This week, The Spoon gathered a wide variety of restaurant industry players together to discuss the most pressing questions the restaurant biz faces right now around ghost kitchen adoption. Throughout the day-long virtual event, restaurant operators, tech companies, virtual restaurant owners, and ghost kitchen providers themselves weighed in on a range of topics, from the economics of going the ghost kitchen route to building a delivery-friendly menu to the tech powering the concept.
One of the most recurring questions to surface during the event was this: Do you still need a physical restaurant in order to make the economics of a ghost kitchen operation work?
Panelists almost unanimously agreed that, at least right now, you do.
“If you go on a delivery app only and you don’t have a brick-and-mortar presence, you better have brand equity,” Andy Wiederhorn, CEO of Fat Brands, emphatically stated during the event. And that brand equity is not easy to build. (More on that in a minute.)
Others pointed to the industry’s reliance on third-party delivery apps (DoorDash, Uber Eats, etc.) as a huge hurdle to running a 100 percent delivery-only restaurant that actually makes money. “When you move 100 percent delivery only, the economics you have with third-party platforms is going to matter more,” said Kristin Barnett, Head of Strategy for NYC-based Zuul Kitchens. On the same panel, Kitopi cofounder and chief revenue officer Bader Atul agreed there is a “strain on profitability” when you attempt to limit a restaurant’s entire existence to third-party delivery apps. This is because it’s difficult to offset the sky-high and highly controversial commission fees delivery services charge restaurants (up to 30 percent per transaction, in some cases).
For now, at least, restaurants should consider what multiple panelists called the “omnichannel” approach. Some ghost kitchens, like those of Kitchen United and Boise’s recently opened Crave Collective facility, offer pickup options in addition to delivery. Big brands, meanwhile, have the obvious advantage here, since they have deep pockets and a long history of brick-and-mortar business to go alongside delivery. If they’re not already in a certain market, as Chick-fil-a wasn’t when it started serving the California Peninsula area via its DoorDash Kitchens operation, existing brick-and-mortar presence elsewhere can offset the cost. However, Zuul’s Barnett pointed out that smaller restaurant chains, such as those that operate out of Zuul, can also take advantage of the omnichannel approach.
Other ghost kitchen providers, including Kitopi and Reef, operate off an entirely different model from the normal commissary kitchen by handling all of the operations of fulfilling an order and the restaurant gets a royalty fee. This method provides restaurants the opportunity of trying a ghost kitchen operation out without having to commit their own labor to the process.
Still others, including Alex Canter of Ordermark and Nextbite, suggested we are fast-headed towards a day when running a 100-percent delivery-only restaurant will be not just feasible but the norm. Nextbite, one of his companies, operates a portfolio of delivery-only brands and helps restaurants add these brands to their own operations. During this week’s event, Canter referenced one Nextbite client that had incorporated five of those virtual concepts into their restaurant and were doing “10 to 15 times more revenue through those brands” than via their own. He said more and more, his company hears clients ask whether they even need their brick-and-mortar stores anymore.
But part of the success of a virtual brand will depend on how well it can build the aforementioned brand equity—another major takeaway from this week’s event.
Multiple panelists agreed that running a restaurant out of a ghost kitchen is more than simply sticking a menu online and waiting for the customers to come. They won’t, if an online menu is the long and short of your branding efforts. Just as with brick-and-mortar restaurants, virtual eateries in ghost kitchens and/or dark kitchens need their own “brand identity,” to use a marketing cliche, something that sets it apart from the dozens of other similar options out there.
We returned to a chicken wings example again and again throughout the day. Your virtual chicken wings joint needs a compelling story around its origins, ingredients, and even basic marketing components like name and visual representation. Without those brand identity elements, your virtual chicken wings restaurant has little chance of standing out amid the dozens of other chicken wing offerings on delivery marketplaces. See ClusterTruck, who was at our event, as an example of a company that has mastered the art and science of branding a virtual restaurant.
Our event covered dozens of other topics outside of these two big takeaways. To watch videos of the panels and access more content, head over to our Spoon Plus channel and become a subscriber.