Analyzing Food Delivery Apps


Nov, 2015

Consumers drive the multibillion-dollar industry that is food delivery service without really having to drive anywhere at all. The demand for any kind of food, namely from restaurants that do not deliver, to be transported directly to the doorstep with a few taps on a smart phone has grown immensely in the past year, particularly in Austin among University of Texas students.


Food delivery service startup apps are growing at exponential rates. According to data from CB Insights, a venture capital database that aids in tracking the growth of private companies, more than $1 billion was invested in these startups in 2014, with another $500 million invested in the first quarter of 2015. Austin, ranked America’s second fastest growing city in 2015 by Forbes Magazine, is a prime market for these apps. But at the bottom of the multibillion dollar industry, what are consumers paying and how much are the employees making?


Favor Delivery, a startup app co-founded by Zac Maurais and Ben Doherty in 2013, has become a staple in college towns, namely in its founding city of Austin. Favor has expanded to 14 cities and as of Nov. 9, has completed 1 million deliveries. It uses a completely cashless system, where users input credit card information and pay through the app itself. By tapping three times on a smart phone screen, anyone is able to get anything at the touch of their hands without leaving their house.

Favor earns revenue by partnering with 13 Austin-area restaurants per day to “feature” their items on the front of the app and by charging delivery fees.


While Favor does have a few full-time employees, the majority of Favor employees work part-time on their own flexible schedules.


John Kelly Coffman, 20, a sophomore Business major from Dallas, became a Favor runner during the summer of 2015 to help earn extra cash. Coffman says that getting a job with Favor was not difficult.


“Becoming a runner is easy,” Coffman said. “Through the app menu, there is a button that says apply to be a runner and there is a phone number to call to set up an on-phone interview and an orientation session.”

The cost to Favor any item consists of a $5 base fee plus the cost of the items, along with a processing fee that is 5 percent of the item cost and a $2 minimum tip to the runner. While the couriers get to pocket 100 percent of the tip, they only receive a portion of the delivery fee.


“On weekdays, I would get about $1.75 of the delivery fee, while on weekends I would get about $2 due to surge pricing upping the delivery fees,” Coffman said. “I usually averaged $12-13 an hour.”


Coffman said that the main demographic he delivered to was college students. But the steep price of door-to-door delivery stops some students from using the app.


Elizabeth Wilkinson, 19, a sophomore government major from Fort Worth, Texas, says that while her friends regularly Favor meals, snacks and items they are too lazy or too busy to get for themselves, she is not a fan of Favor. When asked to describe Favor in one word, Wilkinson used “pricey.”


“Favor is every college kid’s dream, or so I thought,” Wilkinson said. “It started off great until I got a cold omelet and prices kept rising. The price is not worth it.”


Freshman theatre major Alex Eastman, 18, from Houston, uses Favor once or twice per week to order food directly to her dormitory building and is not bothered by the price, because the matter of convenience is too good to be true.


“I use Favor because I enjoy staying in bed and don’t have a car to be able to go pick up my own food,” Eastman said. “Even though they have Favor in Houston, I didn’t know what Favor was until I got to college. I got lazier when I got here.”


Favor is not the only delivery app in Austin. Postmates, an app and online delivery service founded in San Francisco in 2011 by Bastian Lehmann, Sam Street and Sean Plaice expanded to Austin in June of 2014. While Postmates is very similar to Favor, it has not seemed to make a dent in Favor’s escalating success among students.


Rachel Dean, 18, a freshman business major from Dallas, regularly uses Favor, but used Postmates on a weekend where the company offered “Whataburger on Demand.” The deal was for Postmates to deliver a meal from Whataburger for just $2. However, Dean described her experience as “super annoying.”


“First of all, the delivery charge when I tried the first time was $6 and when I tried again, it was bumped to almost $10,” Dean said. “It said there were no available cars to get my food and that I should try again in a few minutes. When I tried 10 minutes later, it said the same thing. It charged my card the money even when I canceled the order, but they said it does that to everyone and it goes away in a couple of days.”


The charge was reversed two days later. When asked if she would try the app again or recommend to a friend, Dean said she would not.


Data from CB Insights suggests that the number of mobile delivery apps will continue to grow, and as it does, the competition to be cheaper, faster and more reliable will only increase.