VIRTUAL RESTAURANT: DoorDash Kitchens in February opened a ‘ghost kitchen’ in Redwood City, California. At least five chain restaurants are sharing the space to cater to customers who order online. DoorDash is an online third-party food-delivery service and is among the mobile-ordering operations experiencing exponential growth during the coronavirus pandemic. (Photo: Shutterstock)
Last year, DoorDash opened a ghost kitchen in Redwood City, California, part of Silicon Valley.
DoorDash Kitchens invites restaurants to operate out of a shared kitchen. Chick-fil-A is among the five tenants.
In March 2018, Pentallect Inc., a food industry strategy firm, valued the third-party food delivery sector at $13 billion and predicted it would grow by 13.5 percent a year. This includes deliveries from restaurants and grocery stores.
It is an emerging concept in the food-and-beverage industry that is experiencing an acceleration in adoption as owners and operators of restaurants, including those in hotels, are looking for ways to stay in business during the coronavirus pandemic.
The National Restaurant Association reported, because of the coronavirus pandemic, restaurants will lose $240 billion in sales and 8 million jobs this year.
LOST BUSINESS: The coronavirus pandemic has taken a dramatic toll on restaurants, as this infographic by Statista shows.
Adding a tech-driven delivery model to any restaurant, whether it’s stand-alone or inside a hotel, could generate new streams of revenue and save businesses and jobs.
Ghost kitchens are also known as virtual kitchens or cloud kitchens. They’re real commercial-grade kitchens wholly dependent on internet ordering and third-party delivery services.
Franko said the term “ghost kitchen” is a “little bit exaggerated.”
“A ghost kitchen is a simple commissary kitchen dedicated to producing food items just for delivery. At the end, it’s not such a big deal; it’s just a regular [restaurant] kitchen.”
Franko said he has a background in restaurant operations, running 25 different brands in Europe. “When I came to the U.S., I wanted to invest in something new.”
He came up with the ghost kitchen concept in May 2019 and shifted to a franchise model this past July. The Local Culinary franchisee can be a new restaurateur or an established eatery that wants to expand its operation to include delivery-only menus.
“I believe the virtual restaurant is a very important component in the future of hospitality. Other restaurant owners, unfortunately today, are suffering in the crisis that we’re in. The Local Culinary is more of a solution than a product. It’s a very nice solution for an independent chef owner or a chain to add extra revenue, which means getting extra profit as well.”
The Local Culinary’s initial franchise fee is $50,000.
Baked in the agreement is training so the establishment can consistently deliver along the many brand standards.
The Local Culinary provides tablets that manage the online ordering and delivery schedules. And it connects the restaurant operator with suppliers in their markets who can provide products that meet the franchise’s brand standards.
Franko said it takes about a month for an existing restaurant kitchen to on-board The Local Culinary operation.
During the pandemic and the ensuing economic crisis, franchisees have been eager to generate more cash flow.
The Local Culinary has setups in Florida, Louisiana and California with kitchens pending in New York City and Chicago.
“Crisis or no crisis, at the end you are always happy to get more orders,” Franko said.
The restaurant operator can literally turn the service on and off as needed. For example, if the established restaurant runs a successful Sunday brunch and has no time to run another business, the operator can turn off The Local Culinary tablet and re-activate when the Sunday surge has eased. “You are free to do what you want at the end,” he said.
MOBILE MENUS: Uber Eats mobile app is among the fastest-growing trends in the restaurant industry as more and more consumers are using meal-delivery apps to order from their favorite restaurants during the coronavirus pandemic. Many full-service restaurants are adding to-go options to their regular menus.
Two years ago, UBS, a global investment bank, reported online food ordering and delivery could rise more than 20 percent to $365 billion by 2030.
DoorDash recently raised $2.5 billion from investors in advance of its impressive initial public offering on Dec. 9 when it raised $3.4 billion.
The food delivery scene has been frothy with other activity.
Just Eat Takeaway, a European delivery company, recently bought Grubhub for $7.3 billion.
Uber Technologies on Dec. 1 acquired Postmates for $2.65 billion in an all-stock deal.
In May, Uber lost nearly $3 billion in its ride-share business but saw Uber Eats revenue increase more than 50 percent. And in the third quarter of 2020, Uber Eats revenue increased by 135 percent over the year-ago quarter.
In a third-quarter earnings call, Uber CEO Dara Khosrowshahi said the growth in Uber Eats represents a fundamental behavioral shift in consumer food buying. He expects online ordering of food and delivery will continue post-pandemic.
GROWTH MARKETS: Pentallect Inc., a food industry strategy firm, predicted two years ago that food-delivery business would increase 13.5 percent a year.
UBS researchers said the trend would be driven by millennials who depend on mobile apps to provide services that make their lives easier.
But Franko said while millennials are driving the food delivery trend, the customer demographic has widened during the pandemic as people of all ages and socio-economic brackets turn to online ordering and at-home delivery.
Though many people will go back to in-person dining post-pandemic, the new customer habit is here to stay.
FULL SERVICE AT HOME: The Macintosh in Charleston, South Carolina, is among The Indigo Road Hospitality Group’s stand-alone full-service restaurants. The photo is from pre-pandemic days when the business thrived on indoor dining. These days, The Macintosh and other restaurants in The Indigo Road’s portfolio include online ordering and delivery as the business shifts to catering to consumers who want to enjoy a chef-created meal at home.
Most of The Indigo Road’s 20-plus restaurants have remained open during the pandemic and Palmer says top line revenue is half of what it was last year.
“I think ghost kitchens is a great conversation,” he said, noting the operation can be in industrial parts of town where rent is cheaper. “Most customers aren’t even aware of where their to-go food has been prepared.
“I think it’s going to come down to cuisine. At a high-end steakhouse, it’s hard for somebody to wrap their head around a $75 to-go box,” he said. “But what we’ve learned seven months into the pandemic is that sushi is a good candidate, because it’s not what someone is going to make at home.”
Palmer’s full-service restaurants have come up with ways to cater to customers who desire high-quality food delivery, including creating butcher boxes of uncooked steak that can be prepared at home.
Most of The Indigo Road restaurants are in the southeast U.S. and have been able to offer outdoor dining. But the delivery business is expanding to the point that Palmer has changed its operations model to some extent.
“We have redirected team resources,” he said, noting there are employees dedicated to managing the to-go operations.
He has not had to invest in new technology because the restaurants depend on food-delivery apps to generate orders.
But the restaurants have changed their messaging on advertising and promotions.
And he and his crew have adjusted what they think good customer service looks like.
“We had to pivot and learn to be in a whole different business,” Palmer said. “Pre-COVID, there wasn’t a lot of energy in to-go packaging, not only making sure food stays hot, but the way it’s presented. So we’re investing a whole lot more energy in presenting what comes to your door, what food looks like when it gets there, and what food items do and don’t travel well.
“We’ve had to be a lot more thoughtful and a lot more engaged in the to-go space.”
Though Palmer expects dining-out to return post-pandemic, he also believes online ordering and delivery are here to stay.
Franko agrees and notes he founded The Local Culinary long before the pandemic altered reality.
No matter what is driving the trend now, “I think it’s time for a new solution, for a new revolution in hospitality,” Franko said. “The world is changing; the hospitality sector is changing as well; and virtual restaurants are a very important part of it.”
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