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The future of ghost kitchens seems a lot less invisible
Is a more visible ghost kitchen just a restaurant?
No topic in restaurant technology has been more interesting, more contentious, and more opaque all at the same time than the proliferation of ghost kitchens and virtual brands. They’ve become the pandemic theme I can’t quit, and yet I’m asked about them by someone — a friend, a professional colleague, my mom — at least once per week.
They’re fascinating in both the challenge the present to the restaurant business status quo, but also how predictable their rise and path has been — in hindsight, of course. We’ve moved past the initial pop of virtual brands and are well into advanced marketing and operational tactics for virtual brands and the kitchen spaces that support them. As it turns out, what’s old is new again… kinda.
Last week, Business Insider reported on the state of CloudKitchens, the well-funded ghost kitchen / real estate company from Uber founder Travis Kalanick. In addition to developing large kitchen facilities built to accommodate couriers from third-party delivery services, CloudKitchens is opening consumer-facing food halls in high-traffic urban environments — including a new building in downtown San Jose purchased by the company. According to Insider, the building will be renovated to include 25 shared kitchens and prominent storefront signage inviting walk-up guests.
Meanwhile in New York, Nimbus, another ghost kitchen / real estate company signed a lease for nearly 10,000 square feet on the ground floor of a residential building in Brooklyn. Nimbus bills itself as different from its competition by virtue of its focus on consumer-friendly spaces that encourage walk-in orders and even seated dining. (The model appeared to win over at least one Grubstreet writer who had previously lamented the tech-fueled businesses.) So far, Nimbus has been successful in extending delivery radius for beloved New York brands like Roberta’s and DiFara with its properties. It’s partnered with DoorDash on some of these endeavors, including a recently announced Manhattan combo location of Tacoway Beach (original location near the actual beach in Queens) and Caracas Arepa Bar, whose downtown location was forced to close after a fire.
This all begs the question: is a more visible ghost kitchen just... a restaurant?
When I reported on virtual brands for Eater last November, one expert who works in restaurant brand development stressed transparency for virtual brands. It’s important that the consumer understands where their food is coming from, they said, and trying to hide any part of what the business actually is — whether it’s a wing concept backed by a publicly traded restaurant brand or just a delivery-only offshoot of an independent concept. Virtual brands proliferated during lockdowns, but in an emerging in-person world, the business is changing.
Insider calls the CloudKitchens move a pivot, though it’s not clear the company is abandoning its other kitchen facilities, nor transforming them to be more consumer-friendly. But Nimbus was built on a consumer-friendly model that feels more mall food court 2.0 than ghost kitchen facility. Other companies aren’t necessarily hiding their operations either, though you’d be forgiven for not really noticing a Reef Kitchens trailer situated in a parking lot or among trucks in a food truck park.
The answer to my above question is no, a more visible ghost kitchen isn’t simply a restaurant, even if walking into one feels more akin to a fast-casual experience than the next wave of successful restaurant businesses. That’s because — as discussed last edition — part of what makes a ghost concept or virtual brand is its technology. So, it makes sense that the non-technical parts of the business — the kitchens and the real estate — are moving out of the shadows.
I have a new story on Eater about third-party delivery fee models. New plans and options from DoorDash and Grubhub seem to cater to independent restaurants, at least on the surface, but there are lingering questions about their ability to drive the type of business that these companies promise. Yes, they’re what restaurants and some local governments have asked for, but they strip away some of the most valuable features and might cause restaurants to take a hit.
What else is happening?
DoorDash expands to Japan. The company announced the expansion into its third country, and first in Asia, on Wednesday. Restaurants have access to the DoorDash marketplace and storefront direct ordering products.
Some Grubhub investors are not happy about the impending Just Eat Takeaway takeover. The delivery company is facing 14 lawsuits from investors who say Grubhub misled them about the impending merger, withholding important information like huge payouts executives and board members will receive upon its closure. The investors want the court to invalidate the merger and force Grubhub to find a better deal.
Speaking of activist investors, one group is publicly speaking out against DoorDash co-founder and CEO’s board seat. CtW investment group wrote a letter urging shareholders not to reelect DoorDash CEO Tony Xu to the board. The chief complaint is the company’s dual-class stock structure, which effectively gives Xu full control.
Also, DoorDash has a new president. Chief operating officer Christopher Payne assumes the title from CEO Tony Xu. In a filing, the company notes that Xu’s role and responsibilities will not change, nor will Payne receive additional compensation for assuming the new title in addition to his COO role.
But, you know, not much else has changed, at least on the bottom line. According to the Wall Street Journal, “DoorDash and Uber Eats are hot. They’re still not making money.” The article is a long (long) breakdown of the business, and doesn’t contain any info or insight that regular Expedite readers don’t already know. But it is a reminder that even under the “best” of circumstances (say, a respiratory pandemic that kept the majority of Americans with discretionary spending out of restaurants as restaurants pivoted to offer off-premises-friendly food) these models don’t make money. A subsequent follow-up highlights how Grubhub, by far the oldest delivery company among the top industry players, had to evolve and notes one very, very important detail in the company’s struggle: it was venture capital-fueled competition that caused Grubhub its biggest headaches as it was eventually unseated from the top spot in the market. That competition is still tough — even if the company’s biggest competitors don’t make any money.
OpenTable and UrVenue last week announced a partnership that lets resort guests at select properties book more than just restaurants. Guests can reserve experiences like restaurants, clubs, attractions, pools, recreation and more in one process. This gives resorts and venues a better platform for upselling and cross-selling. Deron Pearson, CEO of UrVenue said the company wants to “fix the broken booking journey that many travelers face.” Of course, OpenTable has been owned by Booking Holdings for the better part of a decade but has yet to tie its own hotel and restaurant bookings into any sort of seamless technological experience.
Dinner at … Tesla? The electric car company is one step closer to entering the food and beverage industry after filing for a patent to use its name and logo for restaurant services. While CEO Elon Musk is known for his at-times outrageous ideas, this one makes sense: A complaint many Tesla owners share is the time it takes to charge their cars. Having a combined restaurant and charging station would allow them to pass the time … spending more money on Tesla products. (And don’t get us started on the loyalty angle. #fanboys)
Talk about a shifting narrative: technology and artificial intelligence could be the only path forward for restaurants facing staffing troubles. Several McDonald's restaurants in Chicago have begun using artificial intelligence systems to man drive-thrus, to much success. According to the chain, the new system has an 85% order accuracy rate. Going forward, CEO Chris Kempczinski said McDonald’s will continue to improve the customer experience with express lanes for digital orders and conveyor belts that transport food; in the longer term, it plans to explore ways to automate some back-of-house roles. The company began heavily investing in tech pre-Covid-19: In 2019 it spent $300 million acquiring Dynamic Yield, an artificial intelligence startup, to help customize the drive-thru experience based on factors like restaurant traffic and weather.