The Economics of Convenience: How Food-Delivery Platforms Turn Time into a Business

Profitability was not always of such importance in the early stages of the industry's development, when discounts, free deliveries and promotions were used to attract customers and convince restaurants to join platforms' networks. The idea was clear: first, create a large enough network and then make it profitable somehow.

It was an expensive strategy but it created a habit. The customer who could not have agreed to pay for delivery charges in the past could now order something with a discount applied. The next time he would see that it takes much effort to cook. It takes time to travel to a restaurant. It takes seconds to open an application.

Hence, the platforms sold time.

It was possible to provide the funding for years of aggressive growth due to the apparent possibilities of making the market huge. However, this model was built on the assumption that the environment with plenty of capital was favourable enough to provide the necessary discounts and expansion opportunities. In the changing conditions, the industry moved away from growing at any cost and asked itself an unpleasant question: does each order make economic sense?

This transformation took place in all markets though at different rates. Studies on the industry showed again and again the same challenge that exists: high costs of deliveries, low margins and a necessity to maintain a proper balance between the benefits of each transaction received by customers, restaurants and delivery partners.

The first change for the customer is obvious: it comes in the form of increased delivery and service charges. For the restaurants, it can come in the form of commissions and other payments made to platforms. For delivery partners, it can come in the form of changes in the terms of payments. The cheap convenience which led to the creation of this industry now has to be compensated somehow.

Who is Compensating Convenience?

The customer is the first person who pays for it but he is not alone in doing so.

For the consumer, the appeal remains the same: food is delivered right to your door without the need to spend time on the commute. This is especially appealing in large cities where the costs of commuting can be rather high. At the same time, there is a limit for customers. When the charges exceed the price of the meal, the convenience becomes less appealing and the platform has to find the price level which does not discourage customers from placing their orders.

For the restaurant, the situation is quite different: joining a major delivery platform allows the restaurant to reach those customers that otherwise it would not reach. On the other hand, commissions and other platform fees decrease the profits earned from each order made online. The academic research showed that the balance is complicated indeed: a platform expands the market for the restaurant while imposing certain pressures and forcing it to change its strategies.

This creates a peculiar dependence: the restaurant does not like the costs associated with the cooperation but understands that without it, it would not have customers who otherwise will order from this platform. The platform thus becomes not only the source of orders and marketing but also an important expense.

The third part of this equation is the delivery partner. Food-delivery platforms rely on thousands of delivery partners who can be called to deliver orders at short notice. The flexibility can be attractive but earnings depend on such factors as demand, hours worked, waiting time, incentives and such expenses as fuel and vehicle maintenance. Studies of food delivery revealed that gig economy can become economically unsustainable considering all these factors.

This is where the business model goes beyond charging delivery fees from customers. If the platform increases the prices to improve its margins, it decreases the number of orders from customers. If it decreases the payment to delivery partners, it gets fewer of them or they become inactive. If it increases the commissions, the restaurant can increase its prices or move customers to direct ordering.

Every decision impacts somebody else.

The Quest for Sustainability

In light of the above, it appears likely that the next phase in the development of the industry will not be marked by extravagant discounts but rather efficiency. There are numerous ways to earn more from each client without damaging the attractiveness of the network for restaurants and delivery partners.

Thus, for instance, advertising can become another income source that is not directly tied to the fees for delivery services. In addition, subscriptions can help in retaining the most frequent users of food delivery applications on the platform. More efficient routing and smarter allocation of delivery partners can bring down the costs associated with the operation of the network. Finally, in dense markets, an increase in the volume of orders in the vicinity of the client will allow raising the efficiency of the delivery network.

India represents an example of a particular interest in that regard. With its huge urban population, rapid digitalization of the economy and huge restaurant sector, it represents the perfect environment for food-delivery platforms to operate in. However, similar tensions to those seen in India exist in other countries, with restaurants having concerns about the commissions, workers – about their earnings and safety, and clients – about the total price of the service. Consequently, India can be seen as representing a bigger trend, rather than a specific national case.

However, it should be noted that certain differences can be significant. Thus, for instance, different labour laws may affect the salaries of gig-delivery workers, the level of competition may determine the price paid by the clients, restaurant markets can differ in terms of their size and structure, and even the geography of delivery can matter a lot since a dense urban centre of Asia represents completely different economics of delivery from an expansive city with low density of customers and restaurants.

Thus, Australia, for example, has been working on establishing stronger minimum standards for gig-delivery workers, with new regulations coming into effect in August 2026 that establish minimum compensation during engaged delivery time and accident insurance. While such laws may represent positive improvement for worker protection, they also show an economic trade-off underlying the entire industry: in the end, increased labour costs need to be covered either by the platform, the client, the restaurant, or the combination of all the parties.

The economics of the industry therefore depend greatly on local wages, population density, competition, consumer behaviour and regulation.

The Unsolved Problem

It has been shown above that consumers of food delivery are willing to pay extra for the convenience. However, the more difficult task is in proving that this convenience can remain affordable for the entire ecosystem while providing enough revenues to support itself.

Clients cannot be charged increasingly more, restaurants cannot give away an increasing share of their margins, and delivery partners cannot cover constantly growing costs and increase of the workload. At the same time, platforms cannot keep charging their customers heavily just to keep delivering orders to them.

Thus, the future of the food delivery industry depends on balancing between these interests. The winning platform will not necessarily be the one providing biggest discounts or delivering the quickest. On the contrary, it will be the platform able to optimize the whole system by covering more orders within the same network, by utilizing big data to lower waste of time, and generating new sources of revenues while retaining loyal customers without overcharging them.

Consequently, food delivery becomes not only the industry about apps and restaurants but a case study of the economics of our times. Consumers become increasingly willing to pay money for saving time, businesses become increasingly dependent on digital platforms to reach customers, and workers become increasingly hired via algorithms.

The question is not whether the customers will order their dinner via apps anymore.

The question is whether the economics of convenience can be sustainable for all the parties.

And every time someone presses "Place Order," they are taking part in this experiment.