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Why do Online Food Delivery Startups Fail?

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The online food delivery segment is growing at an astounding rate and estimated to thrive in the foreseeable future considering the changing consumer behaviour. According to a recent survey conducted by Statista, the number of users in the food delivery segment are also expected to rise to 965.8 million by 2024. The global food delivery industry is estimated to amount to 9.1 trillion U.S. dollars by the end of 2025.

Such stats have inspired many entrepreneurs to invest in the market and start their food delivery business. But before making hefty investments, entrepreneurs must also understand some major reasons why the majority of food delivery startups fail in today’s era. According to a report, almost 20% of startups fail within the time period of just 2 years. So it is mandatory to identify challenges that food delivery startups face and ways to overcome them to avoid any consequences in the future.

This blog post unveils some crucial reasons why food delivery startups fail and methods to prevent an early collapse.

Table of Content

Top Reasons Why Food Delivery Startups Fail and Ways to Prevent it

Following are some noteworthy reasons for food delivery startups’ failure and methods to overcome it: 

Undefined Business Model

The most prominent challenge that every entrepreneur faces while starting a food delivery business is to properly strategize their business operations. When it comes to launching a food delivery startup, selecting the right business model is something that could make or break your business. If you’re starting your business without a well-planned business model, then there are chances that the amount you’re going to invest in your startup may sink. So along with developing an impressive website and spending money on marketing activities, you need to pay equal attention to the business model. Here are some of the startups which failed due to undefined business mode:

  • Dinner Lab
  • Maple

Source

Ways to Define Your Business Model

1. Define Customer Segments

Successful food delivery businesses such as Uber Eats, DoorDash, GrubHub, etc. adopted business models that allow them to fulfill clients’ needs at a competitive price. You must identify your target audience’s needs and divide them into groups. Segment your clients considering their interests and provide services accordingly. Understanding your customer needs and requirements will help to create a right business model for long term success.

2. Finalize your Revenue Channels

You must identify monetization methods through which you can generate revenue and earn maximum profits. Revenue generation channels for a food delivery startup could be commissions, advertisements, delivery charges, subscriptions, and affiliate partnerships.

Lack of Customer Trust in the Presence of Big Players

Gaining customers’ trust and loyalty are a paramount to every startup’s success. According to an article published in HBR, the popularity of a startup increases from positive word of mouth.

Gaining customer loyalty in presence of big players in the market is not easy as users tend to trust more on reputable platforms hence as it is said “first impression is the last impression” startups should offer best services to every new customer for gaining trust.

From raising funds to handling recruitments, entrepreneurs have to handle a plethora of activities while starting their food delivery business. Amid all such hectic tasks, many startups tend to make a few mistakes which lead to bad impressions to customers.

Here are some of the areas which startups must work on:

1. Partnership with low rated restaurants

Partnering with low rated restaurants can damage the brand value of your food delivery business. It is imperative to identify the rating and reviews of the restaurants before registering them to the online platform.

2. UnFriendly Platform Experience

A user-friendly platform is a key to the success of any online business. Bugs and unfriendly UX/UX will never allow customers to build their trust over the platform. E.g customers receive late notification of orders booked after the payment or any other technical error at a time of payment.

Ways to Gain Customer’s Trust

1. Handle Customer’s Queries Instantly

You must hire a tech support team to handle customers’ queries regarding your food delivery services, refund requests, platform’s functionalities, and more to gain their trust towards your business.

2. Risk Mitigation

It’s important to make your users aware of cashback & returns policy, packaging & safety guidelines followed by restaurants.  Make sure to provide your users with money-back guarantee in case of incorrect order delivery, poor food quality, and improper packaging of food items.

3. Handling reviews

Handling reviews , especially bad reviews, is a tactic every business owner should acquire. Some common ways could be, giving refunds, coupons, special discounts or vouchers.

4. Rigorous Testing of Platform

There should be rigorous testing of the platform before launch so there are no bugs in the real-time when customers are using it.

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Unclear Target Audience

Starting  a food delivery business without identifying your target audience is another major reason why food delivery startups fail. Your valuable resources, time, and money could go in vain if you don’t have a clear business goal and in-depth understanding of your target market. The target audience can be defined on the basis of location, food culture and the kind of population living in an area.

The platform should build their USP and marketing plan based on their target audience to establish themselves in the market and become a popular name.

For instance, if you’re planning to start your food delivery business especially for adults, then services and menu items would be designed considering their age group. On the other hand, if your target audience is a group of old-aged people, then your food delivery services would vary accordingly.  Another classification of the target audience could be professionals, students, sportspeople or even aged people with limited mobility. Every group needs to be catered in a different manner.

A well defined niche is very important for the success of a business, and even a business owner is aware of this fact initially. But gradually, in order to expand the business, people tend to cater a larger audience with differing demands. It ultimately leads to a blurred target audience and the focus of the business gets scattered.

Ways to Identify Target Audience

1. Conduct thorough Market Research through survey

An in-depth research will help you find your market competitors, target audience, current food delivery market scenario, and problems involved in the modern-world food industry.  Knowing the needs of the end user is imperative, one way to do that is by conducting customer surveys. Social media platforms provide an insight of the trends in the market and the customer choices.

2. Create Buyer Personas

You must find answers for the following questions for creating an impactful buyer persona:

  • Does your business idea have a unique value proposition? 
  • Is your food delivery business fulfilling the end-user needs? 
  • Which problems are you willing to solve with your startup?

Platform USPs Not Clearly Conveyed

Amid the rising competition in the online food delivery sector in the present era, it’s very challenging for startups to cut through the clutter and make a respectable position in the market. If you’re not delivering your users with something unique that gives your product an edge over your competitors, then there are chances that your food delivery startup may fail.

For instance, founders of  a startup named “Hivebeat” revealed that their SAAS-based product failed within the months of its launch as they failed to communicate the platform’s USPs to their customers. So it is crucial to understand and convey the unique value propositions of your product and why people will opt it over other similar platforms available in the market. 

Ways to Identify Your Brand’s USPs

We would first adhere to the ways to identify your brand’s USP:

1. Choosing your target audience

Finalizing the target audience would be of great assistance in finalizing your brand’s USP.  Specifying a group will help you cater them well.

2. Determine the uniqueness of your product that makes it worthwhile in the market

The market is crowded with your competitors. It is imperative that you come up with a specific idea that makes your product stand out. For instance, it can be the discount on deliveries often called happy hours, karaoke, and so on.

3. Identify current trends in the market

Market trends vary by the day, so it’s always necessary to be updated and ready to face challenges by your competitors. It also helps in knowing your strengths, so that you can use it to your advantage.

Ways to Communicate Your Brand’s USPs

1. Highlighting Your USP

A USP content on each page of your website can be pretty enforcing. It will motivate the customer to check it out. Make sure it has an impactful presence on the page, for both website and mobile application.

2. Using a creative tagline

An effective tagline can go a long way in communicating your USP to the customer succinctly. It’s not easy to shape a tagline that completely fits your product and your approach, but if done right it can prove wonders for business. Attaching the tagline with your brand logo is also a great way to emphasize your USP.

3. Tag along in your emails

Adding your tagline to your emails, acknowledgments or even automated mails can be a great way of bringing your customer’s attention to your brand value. It reminds the customers why they chose you in the first place and why they should return to you now.

Lack of Agility

The online food delivery market is going through a paradigm shift and likely to grow in the coming days. From contactless deliveries to cashless transactions, several trends have emerged in the food industry after the arrival of the COVID-19. Once you’ve established your business, it’s mandatory to keep your services updated on a timely basis considering the latest food industry trends to survive in the competitive market. Business owners that lack agility towards changing their minds and remaining adaptive to new technologies fail to survive in the food industry.  

Ways to Increase Your Business Agility

1. Track Your Short Term & Long Term Goals

Tracking your company’s goals on a timely basis forces entrepreneurs to be agile in decision-making. Recognizing marketing plans that are generating revenue and services that are not delivering expected results would help you create new goals that better align with your purpose.

2. Research & Development

Research regarding the latest trends and drifts in the market can help your business align with the contemporary scenario. The learnings acquired from research can be implemented in your business processes to add value to your services and improve profitability. There are various instances in the business world of food delivery where companies have thrived through the toughest situation with a close analysis of the market and calculated strategies. The food delivery experiment in Barcelona by Uber Eats showed its stupendous ability to transform itself, pave the path for its success.

3. Develop Fluid Workforce

To create a productive work culture, you must hire a  team of skilled and creative employees. Focus on empowering your team to make their own informed decisions on how processes can be optimized.

4. Adapting and responding to change in the market

Customers are always the topmost priority in any business. With the market changes, the needs and requirements of the customer also change. An agile methodology in business helps you to mold your strategies and activities as per the market changes. Uber Eats, a well-known name in the food delivery industry, pledged 10 million free rides and food deliveries for frontline health workers and the leave-at-door delivery methods as the adaptive measures for the new normal.

5. Streamlining communication with technology

A seamless functioning of a business can be achieved if there are no hassles in usage and communication with our in-hand software. In the case of food delivery, the admin web application, restaurant app, customer app, and the delivery app should be in perfect synchronization with each other.

Conclusion

While these are some crucial reasons why food delivery startups fail in today’s modern world, there are many more such as shortage of capital, mismanagement of logistics & resources, leadership gaps, lack of innovation, etc. However, it is mandatory to stick to all measures as explained in this blog post to avoid an early collapse and make your food delivery business thrive. In addition to that, a robust food delivery solution could help entrepreneurs start their businesses and overcome major food delivery challenges.

Yo!Yumm is a fully customizable online food delivery solution packed with advanced features that enables startups and SMBs in the food industry to start their food delivery business. It comes with ready-made mobile apps and web portals for buyers, sellers, & delivery staff so that entrepreneurs can launch their food delivery platform conveniently.

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