Early technology markets tend to have a shine to them, especially when everything is still new and most of us are learning what all the changes mean.
But, as we’ve seen with spaces like ride sharing and food delivery, this initial optimism can give way over time to a more cold-eyed reality as new models are put into practice. And it’s often the split of the spoils that is the biggest source of disenchantment with new business models, which sometimes means a recalibration is needed to make sure critical players are compensated fairly.
Judging from an email from Spoon reader JD, a ghost kitchen operator out of the UK, it sounds like ghost kitchen and delivery models could use such a recalibration of the model to make it more sustainable for some of the participants:
Making money from a restaurants perspective is not easy in ghost kitchens with the current commissions. The aggregators don’t appear to be making any real money either. The transfer of costs from rent and over head to aggregators is not a real win.
Without lower labour and food inputs-which likely leads to lower quality. High aggregator commission also lead to high consumer prices. No fly wheel here but aggregators are promoting ghost kitchens to show rising order volumes for their funders.
I asked JD if he thought greater scale through more centralized production could resolve some of these issues. His answer in short? It could help, but it’s complicated.
Centralization of production is one way to help square the circle. We use a centralised model, scale helps on this for sure and quality checks etc. Add in better ways of farming and supply chain and there is a chance to get somewhere.
The pie is getting bigger in my view and I feel will continue to do so. Stuffing ever more brands into dense locations appears to offer selection to consumers but I am not entirely sure that fairy tale ends well. Some good brands will win and those slower or less focused, as is the way of the world will fade away.
However the utility cost of the delivery fulfillment model is such that its costs (in current non drone format) are too high and lead to higher consumer prices, reduced consumer access due to higher prices and overall a model no one is yet making any real money from but we all seem determined will work. Yes too many aggregators can be an issue but I prefer too many than too few!! Self delivery is also still an option, i’m not opposed to at all, there could be tie ups here.
All in all, perhaps better supply chain including centralized production and drones will I think allow some good businesses to flourish and balance things a little bit. I don’t like to think food is winner takes all because we will end up with awful food!
Interesting that JD is a believer that the use of drones or lower-cost, human-less delivery is required to make the model work. If you look at the investment of delivery brands into delivery bots (sidewalk and otherwise), they’re probably thinking the same thing.
Finally, we like getting reader mail with views from the trenches like this one from JD. Drop us a line if you have something to say. Also, we’ll be discussing the business model and other topics in our upcoming cloud kitchen deep dive. Join us!