Ghost kitchens etc.: the impact of Covid-19 on the future of restaurants

We’ve pointed it out more than once: coronavirus is a real accelerator of trends. Not least because of the profound changes it has caused with regard to consumer habits. The restaurant business is no exception. Here, we look at two phenomena which have been reinforced by the pandemic: home delivery and dark/ghost/cloud kitchens.

An explosion in home deliveries

With restaurants being forced to close during lockdown, take-away and home delivery options have been the only way for restaurants to generate revenue (or to limit the damage). Of course, the rise of delivery companies pre-dates the pandemic. Who lives in a city and hasn’t ordered via UberEats, TakeAway, AlloUgo or Deliveroo?

But Covid-19 has boosted the demand for delivered meals, and not just among millennials. With a huge increase in partner restaurants, the aforementioned apps have seen their numbers soar:

  • During the first lockdown, UberEats saw an increase in turnover of 53% (source).
  • To give just one European example: in Switzerland, UberEats saw the number of its partner restaurants double between January and the end of June 2020, compared with the first half of 2019 (source).
  • Globally, the Takeaway.com app saw 32% more orders in the first half of 2020, resulting in a 44% jump in turnover (source).

Ghost or dark kitchens: restaurants limited to kitchens

Could home delivery become the preferred option? Some people are already betting on this hypothesis. Particularly “ghost kitchens”, “cloud kitchens” or “dark kitchens”. Behind these mysterious names lies a very simple definition: a kitchen without a restaurant, the sole purpose of which is the preparation of meals for delivery.

One of the most well-known examples in France, Foodchéri, existed before the pandemic and was already very successful.
In the midst of the pandemic, Belgium finally followed suit. What’s really remarkable is that it has been Belgium’s supermarket chains which have launched the movement. Colruyt launched Rose Mary in September 2020, a service for ordering prepared meals which are delivered by bicycle in Brussels. A month later, Delhaize followed in Colruyt’s footsteps by launching a similar service in collaboration with the start-up Tastyoo.
There’s Wim’s Deli too: known for its Balls & Glory restaurants serving meatballs, Wim Ballieu has now transformed its kitchens into these new dark kitchens.

 

The advantages of dark kitchens

Apart from the fact that demand is increasing, what makes restaurateurs, investors, retailers and start-ups so keen to invest in ghost or dark kitchens? It’s obvious to us: it seems easier to make money with this model.

  • Dark kitchens require fewer m² and therefore cost less in rent;
  • Without a room to furnish and decorate, investment and maintenance costs are lower;
  • Labour costs are also reduced, as there are no serving staff to pay;

 

Threats and opportunities for ghost kitchens

It’s easy to see why some restaurant owners only want to manage take-away restaurants or dark or ghost kitchens. Although many are taking the plunge, we think that the impact will be felt on real estate in the restaurant business.

But there’s more: a consumer’s choice of food will no longer be linked to the physical presence of an establishment serving food. Hotels are already observing that their (young) guests prefer to have their meals delivered via delivery companies, rather than using their restaurants or room service. This can be explained by the fact that delivery companies offer greater choice and value for money, according to the HGEM agency, which focuses on the customer experience. Hotels have two options: either they do nothing in the face of this new trend or they try to transform it into an opportunity (source). In our view, the second option seems to be the most sensible. We even think that food halls in shopping centres could expand their offerings with delivered meals as well.

The fact remains that in such a scenario, in which “food on demand” would become commonplace, the challenges surrounding delivery will have to be addressed:

  • When it comes to ghost/dark kitchens and potential mass delivery sites, these spaces will need to be redesigned to facilitate access for the people delivering food (motorbike/bicycle parking nearby).
  • Inconsistent quality caused by issues with delivery (delays, damaged or incomplete deliveries, etc.) are also a recurring problem which can be potentially damaging for restaurants and dark kitchens. According to another study by HGEM (source), 58% of consumers also believe that late deliveries are the responsibility of both the restaurant and the delivery company.

Lastly, an even more difficult and fundamental problem remains: profitability.

  • The profitability of dark kitchens: although costs are limited with the dark kitchen model, the average prices charged are lower and the margins are therefore very tight. In the United States, where convenience food is king, some restaurateurs have tried to reverse the trend by raising prices for home-delivered meals. This is a reversal of what was previously commonplace: the slightly cheaper take-away menu. Undoubtedly, it will all come down to what customers value most in the future: the restaurant setting or the comfort of eating at home.
  • As for the profitability of delivery applications: in this highly competitive sector, no company is currently profitable.

Given the speed at which ghost kitchens are developing, there is also the possibility that we are experiencing a “bubble”, which could burst with growing competition and unsustainable price pressure.

The scenario we’re hoping for: after a growth phase with a multitude of different players, there will be another phase of consolidations, takeovers and mergers. These could lead to a rationalisation of costs and economies of scale, thanks to efficient distribution networks and better thought-out logistics (shared kitchens and stocks, etc.). Salvation may come from the support of a major group. Time will tell when it comes to these initiatives launched by Delhaize and Colruyt and Sodexo’s acquisition of Foodchéri.

 

Restaurants after Covid-19?

As with the other industries we have analysed, we believe that the restaurant business won’t really go back to how things were before. Even when the second lockdown is over, restrictions will still apply and the situation will take a long time before things feel normal again. Nonetheless, we are confident that physical restaurants will survive because they provide an experience which goes beyond the mere act of eating. But we recommend that all industry players consider the latest trends, adapt and even try to stay one step ahead.
In practice, the key to viable projects in the long term will lie in:

  • Continuous investment in digitisation. We are convinced that every business today needs to become more mobile and connected. Developing an online-only concept (like Wim’s Deli) can be a good option.
  • An omnichannel strategy: provide opportunities to eat on site, take away or have food delivered. This is particularly relevant for the majority of today’s restaurateurs, for whom concentrating solely on delivery makes no sense, in our view. This has always been the approach of fast-food restaurants, pioneers of the omnichannel approach (which often influences their location).

 

Staying one step ahead of the latest trends? It’s not always easy. We’re here to help with that too.
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