Ghost kitchens and virtual restaurants have been the buzzwords in the U.S. (and global) restaurant industry over the last two years. The pandemic has driven an explosion in new business models, as the industry grapples with building a delivery-centric future that is financially sustainable for all stakeholders.
While third-party ghost kitchen facilities operated by companies like CloudKitchens or Kitchen United dominated much of the discussion in 2019, 2020 and 2021 have placed more of the spotlight on companies such as Ordermark. With its Nextbite program, Ordermark connects a stable of virtual brands to restaurants with spare kitchen capacity — i.e, most restaurants.
Looking beyond the U.S., players such as Rebel Foods in India are resurrecting the vertically integrated delivery-only model seen in the U.S. from now-defunct players such as SpoonRocket, Sprig or Maple. All of these new models are likely to benefit from a permanent lift in delivery spending post-COVID.
While eat-in traffic will recover throughout 2021, the nature of eat-in traffic is likely to shift going forward, as faster delivery (facilitated by ghost kitchens) captures a larger portion of daily commodity “refueling” occasions.
Eat-in traffic has fallen steadily in the U.S. for at least the last decade, reaching 50% of spending in 2019, according to Euromonitor International estimates. Not surprisingly, this number collapsed in 2020, falling to less than one quarter of total spending. While delivery gained significant share, more than doubling to over 15% of U.S. restaurant spending, both drive-thru and takeaway surged with eat-in service shut down and with consumers searching for low-contact options.
Though the eat-in share of restaurant spending is expected to bounce back in the second half of 2021 and into 2022, we have entered an era where eat-in traffic could potentially fall below 40% of total spending over the next five years.
Going forward, most new restaurant concepts — and certainly most new multi-unit concepts — will be built from the ground up, with delivery as a major part of the business model. Ghost kitchens, whether third-party or in-house, will be central to those strategies.
Yet the expansion of ghost kitchens goes beyond delivery-only production facilities for a restaurant’s own menu.
2020 saw an explosion in virtual concepts, many of them partnering with existing restaurants to fulfill delivery orders from brands which only exist online. One oft-cited example is Wow Bao, a Chicago-based producer of Chinese-style steamed buns.
While Wow Bao outlets are Chicago-only, it has partnered with a variety of restaurants nationally to fulfill third-party delivery orders, with Wow Bao products shipped from a central production facility and finished at a partner restaurant.
Steamed buns are a natural fit for this approach given how they are prepared, and this points to a future where restaurants could routinely prepare both their own orders and various partner brands as capacity permits. This separation of brands and preparation represents a further evolution of the franchising model that dominated the 20th century, in theory allowing a brand to reach a large regional or national market with relatively little capital investment.
It could also bring a surge in investment into the foodservice industry, as packaged food-and-drink brands partner with various producers to create new meal and snack brands ordered via third-party delivery services.
An example of this model in action can be seen with India’s Rebel Foods, which operates more than a dozen virtual brands across more than 350 of its own kitchens in six countries.
The company’s model explicitly aims to build a portfolio of brands that capture a wide range of daily consumer eating occasions while driving as many efficiencies and synergies between brands as possible. All of the company’s brands are prepared side by side in its network of kitchens, with Rebel Foods’ own app serving as the primary consumer touchpoint.
The company’s Launcher program turns this model outward, selling its kitchen and services to outside brands. Current partners include small startups as well as Wendy’s, which recently agreed to a deal with Rebel Foods to develop and operate around 250 ghost kitchens across India. This “kitchens-as-a-service” model goes beyond real estate, with Rebel Foods explicitly citing its ability to efficiently organize production across multiple brands as a key advantage alongside the traffic generated by its app and large brand portfolio.
Looking ahead, the future for eating in restaurants is likely brighter than it currently appears — the pandemic will subside, and our need to socialize in person will likely drive a surge in visits to restaurants and bars. However, a more delivery-optimized food system is here to stay.
Over time, the restaurant industry will mirror developments in the retail industry — luxury fine-dining restaurants will remain largely eat-in concepts, while the number of large, 100% virtual concepts will likely be limited.
New chain concepts will combine a host of formats, from eat-in only locations to takeout kiosks to third-party ghost kitchens and production partnerships with other restaurants, all (ideally) knit together in a single app.
Likewise, cheaper, faster delivery via a handful of third-party apps will blur the lines between retail and foodservice, prepared foods and packaged foods, likely bringing a host of new occasions in play for foodservice operators.
Michael Schaefer is the global lead of food and beverage at Euromonitor International. He provides insight on consumer trends, product innovations and the evolution of eating and drinking from around the world.
This article does not necessarily reflect the opinions of the editors or management of Nation’s Restaurant News.
