It's no secret that the on-demand food industry is booming and has significantly capitalized on the shift in consumer behaviour driven by the global pandemic and mobile technology expansion. Customer demand for outstanding food delivered directly to their door is rising. According to a report by IBISWorld, the online food and delivery market in Australia is projected to generate $850.5 million this year, growing faster than the Australian economy as a whole.
In a post-pandemic world, where ‘on demand' is now the norm, restaurateurs have been cooking up new ways to attract customers and drive revenue. And with rising costs and fears of a looming recession, no other segment of the restaurant industry has risen quite as quickly as the emergence of ghost kitchens and virtual brands to help fight inflation and help restaurants stay in business.
What are ghost kitchens and virtual brands?
They are both low cost, quick turnover business models that are rapidly expanding in every major Australian city. And while the two names are used interchangeably, there is a subtle difference. Ghost kitchens do not operate out of existing restaurants and exist for delivery and takeout only.
Generally a 'virtual brand' is a food service provider that only exists digitally. Virtual brands can support restaurants' online deliveries with anything from branding, supply management, recipes, scaling, and more, and can be run from a current restaurant, hotel or casino's kitchen or 'dark kitchen' (one that is not associated with any storefront).
Millennials are the driving force behind ghost kitchens
Millennials spend most of their income on online food ordering because they like to taste different cuisines that offer a quick and smart solution to save time. They also have high purchasing power and prefer third-party delivery sites (with over half (54 percent) ordering this way). As a digital-first generation, Millennials are critical of their experiences and enjoy sharing reviews and feedback online.
Pros and cons of Ghost Kitchens
Starting your own restaurant requires a sound idea and a solid business plan. If you're not sure if your restaurant would be a hit or a miss, setting up a ghost kitchen could help you get started while taking fewer risks than with a traditional, brick-and-mortar restaurant.
Lower start-up costs and overheads
The most obvious benefit of a ghost kitchen compared to a traditional restaurant is the lower barrier to entry and lower on-going costs. You need less space because you don't have to accommodate dine-in guests. You don't need front-of-house staff at all, and with the efficiency of a data-driven approach to creating the menu and organising the kitchen, when you optimize for delivery-only, you need fewer back-of-house staff too. That also means savings on ingredients, equipment, computer systems, utilities, the list goes on.
Improve sales with multiple brands
One of the biggest advantages is the ability to target multiple segments of the market with laser precision simultaneously. Ghost kitchens and virtual brands are driven by data, so they are able to pinpoint the customer needs in an area and satisfy it with multiple brands. You could be running a pizzeria, a burger joint, and a healthy salad bar out of the same kitchen, and serving multiple different demographics at the same time, while benefiting from economies of scale across the brands.
Building on the benefits of running multiple brands, a ghost kitchen also allows you to be more flexible and adaptive. You have the data, so you can look at what's working, and what isn't, and continually optimise and re-evaluate to constantly improve your offering. You can even change tack completely if the market changes or a competitor makes a move.
All roads lead to better margins
All of this leads to better margins. The small, focused menu means you can improve the efficiency of your production and fulfillment processes, then use the data you gather to predict high and low volume periods and optimise your operations and staff levels accordingly. If you're not busy you don't have to open, so overall, the upshot is lower costs, better efficiency, more orders, and less risk.
Drawbacks of the ghost kitchen business model
As with everything, there is a trade off. Along with all these advantages there are some disadvantages that you should be aware of before opening your ghost kitchen.
Lack of a physical storefront
One of the biggest challenges you will face running a ghost kitchen is the lack of a physical presence. This means you don't have any walk-in business and you're not part of a neighbourhood in the same way a brick-and-mortar restaurant is.
This makes it harder to build up a natural fanbase for your brand, although certainly not impossible, and means your digital strategy is paramount to your success. Third-party delivery providers offer you a platform with active users, but it is a very competitive space. You will need to put a plan in place to get ahead of the competition.
Reliance on delivery platforms
A problem many ghost kitchens and virtual brands face is being over-reliant on the business coming through the delivery platforms. No business owner wants to find themselves in such a precarious position. Making sure you have an independent digital presence is crucial to countering this problem.
Complicated menu management
Ghost kitchens tend to use all the available delivery partners to maximize the exposure and sales potential of their brands. But with this comes the thankless task of uploading, updating, and managing menus and menu items. This is a big enough job for one busy restaurant, let alone multiple delivery-only brands across many platforms.
To help reduce this operational complexity, restaurants are turning to new tech partners to help automate and integrate all their sales channels directly into one point-of-sale system and assist with streamlining their order flow, saving time, labor and unnecessary hassle.
In fact, a new Future Of Restaurants report by YouGov, 73% of Australian restauranteurs surveyed agreed that investing in new automation systems for BOH operations would allow staff to focus on more important tasks.
Ghost kitchens are here to stay. As long as you take the time to plan effectively, get the right technology in place and properly market your business, there's a huge amount of opportunity in the marketplace. In a fast-changing, increasingly digital world, the low risk, adaptable nature of ghost kitchens could make them the restaurants of the future. So don't be scared to jump in or the missed opportunity might just haunt you.