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The Spoon

Daily news and analysis about the food tech revolution

Ghost Kitchens

Deliveroo Raises $180M, Nabs $7B Valuation

Deliveroo announced this week it has raised over $180 million in Series H funding from existing investors. The round was led by Durable Capital Partners LP and Fidelity Management and Research Company LLC. With it, Deliveroo is now valued at over $7 billion, according to an official company statement. 

The new funds come ahead of Deliveroo’s initial public offering, which is expected to happen in the next few months.

The London, U.K.-based company said it would use the new funds to “further drive growth and enhancements to its services for restaurants, riders and consumers.” Examples of those areas include expanding Editions, Deliveroo’s delivery-only kitchen sites, expanding its grocery delivery service, and expanding its Plus subscription service. The company also said it would offer more restaurants its Signature service, which lets customers order via a restaurant’s own website.

It’s a shift from several months ago, when Deliveroo had to cut 15 percent of its staff in response to the pandemic. Also around that time, U.K. regulatory watchdog the Competition and Markets Authority approved Amazon’s highly scrutinized investment into Deliveroo, saying the delivery business could collapse without the funds. 

But, like other third-party delivery services around the world, Deliveroo has wound up faring very well so far throughout the pandemic. Will Shu, Deliveroo’s founder, told The Guardian in December that COVID-19 had “accelerated consumer adoption of food delivery services by about two or three years,” and that order volumes for the service in the U.K. and Ireland were double those of 2019. In the same interview, Shu also said his company had been profitable “at the operating level” for about six months.  

Currently, Deliveroo operates in 12 countries, including a number of Western European nations as well as Singapore, Australia, and the United Arab Emirates. Its main competitor, Just Eat Takeaway.com, operates in many of the same markets.

Restaurants Hate Third-Party Delivery Services, Actually

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When it comes to talking about the year 2020, one of the things third-party delivery services like to say is that they were “a lifeline” for restaurants that might have otherwise had to shutter permanently due to dining room closures and restrictions. 

Plenty have disputed this over the last several months. But perhaps no one has lately been more to-the-point about the matter than Recode’s Kara Swisher, who hosted Uber CEO Dara Khosrowshahi on her Sway podcast this week.

“You’re not allowed to get away with saying you’ve been a lifeline to restaurants,” she told Khosrowshahi early on.

Swisher noted the oft-cited figure, that delivery services charge restaurants commission fees of up to 30 percent of a single transaction for use of their services. Khosrowshahi countered by saying Swisher’s math was “incomplete” and that the 30 percent is “untruthful” when it comes to representing what restaurants are actually on the hook to pay delivery services. According to his math, restaurants pay Uber Eats 13 percent per transaction “net of the courier.” If restaurants want to use their own couriers, the commission cost is “about 15 percent.”

But as Swisher suggested, even those lower numbers are harmful to restaurants, which typically operate off margins that are about 3 to 5 percent. That irreconcilable math is one of the reasons cities across the U.S. have introduced mandatory caps on commission fees, some as low as 10 percent.

Pre-pandemic, the argument was that if a restaurant took issue with high commission fees, they could simply opt out of doing delivery. That argument holds no water now, though, since the pandemic essentially forced restaurants into doing delivery and most do not have the money or expertise to build an in-house delivery business. Actually, most can’t even afford their own courier fleet.

It’s also worth pointing out that while Khosrowshahi called the 30 percent commission fee “untruthful,” he never actually offered a hard number around how high an Uber Eats commission fee reaches when a restaurant is using a courier, as most are. If anything, his cagey response of “13 percent net of the courier” seems to confirm the 30 percent commission fee’s existence.

Uber Eats had a big year in 2020. It more than doubled its revenues and even acquired a competitor, Postmates, towards the end of the year. Khosrowshahi himself said the service had a $40 billion-plus run rate and would be larger than the company’s mobility business in 2021.

Conversely, the restaurant industry has lost $240 billion in sales and is still 2.5 million jobs below pre-pandemic levels, according to the National Restaurant Association. A total of 110,000 restaurants in the U.S. have closed, which is about 17 percent of the nation’s restaurants total.

Khosrowshahi defended his company’s approach to restaurant commissions, using words like “reasonable” and “fair” to describe them. To which Swisher simply pointed out that most restaurants she speaks with disagree, and only use the Uber Eats and Caviars of the world because the pandemic has forced them to.

“They hate you,” she concluded, flatly, before using the phrase “menace economy” to describe the environment in which restaurants must now operate to stay in business.

Here’s How the Restaurant Biz Survived 2020

I know most of you would rather forget 2020 ever happened, but it never hurts to look back before going forward, which is just what the National Restaurant Association did this week. The trade group published a list of top trends it says kept many restaurants in business last year while the pandemic wreaked havoc on the industry.

The 10 trends that made the list were based on those found in a survey The Association did of more than 6,000 restaurants and 1,000 adults. The majority of the trends on the list are directly related to helping restaurants “keep their businesses open and employees on the payroll,” as The Association puts it.

The full research post is worth a read. This being The Spoon, I’ll highlight a few items that made the list that illustrate how tech-forward the pandemic has made the restaurant biz in recent months:

  • “Streamlined menus.” Part of this is related to the actual food: restaurants needed a way to reduce inventories and fulfill items faster, and “pare down your menu” became a mantra for many early on in the pandemic. However, streamlined menus also have to do with offering food that travels well, for pickup and delivery orders, and not overwhelming digital customers with choice paralysis as they view menus via their own mobile devices.
  • “Off-premises foodservice takes precedence.” The Association noted that before the pandemic, 80 percent of full-service restaurant traffic was on-premises. The change restaurants were forced to make to delivery and takeout formats in March, when shutdowns first started, rippled across the entire industry and is now more or less ingrained in operations. Which is to say, even when restaurants are operating at full dining room capacity once again, off-premises will be an important part of any restaurant’s strategy. 
  • “Selling groceries.” This started early in the pandemic when restaurants began selling inventory unused because of shutdowns, and doing so via off-premises channels like delivery and drive-thru. The Association’s survey found that “more than half of consumers” would consider buying grocery staples (produce, dairy, meat) from restaurants themselves if those items were offered. Little wonder, then, that third-party delivery services like DoorDash and Uber Eats added grocery delivery to their businesses in 2020.

Other trends in the restaurant industry — ghost kitchens, virtual restaurants, better back-of-house tech — are woven into the more general trends on The Association’s list. For example, a shift to off-premises foodservice will inevitably mean more ghost kitchens. Pull up a virtual restaurant menu from just about anyone these days and you’ll find it’s decidedly streamlined. 

“We now know that three things are certain: the pandemic tested the limits of operator creativity and knowhow, accelerated tech adoption and emerging trends, and confirmed that customers sorely miss their restaurant experiences,” says the report.

With a widespread vaccine still months away (at least) and restrictions still in place for the majority of dining rooms, these trends that helped us survive 2020 will also start to shape 2021 and beyond. 

Restaurant Tech ‘Round the Web

Panera is the latest major chain to announce plans to go all-in on ghost kitchens. The brand said this week it also has mobile kitchens, redesigned drive-thru lanes, and a virtual catering business in the works.

Fat Brands, meanwhile, is doubling-down on its existing ghost kitchen strategy. The company said at an ICR presentation this week that it plans to open a dozen ghost kitchens in 2021.

Restaurant tech provider Perfect Company raised $6 million for its solution that brings automation to the front of house, back of house, ghost kitchens, convenience stores, and other foodservice areas. 

Kitchen United Plans a Massive Expansion for Its Ghost Kitchen Network

Kitchen United will expand its ghost kitchen network significantly in 2021, the company said during a talk at this week’s ICR conference (h/t Restaurant Dive). Michael Montagano, KU’s CEO, said he expects the company to grow its number of locations from its current four to 20 by the end of the year, which would equal 500 percent growth for KU in total units.

The company currently operates ghost kitchen facilities in Pasadena, California and Chicago, Illinois, as well as in Scottsdale, Arizona and Austin, Texas. According to Montagano’s ICR presentation, Kitchen United’s 2021 expansion will include new facilities in those existing “high-volume” markets as well as kitchen facilities in completely new locations, like New York City and the San Francisco Bay Area.

Plans for this massive expansion come as restaurants continue to struggle with closures and capacity restrictions brought about by the pandemic and the industry continues shifting en masse to off-premises formats like ghost kitchens and virtual restaurants. And even when those limitations are lifted, general consensus is that meal formats like takeout and delivery are here to stay, which means more restaurants will continue seeking kitchen space in which to fulfill those orders.

Underscoring the demand for more kitchen space, Montagano said during ICR that Kitchen United’s existing facilities are full, and that existing customers want to continue growing with the KU platform. To date, Kitchen United’s facilities have served most known brand names, including The Halal Guys, Dog Haus, and Wetzel’s Pretzels. A move to more and different parts of the country may allow more regional chains to take advantage of the company’s kitchen infrastructure, too.

In larger cities like New York and San Francisco, Kitchen United will have plenty of competition. Zuul is already an established player in New York City, with plans for expansion around the five boroughs. San Francisco has the super-secretive CloudKitchens, Reef, which raised a whopping $700 million last year, and, in the Peninsula area, DoorDash Kitchens.  

Pret A Manger and Cuisine Solutions Launch a Sous Vide Ghost Kitchen in NYC

Cuisine Solutions, which manufactures and distributes sous vide food products, announced this week via an email that it has teamed up with cafe chain Pret A Manger to open what it’s calling a “dark assembly kitchen” (DAK) in New York City. 

Dubbed CS DAK, the ghost kitchen-like operation will offer multiple food concepts for delivery through the major third-party delivery platforms as well as via the CS DAK website. 

Since all food available through CS DAK will be sous vide cuisine from Cuisine Solution’s product inventory, the assembly process for orders will be minimal. Fully cooked food will arrive at a Pret A Manger location in Midtown Manhattan, which will serve as the official first facility for this operation. Pret A Manger staff at that location will assemble the menu items and package them for delivery. There is no from-scratch cooking involved in the process.

CS DAK will offer four different concepts to start:

  • Cocina Oscura and Mediterranean: Build-your-own Mexican or Mediterranean bowls, salads, and wraps
  • Poultry in Motion: Sous Vide Egg Bites and chicken dishes
  • Bodega: A high-end take on the ready-made meal
  • The Cutting Edge: A variety of high-end international dishes

Cuisine Solutions said in today’s press release that customer can expect Asian, Italian, and BBQ-based sous vide concepts to join the above list in the future. 

The launch of CS DAK is another example of existing restaurants licensing virtual concepts as a way to create some additional revenue as the restaurant industry continues to struggle with indoor dining closures and restrictions. This idea became more widespread towards the end of 2020. Wow Bao, for example, licenses its own menu to other restaurants, which can assemble food items from their own kitchens and send them out for delivery. Also noteworthy in this space is Odermark, which raised $120 million for its NextBite platform that pairs restaurants with delivery-only brands to help them increase revenues. At a recent Spoon virtual event, Ordermark’s CEO Alex 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.

For its part, the CK DAK concept will be available for delivery for Manhattanites starting this Thursday, January 7. The concept will likely launch at additional Pret A Manger locations in the near future.

2020: The Year the Ghost Kitchen Got Complicated

As an old saying goes, “Anything can happen, and most usually does.”

And it sure did happen in 2020 for the restaurant industry. Pandemic. Dining room shutdowns. Permanent closures at alarming rates. A seismic shift to takeout and delivery formats. More shutdowns. Complete uncertainty over the state of indoor dining coupled with growing panic over the state of the independent restaurant. 

Personally, I think it’s foolhardy to try and meaningfully condense what happened to restaurants in 2020 into a few hundred words. So as we close out this dumpster-fire of a year and head to 2021, I’ll pinpoint one part of the biz that’s been talked of constantly these last several months: ghost kitchens.

Right around the end of 2019, we were already fixated on the ghost kitchen. In a predictions piece I wrote at the time, I said, “This is part of the restaurant industry that will change rapidly over the next year as it becomes more commonplace among both restaurants and consumers.”

All that wound up being true in 2020, not because I’m some predictions wizard but because a global health crisis forced the restaurant industry into off-premises formats like takeout, delivery, and drive-thru. Because these formats don’t require a dining room to function, they are inherently suited to the ghost kitchen setting. Ghost kitchens, after all, were designed to serve to-go customers, typically those ordering through mobile apps and other digital properties. 

But one thing that was made clear in 2020: ghost kitchens are not the end-all, be-all savior of the restaurant industry. In fact, throughout the year, multiple restaurant industry figures raised questions about the commissary model in particular.  

Back in March, when COVID numbers were initially rising, former Kitchen United CEO Jim Collins cautioned restaurants to think hard about whether their business generated enough demand to justify the cost of a ghost kitchen operation. Similarly, Andy Wiederhorn CEO of Fat Brands, said in July that ghost kitchens “simply work better for brands that have existing fanbases” (a point he repeated at our ghost kitchen event earlier this month).

I bring up these reservations not to further cast a cynical shadow but to illustrate another important takeaway from 2020: that because there are still so many uncertainties for restaurants over the traditional commissary model, other forms of the ghost kitchen concept have emerged that make running an off-premises business more feasible for more types of restaurants. 

Over the last year, we saw the growing popularity of the so-called “dark kitchens.” These are underutilized kitchen spaces restaurants are using to fulfill their delivery and off-premises orders. Fat Brands is one notable example of a company using its own restaurants as dark kitchens for sister brands. Ordermark/NextBite, meanwhile, built out its business this year of pairing restaurants with unused kitchen space in order to deliver (literally and metaphorically) more meals from virtual restaurant concepts. Another great example is Hi Neighbor, a San Francisco restaurant group that had to close because of the pandemic. Its response was to use one of its shuttered kitchens to accept and fulfill delivery orders for its own virtual concepts. Hi Neighbor is just one local example of a trend happening nationwide.

In the second half of 2020 (right after Euromonitor predicted the ghost kitchen market would be worth $1 trillion by 2030), we saw massive amounts of investment dollars flow into the space, from Zuul’s $9 million fundraise to a $120 million investment in the aforementioned Ordermark to the $700 million raised by Reef. There were plenty of other financial milestones in between those figures.

Alongside those investments, even more formats emerged of what a ghost kitchen might look like and how it could become more efficient. ClusterTruck, which has operated a vertically integrated delivery business for years, teamed up with Kroger to turn the latter’s deli counters into a kind of ghost kitchen. More recently, Crave Collective opened in Boise, Idaho to show us what a fine-dining take on a ghost kitchen looks like. And the QSRs, finally got onboard, with everyone from Chipotle to McDonald’s unveiling new store formats that minimize or eradicate the dining room and are in effect their own version of a ghost kitchen.

The most unanimous takeaway of the year was this: the ghost kitchen, in its various forms, is here to stay. We may be inching closer to a widespread vaccine for COVID, but the restaurant industry has already completed the shift to off-premises-centric businesses. There’s no going back at this point.

Even so, we leave 2020 and enter 2021 with plenty more questions when it comes to how one best runs a ghost kitchen. What is the role of the chef — an artist, by rights — in this off-premise-centric new world? How long will ghost kitchen operations be tied to third-party delivery services increasingly bent on calling the shots for restaurants? What about the mounds and mounds of packaging waste being generated by all this innovation?

If 2020 was a year about making the ghost kitchen more efficient, 2021 should be about the role the ghost kitchen plays when it comes to the restaurants, chefs, drivers, and other people whose livelihoods are now tied to it.

MrBeast Burgers’ Overnight Success Actually Holds Some Lessons for Aspiring Virtual Restaurants

You know the virtual restaurant movement is catching on when a famous YouTuber gets involved and their efforts are a massive overnight success. This week, Jimmy “MrBeast” Donaldson, teamed up with a company called Virtual Dining Concepts and launched a virtual restaurant brand called MrBeast Burgers. The restaurant is already serving 300 locations across the U.S., according to a press release sent to The Spoon and a very excited tweet from Donaldson from the weekend:

https://twitter.com/MrBeastYT/status/1340425884344463360?s=20

Donaldson is a YouTuber who is as famous at this point for his large charitable donations and other philanthropy as he is for his online stunts. He unveiled MrBeast Burgers over the weekend via his own YouTube channel and a one-day pop-up event in Wilson, North Carolina, where he gave free food to, well, thousands, it seems, along with some iPads, cash, and a new car.

Those interested can get the delivery-only menu via the MrBeast app and on the major third-party delivery platforms. Virtual Dining Concepts said in this week’s press release that it worked with Donaldson’s team to create the menu, which includes burgers, chicken sandwiches, fries, and other quick-service staples. 

Restaurants can add the MrBeast menu to their existing operations and essentially run the restaurant out of their own kitchen. The concept isn’t brand new. Wow Bao and others have been running similar “dark kitchen” businesses for some time. However, the MrBeast brand’s popularity may push the concept into the mainstream, given the practically overnight popularity of the initiative.

As to the quality of the actual food, the initial response is a patchwork at best. My very unscientific glance at some recent tweets turned up everything from complaints about the high prices and uncooked meat to high praise and overseas followers begging for international locations.

Even so, the whole thing is another piece of evidence that branding is critical for virtual restaurants to be a success. We talked about that at length a couple weeks ago at our ghost kitchen event (you can view the sessions here), with the majority of restaurant industry panelists agreeing that it’s much easier to start a virtual restaurant operation when you have an existing platform and recognition. Otherwise you’re just the random dude who wants to sell chicken wings but can’t stand out from the masses of folks trying to do the same thing.

Jimmy Donaldson is not a chef, but nor is he a random dude, as his nearly 49 million YouTube following can attest. But overnight success and longevity are two distinctly different things. The big takeaway here for anyone wanting to launch a virtual restaurant is that the food, customer service, speed, and efficiency matter more than ever in today’s to-go focused restaurant industry. Fifty million fans is one thing. Fifty million fans that love you because of your food is an entirely different, and more difficult, feat to pull off.

The Food Tech Show: Ghost Kitchens are Complicated

In this week’s podcast, the Spoon team talks about some of the lessons learned from last week’s ghost kitchen deep dive.

One of the key takeaways from the day is there are lots of different approaches to rolling out a ghost kitchen strategy. Some operators simply leverage unused kitchen space in their own facility to roll out a single virtual brand, while others partner with a full stack ghost kitchen operator that has everything from the kitchen space to optimized tech to fully realized and operational virtual restaurant concepts ready to go.

The bottom line? The ghost kitchen market is changing quickly and strategies are becoming more nuanced as restaurants explore ways to tap into the benefits of this new model.

Jenn summarizes the day in a couple posts. You can also watch the full sessions here if you are Spoon Plus subscriber. Or, you can just listen to this podcast!

Other stories we talk about on this episode include:

As always, you can find The Food Tech Show on Apple Podcasts or Spotify. If you like the show, please give us a positive review!

You can also listen to the show below by clicking play.

‘Just Do What Domino’s Did’ – Takeaways From The Spoon’s Ghost Kitchen Deep Dive

It’s our weekend restaurant tech news wrapup. You can subscribe to our newsletter here to get this delivered to your inbox.

And now for some final thoughts on The Spoon’s ghost kitchen event, which we held this past Wednesday.

For the (virtual) event, we gathered restaurant operators, tech companies, ghost kitchen infrastructure providers, and thought leaders together to discuss not just the promise ghost kitchens hold for restaurants, but also the realities those businesses must face when using this model.

Last week, I covered a couple of the major points made at the event around building a virtual restaurant brand and the risks of relying on a 100-percent delivery-only operation. 

To top that off, here are a few more noteworthy points raised by event panelists and attendees throughout the day:

Ghost kitchens and virtual restaurants are here to stay. Many of the developments in recent months have been in reaction to the pandemic, but the ensuing focus on ghost kitchens, delivery, and virtual restaurants will stay long after vaccines have been administered. Huge numbers of consumers have found new ways to interact with food via online channels. Even when it’s safe to dine inside a restaurant again , those new behaviors will continue driving the industry towards the off-premises model.

There is a lot of under-utilized kitchen space out there. From extra space in existing restaurant kitchens to hotel facilities to coffeeshops not open during dinner time, plenty of kitchen infrastructure already exists for restaurants to turn into a ghost or dark kitchen operation. The benefit of this route, versus renting space for a commissary, is that restaurants can leverage fixed costs that are already there. For example, if you are running a virtual brand out of an unused part of your own kitchen, you’re not paying for additional electricity, staff, or equipment. As restaurants plan for off-premises orders and virtual brands, they should consider the infrastructure assets they already have as an important factor in determining how to approach the ghost kitchen question. 

Third-party delivery: Love it or hate it, we still need it. More than one panelist felt that, despite high commission fees, restaurants need third-party delivery services right now. Some went as far as to say the industry would have been decimated over the last nine months without them. Others said restaurants need third-party delivery services in the initial stages of an off-premises/ghost kitchen strategy because of the visibility these services are able to provide via their online marketplaces. 

However, restaurants absolutely must invest in their own native delivery platforms. After a restaurant has attracted an initial following on a third-party marketplace, the big challenge is converting repeat customers to one’s own website and getting them to place orders there. A good deal of marketing and communication has to go into this process, not to mention investing in actually building out that direct channel. Technologically speaking, this is very expensive, but numerous companies exist that help power the back end of native storefronts without demanding 30 percent of each transaction.

Just do what Domino’s did. Quote of the day goes to Lunchbox’s Nabeel Alamgir, who said, “The best thing you can ever do is just do what Domino’s did—invest in it 20 or 30 years before everyone else did.” Of course, he quickly followed up with some actionable advice about delivery and ghost kitchens. But his half-joking, half-serious comment also serves as a reminder and a call to action to the entire industry to keep on innovating, even — nay, especially — amid the uncertainty that has defined the restaurant biz in 2020.

Data :Full-Service Restaurants Are Still Flailing When It Comes to Sales

Apparently it was the week for new data on just how badly the restaurant industry is struggling right now, especially when it comes to full-service restaurants. Payments company TableSafe just released data that found transaction volumes at full-service restaurants declined to 50 percent of pre-pandemic levels in November after recovering 60 percent of pre-pandemic levels in October. 

These numbers follow those from Black Box Intelligence, which found same-store sales growth at restaurants at -10.3 percent, a 3.8 percentage drop from October’s year-over-year sales growth rate. Black Box Intelligence called November “the worst month for the industry since August based on year-over-year losses in sales and traffic.” Sales may continue their decline in the coming months, too.

Both those reports coincide with the National Restaurant Association’s recent letter to Congressional leadership that detailed the rapid economic decline of the restaurant industry and more or less pled for restaurant relief from Congress. 

All this data is also coming at a time when cities around the country are operating under indoor dining restrictions and cold weather has made outdoor seating a non-option for many. 

We’ve said many times before that continued focus on off-premises channels — takeout, delivery, drive-thru (where applicable) — should be a priority for restaurants, both as a short-term response to the pandemic and as a longer-term play. Off-premises channels won’t provide the same level of assistance as, say, stimulus relief or a bailout, but they can provide an avenue to extra revenue that, judging from the above data, is badly needed right now.

Restaurant Tech ‘Round the Web

Hand-hygiene system PathSpot this week announced an ongoing partnership with Opus, which makes a text-based training tool for employees. Together, the two companies will provide a more comprehensive onboarding and training program for restaurants using PathSpot’s device in their stores. 

Can’t go out for a holiday steak? Restaurant chain Ted’s Montana Grill will deliver it to you via its new Butcher Shoppe service. Customers can buy bison and premium beef as individual steaks, fresh grind, and specialty boxes via the new e-commerce site. All orders arrive fresh the next day.

Guardian writer Oliver Holmes got a chance to head over to The Chicken, a restaurant in Israel that happens to be the world’s first location for testing cell-based meat in a restaurant setting. Check Holmes’ review of his experience and the food here for a meaty (sorry, not sorry) weekend read.

Event Wrap: Restaurants Still Need Brand Equity, Brick and Mortar in a Ghost Kitchen Strategy

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.

Requiem for the Dining Room

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At one point most figured it would take about five to 10 years for off-premises to become the industry-wide norm in the restaurant biz and for QSRs to change their store formats accordingly. Instead, those changes around restaurant store formats have unfolded in a matter of months and are soon to be everyday realities.

Ever since Burger King unveiled a new store design with space-saver kitchens suspended over drive-thru lanes and conveyor belts handing food to customers, we’ve seen a non-stop stream of announcements from fast-casual and QSR restaurant with similar plans. Two more chains joined the list this week — El Pollo Loco and La Madeleine. But rather than simply list the new features slated for those brands’ revamped store formats, it’s now worth our while to comb through all the major announcements in this realm and find the common denominators driving these new store formats. There may be a lot of unknowns in the restaurant industry right now (aka everything), but the following developments give us a pretty good hint at some certainties for the future.

With the biz going virtual at a blinding clip, it’s only natural that future store designs will have a smaller physical footprint. From the aforementioned Burger King to El Pollo Loco, more brands are significantly reducing the size of their dining rooms or getting rid of them altogether. The fast rise of ghost kitchens, which cater to takeout and delivery orders only, is partly responsible for this trend. The pandemic and ongoing lockdowns across the country are an even bigger driver, and one that’s accelerated the timeline of these smaller store formats.

But of all the concepts fast becoming the norm for QSRs, it’s the multiple-drive-thru-lane scenario — that is, stores are being designed with double and triple lanes (or more) to accommodate the uptick in customers. KFC, McDonald’s, Chipotle, El Pollo Loco, and Shake Shack are some of the top names on the list of restaurant chains literally expanding their drive-thrus. La Madeline is actually adding drive-thru for the first time, and Dunkin’ was doing the whole multi-lane concept long before the pandemic. There’s a good reason for the widespread emphasis on this particular format: with the pandemic keeping us out of dining rooms and in our cars, the length of time one spends waiting in the drive-thru is getting longer.

Anecdotally speaking, I’ve visited three drive-thru lanes in the last week where the wait time was longer than 20 minutes. (Joke’s on me for staying in line that long.) More lanes, some of them dedicated to mobile order customers, will go some way to alleviate this problem. More commonly used developments, like extra parking spaces for curbside pickup and geofencing technologies, could also reduce some of the drive-thru congestion.

Meanwhile, predictive selling technologies aren’t widespread at the moment, but they will be. McDonald’s was first to put this concept — which involves using AI, machine learning, and other tech to analyze customer preferences and upsell relevant items — on the industry’s radar when it acquired Dynamic Yield. Over the last few months, Restaurant Brands International, which owns BK, Tim Horton’s, and Popeye’s, announced plans to use something similar in its drive-thrus, and KFC has hinted at using AI as well.

While predictive selling tech doesn’t directly alter store formats, it expedites channels like pickup and the drive-thru, which are integral parts of the QSR of the (near) future. It’s also a good example of how technology will influence the physical restaurant going forward. Tech that makes off-premises channels faster and more efficient will help drive more sales through those channels. That in turn will make those off-premises channels more valuable than their dining room counterparts, both now, during lockdowns, and long into the next decade. That makes these new developments in store formats less of a trend than a really big step into the restaurant industry’s next version of normalcy.

Upcoming Event: The Ghost Kitchen Deep Dive

Is now the right time to adopt a ghost kitchen strategy? The epic fallout of the restaurant industry suggest yes, but before you take the plunge, there are many things to consider. How much will it cost? What kind of set up do you need? How do you scale a virtual restaurant business?

Join The Spoon on Dec. 9 to discuss these things and more at our latest virtual event, The Ghost Kitchen Deep Dive. Throughout the day, we’ll be joined by Reef, Kitchen United, Ordermark, Fat Brands, Wow Bao, and many other companies enabling big changes in the ghost kitchen space.

General admission is free. Register for a Gold Ticket and get special networking opportunities, a month of free access to Spoon Plus content, and exclusive live tours of some real-life ghost kitchen operations. 

Restaurant Tech ‘Round the Web

California imposed new stay-at-home orders for certain regions in the state late this week. Looks like it’s back to takeout- and delivery-only meals for Golden State restaurants for the foreseeable future.

Uber completed its $2.65 billion acquisition of Postmates this week, and the two companies have started to integrate their U.S. operations.

Restaurant tech platform Allset this week launched a new feature, Dietary Preferences, to its takeout and contactless dining app. Customers can add their dietary needs and preferences as well as any food allergies to their search to further refine results on the app.

Zuul Teams Up With Thrillist to Launch Rotating Ghost Kitchen

Ghost kitchen operator Zuul announced this week it has joined forces with lifestyle brand Thrillist to launch a “rotational ghost kitchen” offering delivery exclusives from top NYC chefs and restaurants. The program will run on Wednesday, Thursday, and Friday nights from Dec. 9 – April 16, according to a press release sent to The Spoon. 

A series of 10 different NYC restaurants will each hold a two-week residency offering exclusive delivery-only meal offerings made out of Zuul’s ghost kitchen facility in Manhattan’s SoHo neighborhood. The idea is to highlight the ghost kitchen concept — which quickly evolved from an optional add-on to a must-have for many restaurants — as an important element of the pandemic-era restaurant businesses. 

Zuul and Thrillist said in this week’s press release that the program is also a way to lend support to struggling restaurants as they fight to keep the lights on in the wake of new COVID-19-related restrictions. Full-service restaurants have been hit particularly hard over the last several months, since the experience they historically offer has been tailored to the dining room and their food does not always travel well. The Zuul/Thrillist program is meant to help these restaurants “reinvent” themselves to better fit into a restaurant biz centered on off-premises orders.

To that end, Thrillist will cover the costs for food ingredients, labor, packaging, and delivery for participating restaurants. Those restaurants will be able to take advantage of Zuul’s all-in-one ghost kitchen facility, which provides not only space to make the food but also the technical infrastructure to fulfill delivery orders. That in turn will let Zuul show its ghost kitchen concept to more restaurants, a wise move considering the company’s ambitions to expand across NYC.

Customers can order from these rotating ghost kitchens here. For the swag-lovers out there, all orders contain “a special kit” that includes a t-shirt designed by a local artist, a reusable cutlery set, portable wine tumblers, and an insulated bag. 

Speaking of Ghost Kitchens…

Register for our Ghost Kitchen Deep Dive event on December 9th. Tickets are limited, so better hurry!

New Restaurant Restrictions Put the Value of Restaurant Tech to the Test

States and cities across the U.S. have imposed new restrictions and in some cases lockdowns that will once again shutter indoor dining. As they’ve done in the past, these restrictions once again call into question how restaurant tech can help restaurants pandemic-proof themselves and stay in business.

A stay-at-home order for Chicago residents goes into effect today. Restaurants must close by 11 p.m. each night and may only offer delivery, takeout, and outdoor seating. The city didn’t completely shutter indoor dining; it’s allowed so long as tables are within eight feet of an open window. But given Chicago’s typical wintertime temperatures, neither that nor patio seating will likely be popular options for diners right now.

New Mexico, and Oregon have imposed far tighter restrictions. Effective last week, Oregon restaurants and bars must return to takeout- and delivery-only service. New Mexico has similar restrictions as residents shelter under a two-week-long stay-at-home order.

Likewise, restaurants in Washington State and Michigan must halt indoor dining and stick to takeout and delivery models. Other states, including Minnesota and New York, have imposed curfews on restaurants, and for everyone, the threat of another lockdown looms large.

One difference this time around is that unlike in March, restaurants have more tools at their disposal when it comes to fulfilling off-premises orders. Since the early days of the pandemic, most restaurant tech companies have offered so-called “contactless” solutions that minimize human-to-human contact. Some parts of those packages, like QR-code-based ordering for the dining room, will be of little help right now, since there is no dining room in many places. But other features, such as software to power online order processing, could help restaurants fulfill takeout tickets faster and in a more organized fashion. Elsewhere, delivery integrators a la Chowly and ChowNow are now more widely used than in March and help restaurants manage delivery orders coming through multiple sales channels (DoorDash vs. Uber Eats vs. Caviar, for example). 

The option to go virtual is also more widely available. That point was underscored recently in the massive $120 million sum Ordermark raised for its NextBite platform, which pairs restaurants with kitchen space to help them develop and operate virtual restaurant brands. Along those lines, countless options for ghost kitchens have sprung up from the likes of Zuul, Virtual Kitchen, ShiftPixy, and many others. Still others, like restaurant chain Wow Bao, offer creative takes on the ghost kitchen/virtual restaurant concept that could benefit not only themselves but other local restaurants.

These and other tech solutions will undoubtedly help restaurants as they navigate new lockdowns and restrictions. The unknown factor is whether they will be enough. Big-name QSR brands have the deep pockets to turn their drive-thrus into digital innovation centers and reinvent their physical footprints, and restaurants with a certain level of demand will find ghost kitchens useful for pandemic-proofing operations. 

The indie restaurants will, however, struggle more than any other restaurant type. These are businesses that have neither the money to invest in sophisticated tech solutions nor the demand to justify a big ghost kitchen operation. Fee caps may help as far as delivery orders go: cities across the country have implemented mandatory caps on the commission fess third-party delivery services can charge these businesses, and if stricter lockdowns ensue, other municipalities may do the same. 

None of this guarantees a future for independent restaurants. One thing that hasn’t changed, not yet anyway, between previous spikes in the pandemic and this one is that off-premises remains a lifeline for restaurants, not the lifeline. Many restaurants still grapple with the fact that they were built — from the food they serve to the atmosphere they provide — for an on-premises experience. Developments to turn on-premises experiences into those suited for takeout and delivery are moving fast. Unfortunately, the pandemic is moving faster. Seen in that light, restaurant tech’s big priority right now should be helping smaller restaurants complete the transition from the dining room to the living room.