Incorporating ICT into restaurants has altered the customer-restaurant relationship, especially with customers who prefer to order remotely. In 2019, the online food delivery sector surpassed, for the first time, the barrier of 100 trillion US dollars worldwide, maintaining a sharp upward trend.
During the last few years, the number of digital platforms offering allegedly environmentally sustainable last-mile logistics services has been increasing fast worldwide. Their size and geographical spread are growing by leaps and bounds. Some studies suggest that they are still operating at losses and relying on venture capital to carry on growing.
In a new paper, researchers from Universitat Oberta de Catalunya employ real-life data gathered from the largest food delivery platforms (Just Eat, Glovo, and Deliveroo) operating in Barcelona (Spain) to analyze the profitability of these business models. They developed a Monte Carlo simulation model with several scenarios to estimate how many orders are needed to reach economic profitability.
Using this simulation model, a second model based on multiple linear regression was built to investigate the relationship between ‘the minimum number of orders required to reach profitability’ and several independent variables, such as the share of the total purchase order or the delivery time-distance. The potential use of this tool for managers is discussed, and several lines of future research on the economic profitability of food delivery operations are highlighted.
These last-mile delivery companies rely heavily on bogus self-employed riders to perform their operations. Working with freelancers allows the company to scale up without increasing its fixed costs, making it possible to operate at a lower cost. In this scenario, the researchers simulated the cost of riders employed by the company (assuming an equivalent net monthly salary and the provision of vehicles and technological devices) instead of freelancing. This represents a decrease of up to 30% in the profitability of such companies, hence the reluctance of their CEOs to change their human resources, business model. However, the debate now extends beyond the profitability plans of such companies. Digital platforms have become a game changer in labor conditions, increasing job insecurity and social vulnerability.
Source: Eduard J. Alvarez-Palau, Laura Calvet-Liñán, Marta Viu-Roig, Mariem Gandouz, Angel A. Juan,
Economic profitability of last-mile food delivery services: Lessons from Barcelona, Research in Transportation Business & Management, Volume 45, Part A, 2022, 100659, ISSN 2210-5395,