any full-stack food delivery company will. And there’s
another advantage: by managing deliveries for a multitude of companies,
such platforms have a much higher consolidated order volume.
Does this sound like we’re heading back to outsourcing deliveries like a
traditional courier? Not at all. These delivery platforms have the great
advantage of being technology-first, leading us to a far better end-user
experience relative to what traditional couriers offer. Compare the Uber
experience to that of telephoning an old-school cab company, and you
get the idea. Some platforms also offer the ability to white label their
technology, so you don’t need to compromise on your branding either.
For the same reasons, food delivery companies should also avoid trying
to build a route optimization algorithm themselves. 24 As the market is
getting more competitive, a food delivery company cannot afford to
get distracted with anything outside of what they choose to be their
differentiating factor. Is it your branding? Is it the quality of the food? Is
it your stellar customer service? Competitive pricing? Business model?
What makes your company stand out from the crowd? How can you be
smart about innovation so you can get on the road to profitability?

What makes your company stand out from the crowd?
How can you be smart about innovation so you can get
\ the road to profitability?
on
Every new market category goes through an already familiar cycle: It

starts off with a few disruptors at the frontier, who will have to build
everything themselves. Then, as the market matures and the opportunity
is proven, there will be a gold rush. And every gold rush is closely followed
by the meta-gold rush of specialized commodity services – be it shovels
and picks, or route optimization algorithms. The food delivery space is
already entering this second phase; specialization is becoming the norm.
With logistics and technology layers of the food delivery business stack
already available as specialized commodity services, who knows, maybe
the next phase of this natural evolution would be the rise of Kitchens-as-
a-Service?

Appendix A
MOBILE INVENTORY DELIVERY PLATFORM CENTRAL KITCHEN
Figure 5. The Food Delivery Landscape.

Appendix B
MOBILE INVENTORY
Delivery service Super fast Very expensive Generally bad food

from existing (~10 min) quality
restaurants
DELIVERY PLATFORM
Delivery service Fast (~1 hour) Expensive Good food from your
from existing favorite restaurants
restaurants
CENTRAL KITCHEN
Produce own food Slow (same or Cheap Great food at time of

and deliver to the next-day) choosing. Great end-to-
customer end experience.
HYBRID MODELS
Appendix B
Offer both Fast and slow Cheap if you Great food at time of
scheduled and on- offer dynamic choosing. Even has the
demand on-demand occasional on-demand
option.
Figure 6. Summary of the different food delivery models compared across speed, cost, and
customer experience.

About the Author
As Founder and CEO of Routific, Marc is an expert on advanced route

optimization algorithms and brings more than a decade of experience
in the field of logistics. Previously, Marc was a founding team member
at Axiom Zen, an algorithmic trader for UBS Bank in Hong Kong, and a
consultant at Cap Gemini in the Netherlands. He graduated cum laude
with a master’s degree in operations research from Erasmus University,
where he majored in computer science, machine learning, and artificial
intelligence. His thesis research was on advanced route optimization
algorithms.

About Routific
Routific is a market-leading route optimization solution that helps

hundreds of delivery businesses around the world save time and fuel.
Global business partners, including Fortune 100 companies, choose
Routific for our state -of-the art route optimization API that’s easy and
seamless to integrate. Our reputation for excellence and reliability makes
us the leading global route optimization solution, and the number one
choice for delivery businesses and software partners around the world.
Visit Routific.com to learn more

Bibliography
1 As of writing February 2017
2
Bakker, Evan – The on-demand meal delivery report http://www.
businessinsider.com/the-on-demand-meal-delivery-report-sizing-the-
market-outlining-the-business-models-and-determining-the-future-market-
leaders-2016-8
3 Bloomberg - Whole Foods invests in Instacart - https://www.bloomberg.

com/news/articles/2016-09-23/whole-foods-invests-in-instacart-at-2014-
valuation
4
Canadian Grocer – Save-on-Foods goes the extra mile launching online
delivery – http://www.canadiangrocer.com/top-stories/save-on-foods-goes-
the-extra-mile-launching-online-delivery-in-vancouver-57986
5
Del Ray, Jason – Amazon is going to launch its Fresh grocery delivery
service in new markets including Boston and the U.K. – https://www.
recode.net/2016/5/24/11750670/amazonfresh-fresh-grocery-boston-uk-
expansion
6
Peterson, Hayley – McDonald’s will now deliver food to your door – http://
www.businessinsider.com/mcdonalds-launches-delivery-test-2016-12
7
Connexie – Coolblue verwacht dit jaar meer dan 1 miljard euro omzet – http://
www.connexieb2b.nl/actueel/17788/coolblue-verwacht-dit-jaar-meer-dan-
1-miljard-euro-omzet.html
8
Libbenga, Jan – Coolblue gaat witgoed in vijftig eigen blauwe busjes bezorgen
– http://www.emerce.nl/nieuws/coolblue-gaat-witgoed-in-vijftig-eigen-
blauwe-busjes-bezorgen
9
Kuo, Marc – Don’t build it in-house. There is an API for that. – https://
blog.routific.com/don-t-build-it-in-house-there-is-an-api-for-that-
c929b8677137

10
Kuo, Marc – The Case Against Everything on Demand – http://www.recode.
net/2014/9/15/11630868/the-case-against-everything-on-demand
11
Mittal, Tarun – 4 promising startups that shut down in 2016 due to being
operations-heavy – https://m.yourstory.com/2017/02/operations-heavy-
startup-shutdowns/
12
Del Rey, Jason – Leaked documents from startup Maple show the brutal
economics offood delivery – http://www.recode.net/2016/12/23/14055132/
maple-delivery-app-leaked-financial-documents
13
Morgan Stanley Research – The Pizza Paradigm for Online Food Delivery
– http://www.morganstanley.com/ideas/pizza-paradigm-for-online-food-
delivery
14
Kline, Kenny – How This Startup Blew $13.5 Million and Ended in Bankruptcy
– http://www.inc.com/kenny-kline/how-spoonrocket-blew-135-million-and-
ended-in-bankruptcy.html
15
Constine, Josh – SpoonRocket shuts down amongst on-demand apocalypse
– https://techcrunch.com/2016/03/15/spoonrocket-shuts-down/
16
McCracken, Harry – The Future Of DoorDash Is Turning Delivery Into A
Platform – https://www.fastcompany.com/3066126/tech-forecast/with-its-
new-drive-service-doordash-is-turning-food-delivery-into-a-platform
17
Dickey, Megan Rose - Spoon Rocket is Coming Back from the Dead - https://
techcrunch.com/2016/09/19/spoonrocket-launch-brazil/
18
The Routific API can calculate these costs for you. Please contact support@
routific.com if you want to learn more about this.
19
Kuo, Marc – Solving the on-demand challenge with Route Optimization –
https://routific.com/dispatch-algorithm-whitepaper/
20
CB Insights – The Food Delivery Crash: Funding Drops For Second-
Consecutive Quarter – https://www.cbinsights.com/blog/food-delivery-
startups-funding-collapse/

21
Feld, Brad – The Rule of 40% For a Healthy SaaS Company – http://www.
feld.com/archives/2015/02/rule-40-healthy-saas-company.html
22
Catalyst Investors – SaaS Investors: Mind The Valuation ‘GAP’ (Growth At
Any Price) – http://seekingalpha.com/article/3981986-saas-investors-mind-
valuation-gap-growth-price
23
If you have questions regarding your own delivery models, or ideas you’d
like to bounce off of us, feel free to drop us a note at: https://routific.com/
consulting
24
For a detailed discussion on the “build vs buy” argument, see https://
blog.routific.com/don-t-build-it-in-house-there-is-an-api-for-that-
c929b8677137

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Food Delivery Logistics:

The Ultimate Guide to

FROM KITCHEN TO DOORSTEP –

LOGISTICS BEHIND DIFFERENT FOOD

1 Food Delivery Logistics: The Ultimate Guide to Profitability

How we define Food Delivery 2

In-house vs. outsourced deliveries 3

Food delivery models 7

• Mobile Inventory: Hyper On-demand 11

• Delivery Platform: Last Mile Logistics Play 12

• Central Kitchen: Full-stack Food Delivery 16

On the road to profitability 24

About the Author 31

2 Food Delivery Logistics: The Ultimate Guide to Profitability

Food delivery businesses are cropping up everywhere, and the space is

Notable food delivery startups have reached large valuations 1 – Blue

1 Food Delivery Logistics: The Ultimate Guide to Profitability

This book examines various delivery models from the perspective of a

The other major category of food delivery models is the “full-stack”

2 Food Delivery Logistics: The Ultimate Guide to Profitability

Should you invest in your own delivery fleet? Or do you outsource to a

Traditional supermarket chains have started offering home delivery

3 Food Delivery Logistics: The Ultimate Guide to Profitability

Similarly, there are companies that have always relied on logistics

MINI CASE STUDY: COOL BLUE

Coolblue is a Dutch eCommerce company that raked in 850 million Euros

4 Food Delivery Logistics: The Ultimate Guide to Profitability

At least, that’s the idea.

5 Food Delivery Logistics: The Ultimate Guide to Profitability

Full end-to-end user-experience

Better customer service

Branded cars and delivery personnel

One less thing to worry about

No need for investment in infrastructure

Cheaper at low volumes

Figure 1. In-house vs. Outsourced

6 Food Delivery Logistics: The Ultimate Guide to Profitability

We’re going to cover four food delivery models in this book:

• Mobile Inventory: Hyper On-demand

• Delivery Platform: Last Mile Logistics Play

• Central Kitchen: Full-stack Food Delivery

7 Food Delivery Logistics: The Ultimate Guide to Profitability

THE ON-DEMAND/PROFITABILITY DICHOTOMY

The success of Uber spawned an entire on-demand economy built on

[...] do you really need laundry pickup on demand?

Marc Kuo in Recode

8 Food Delivery Logistics: The Ultimate Guide to Profitability

PepperTap – a food delivery platform that raised $50 million in funding

COST PER DELIVERY

9 Food Delivery Logistics: The Ultimate Guide to Profitability

To be profitable, your revenues need to exceed the costs. Since it is

On-demand requires more drivers, higher wages (to compensate for

On the contrary, scheduling deliveries can generate the same amount of

10 Food Delivery Logistics: The Ultimate Guide to Profitability

Scheduled next day

10 min < 1 hour > 2 hours > 10 hours

MOBILE INVENTORY: HYPER ON-DEMAND

What is it? Speed Cost Customer Experience

Hyper fast-food, Super fast Very expensive Generally bad food

If speed is the primary objective and you want to deliver hyper-fast

11 Food Delivery Logistics: The Ultimate Guide to Profitability

Partly due to these reasons, SpoonRocket shut down in 2015, despite