I Ain’t Afraid of No Ghost (Kitchen)

-- Originally published August 15, 2020 --

As Jorge Hernandes arrives at his destination in a darkly lit industrial complex off the beaten path in North Miami, he sees a small sign that says “pick up here”, Jorge enters the facility where about 7 other delivery drivers await, all of their names listed on the wall with real time updates tracking where their orders are in the kitchen. He notices in the back several separate units, each has its own prep area, kitchen and packing station. The to go bags leaving the facility are all adorned with different brands and contain different cuisines from new restaurant brands never heard of before.?

There are thousands of these new “virtual” restaurants popping up in cities all over the world, restaurants that have no actual retail presence, just a bare bones kitchen placed in stripped down spaces with extremely low rent and overhead, the popular term for these phantom restaurants are “Ghost Kitchens”.

I may have been a little too early to the party. Back in 2015 I developed a business plan, menu, recipes and brand together around the first of it’s kind concept for a delivery only restaurant that sold Asian food packaged in the familiar Burrito, Taco, Rice Bowl and Salad formats. The name of the concept was Yawa (away backwards). My takeaway / delivery only concept was centered around disintermediating the concept of the typical restaurant brand. The idea centered around creating an online only persona, going direct to consumer with beautiful pictures of our food on carefully styled tables all set in what looked to be a trendy fast casual restaurant. However there was no actual restaurant, no expensive retail location, no expensive build out, no front of house staff, no big investment and low rents. What would have cost $500k on average for a typical Fast Casual restaurant, would have cost me about 1/10 of that for a “virtual” restaurant. The opportunity to scale my brand and service area to multiple regions quickly at a low cost could easily become a reality, as well I’d be adding other virtual restaurant concepts to my ghost kitchen as now resources like labor, space and ingredients could all be shared.

I planned on building out a robust app which handled the logistics for the pickup and delivery for the food. To say the least, it was a major undertaking to create a stand alone logistics ecosystem, but now with the advent of delivery only platforms such as Doordash, Postmates, UberEats, Caviar and Grubhub, my dream of a delivery only concept has become a reality for hundreds of new virtual restaurant brands popping up on these platforms every month.

In addition to using cheap industrial kitchens located in low rent commercial spaces, there are other creative ways brands are building out virtual kitchens quickly and economically:

Pods:?

Starting at $75k, shipping containers can be transformed into sophisticated kitchens ready to produce high volumes of food to go. These pods can be placed almost anywhere in order to quickly expand their service area.??

• Companies like Kitchen Podular specializes in developing customized Ghost kitchens in shipping containers that could be placed anywhere, “Kitchen Podular is a build-from-scratch pod (also known as a ghost kitchen) designed with lockers for order pickup, a make-line for food preparation and plenty of room for employees. These podular kitchens are changing the way restaurants view their off-premise business, and signaling a new direction for the industry.” – Off-Premise Insights.?
• An emerging player in the space, Reef Technology , has utilized? their? network of parking lots where they place food truck like trailers / pods that each house several virtual restaurant concepts. Burgerfi and Nathan’s hot dogs are just a couple of large brands taking advantage of Reefs pod kitchens to expand their reach.

Existing restaurant kitchens:?

With the Covid 19 pandemic underway the bulk of all restaurant dine in business has unfortunately disappeared, this leaves many restaurants with ample space and resources to reinvent the use of this remnant space to earn ancillary? revenue.?

• A new startup called Virtuant Brands has developed a portfolio of self owned virtual restaurant franchise brands that brick and mortar restaurant owners can buy into and launch within their existing kitchens, taking advantage of off peak kitchen hours to fulfill delivery only orders.?
• Another concept picking up steam is national restaurant chains developing new wholly owned brands using their existing kitchens, such is the case with Chuck E Cheese launching their new virtual brand Pasqually’s Pizza & Wings .? Overnight, they launched their new concept on all delivery platforms in 400+ locations.?
• Lastly, connecting brands with Host kitchens who have extra kitchen resources has also been gaining traction , recently Nathans struck a deal with Ruby Tuesdays to offer their signature hot dogs and other dishes throughout their chains, making Nathans immediately available to areas never before served and with virtually no startup costs.

Even with the massive reduction in upfront investment, delivery platforms charge high fees and this sector of business? is typically not as high volume as brick and mortar. However, Covid has caused triple digit growth in delivery as most of the? population stays away from dining in. If you’re a restaurant brand that does not have a virtual presence, I’d rethink your strategy quickly or you might get left behind in the dust.

Future Trends:

I’d like to provide a glimpse into the future of what’s next in the world of Ghost kitchens.

• Commoditization of food: With extremely low barriers to entry, many copycat or knock off brands will start to pop up. When it comes to food, I can tell you first hand it’s not magic, a good chef can duplicate and add value to any existing concept on the market. For example, Wings are trending right now; I expect a plethora of wing focussed brands to open which will thin out existing leaders market share.?
• Stand out with the Experience: Experience is one of the most important pillars to the success of any retail concept, and this is even more true with restaurants. Great food triggers emotions and these feelings set in a restaurant with the right experience is the reason customers fall in love with a brand, what keeps them coming back, looking forward to more. Since virtual restaurants don’t typically have any experiential offerings they must compensate with beautiful packaging, strong online presence and diligent customer service.?
• Realistic online personas: While virtual restaurants might not have an actual place to sit and enjoy a meal, their online presence might look like they do. Attractive people sitting in a mock restaurant, pictures of food on a well arranged table and other tricks will be used to portray the image of a popular restaurant in order to attract more customers to an online only brand.
• Micro Brands: New virtual coffee, juice, dessert, and pastry? concepts will start to emerge as add-on products that can be offered with existing delivery orders. To deliver one cup of coffee or a donut to a customer may be a bit inefficient, however if that order can be bundled with one of your other orders or a nearby neighbors order, it’s a win win.
• Amazonification of the space:Unfair advantages and competition by the big delivery platforms – These delivery platforms own their data, they know what works, at what price, what the preferences of their customers are, so just like Amazon created AmazonBasics to compete with 3rd party vendors on their site, so will the big delivery platforms with their own virtual restaurant concepts.Big investments in developing and acquiring virtual brands: Delivery platforms will compete by creating or acquiring popular concepts wholly owned and available exclusively on their platform, akin toNetflix and their proprietary content which keeps the platform sticky.Well known brands will matter less: With so many new brands popping up, ratings and price will matter more and existing brands will matter less. Think of how Amazon, with their jungle of vendors for each product, the best ratings rise to the top and the lower ratings fall to the bottom. Many no named brands have thrived on Amazon because of their ability to acquire lots of great ratings.
• Consumer data value and precise targeting with AI: Consumer data is an extremely valuable asset.? As platforms start to obtain data they will begin to target customers’ tastes and preferences through software that uses AI/Machine Learning. Upsell opportunities and precise targeting will add $’s to average check sizes by offering items that will likely appeal to that customer. Gender,demographics, and consumer psychology, also will play an important role. For example knowing if someone is a value shopper.? “A value shopper is someone who is looking for the best possible value for the cost of the product or service. That doesn’t necessarily mean that they are looking for the lowest price, it means that they are focused on the value per dollar they spend.” Software will understand this mentality and target these Value Shoppers with deals that appear strong,but might still maintain a high margin.
• Robotic delivery: Drones, self navigating cars or rovers bringing food directly to customers, cutting out the cost of human drivers.
• Robotic cooks: Concepts developed around kitchen automation that can be cooked or partially cooked by robots will cut down food production costs. Spyce, a Boston eatery where robots cook meals, used innovative cylindrical wok chambers where ingredients were precisely dispensed into each and cooked to spec. These cooking chambers were automatically cleaned and ready for the next meal all without the assistance of humans.
• Tracking of orders like the package service companies (UPS/FedEx):: Think of a meal going through each possible step from start to finish tracked in real time.?Barcodes / RFID’s can be scanned through each step of the process, from the time the order is printed out, each station will scan that dish as it moves through. The benefit of using RFID’s is that the worker does not need to scan a barcode, antennas will pick up each item in the order as a granular item which together will compose one order. As the final packed bag gets picked up by a runner or driver, all elements of that order with their RFID tags will be read by an antenna and if any items are missing there will be an alert.As each item goes through the cooking process this data is relayed to the customer as well to the delivery platform.? Delays in the kitchen can cause dynamic shifts to allow for drivers waiting to deliver other orders and have a new delivery driver assigned to allow for better network efficiency. .
• Product Innovation: New innovative concepts that normally would be killed due to the high cost of building out a traditional restaurant will now see the light of day, If you can dream it, you can make it.Wonderful new concepts from tech startups will use cultured meats and dairy grown in labs. Food science will open our eyes to unbelievable new culinary experiences that appeal to customers with special dietary considerations and using sustainable ingredients.
• Non-traditional delivery packaging and self assembly: A large? issue in food delivery is the integrity of the food itself as it journey’s to the end customer.Food will be packaged in ways to separate certain ingredients which will then be combined at home by the customer. For example, a hamburger patty will be separated from the bun to keep it from getting soggy.Well written clear Instructions for reheating, putting some of the responsibility into the hands of the customer to reheat or prepare the food to get best results.Food that is raw or partially cooked will be finished cooking by the customer at home. Brick & Mortar: Many new brands will start off as delivery only virtual restaurants, first proving the concept while successful brands will open flagship brick and mortar locations to give their customers a proper experience. Warby Parker was among the first DTC brands to open up physical retail locations, many others successfully followed suit.
• More robust delivery platform experiences:Improved custom branding/design of restaurant listings on the platforms.??Cross merchandising opportunities with other ghost kitchen neighbors.Improved CRM features and customer follow up.
• Virtual Restaurant Incubators: Many new restaurant incubators will give budding chefs/entrepreneurs the opportunity to launch their own concept with little to no startup cost by simply taking a percentage in the concept. They will offer growth through their resources and access to VC money to scale out these brands.

Although there’s so much more I could share in this space, I’ll leave you with this. The future looks bright for virtual restaurants, even more so in the post Covid world. Technology has disintermediated so many industries and now restaurants, making it very efficient to pull off this monumental task of a sophisticated delivery network. As technology improves, costs will come down further, greatly benefiting the customer but also the competition. Brands must stay agile, smart, offer better service, food, experience and own their own intellectual property in order to remain at the top.