Rishi Nigam, CEO of Franklin Junction, the restaurant e-commerce growth platform that unlocks access for brands to untapped customer demand.
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It seems like only yesterday that delivery food was mostly limited to Chinese food and pizza. But in the years since 2017, as we’ve shifted to a digital-first mentality, food delivery has tripled in value and grown into a $150 billion global industry.
In the U.S. market, food delivery more than doubled during Covid-19 alone. There was a huge uptick in the number of restaurants adopting food delivery, and plenty of new delivery-friendly concepts were created mid-pandemic.
It may have seemed that because a lot of the shift towards delivery was due to the lockdown, as the pandemic wound down, the world would return to normal with full dining rooms and bustling cities. But as we navigate into a post-pandemic landscape, that is not the way the winds are blowing. In fact, consumers are instead increasingly trending towards eating from home, preparing foods and, importantly, opting for delivery more than ever before.
It’s a sea-change moment. The pandemic has receded, but customers have not come back to the dining room in the same numbers. From successful global quality safety review systems to neighborhood full-service dining restaurants, the industry simply isn’t seeing the sort of dining room resurgence that you would expect upon the relief of mandates.
It isn’t as shocking as it first seems. Before the pandemic exponentially accelerated the pace of tech adoption in food service, the delivery industry was already growing at a steady 8% annual rate, thanks to the rise of industry leaders like Uber Eats and DoorDash, and early movers like Grubhub and Postmates.
Host Kitchens
The pre-pandemic restaurant industry was already starting to dabble in delivery-centric concepts like the ghost kitchen, with a growing awareness that demand for delivery might create a niche for brands that focus solely on delivery through digital platforms.
Sometimes they were called ghost kitchens, other times dark or cloud kitchens. But the idea was always the same—with the growing demand for delivery, we don’t have to spend the money on front-of-house staff or high-end real estate and dining rooms. Just a kitchen and delivery services.
The ghost kitchens in large urban centers like New York, Los Angeles and Chicago performed well as the pandemic-powered rush to delivery pushed more and more users online. Still, across most of middle America, the concepts proved unprofitable when factoring in the high capital outlay to build or rent kitchens and purchase cooking equipment.
Instead, a different riff on the model is far outperforming ghost kitchens in most of America: The host kitchen. A host kitchen effectively optimizes excess kitchen capacity in an existing restaurant for additional food offerings. With no additional capital, no new labor and high cross-utilization of existing ingredients, this model can lead to higher profit margins on completely incremental sales.
Big, national brands were already playing with these models before the pandemic. And now, as we move into a post-pandemic economy, those same brands are assessing the potential future for virtual brands in the long term. It’s a lot of work building and managing entirely virtual concepts alongside the daily operation of a primary brand. As in-person traffic returns, many restaurants could abandon their virtual concepts in favor of focusing back on in-person traffic that they felt most familiar and comfortable operating before March 2020.
The Cloud Concept Model
So, what becomes of all that excess kitchen space they’ve been toying with over the years? I tend to think that the virtual concepts need to adapt once more and reach their logical nexus; forget ghost kitchens with their high startup and operating costs and forget the virtual concepts with their heavy operational lift.
What I see as the solution for restaurant kitchens is to use that extra capacity as a fulfillment center for proven brands. Enter the cloud concept model. A cloud concept is the delivery-only version of a brick-and-mortar brand.
The benefits of a virtual brand are numerous: established brand equity, proven menus, existing supply chain, higher barrier to entry, existing consumer data and staying power in new markets.
By tapping into a host kitchen network, cloud concepts can avoid the massive outlay of capital needed to launch a ghost kitchen and bypass the long time to scale in organic expansion. It’s a great way to test a new market and access a new customer base. The marriage of host kitchens to cloud concepts offers an unparalleled capital-free growth opportunity for the restaurant industry.
Tips For Transitioning Into The Cloud Concept Model
So, where to get started? It’s important to realize that there are several companies with solutions out there already working to tackle the challenges discussed in this article. It’s incumbent on restaurant owners and leadership to set a vision for the future of their organization, create buy-in with their teams and commit to engaging with partners who are aligned with the restaurant’s mission. Contrary to popular belief, this will not require significant internal resources but rather a will to adapt and overcome.
Conclusion
The last few years have moved fast. Across the foodservice landscape, brands large and small have tackled tech adoption to survive through the pandemic and thrive beyond it. The industry adopted a decade of technology in a matter of months in 2020. Consumers did their part, too, demanding delivery in droves and continuing the practice even as restrictions eased and mandates loosened. Delivery is going nowhere except up.
In short, the memo is this: If your restaurant brand isn’t already starting to think like an e-commerce company, you are risking losing market share to your competitors. Adopt all the tech you can. Dive in headfirst. Launch a branded mobile app. Redesign your web ordering experience. Become a host kitchen, a cloud concept or both. Learn how to drive incremental visits with push notifications and loyalty offers.
Digital is ubiquitous, so find your place in the new future of restaurants.
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