Highlighted in the recent New York Times article “The Rise of the Virtual Restaurant,” author Mike Issac and David Yaffe-Bellany discussed the rise of ghost kitchens and the current disruption that food delivery is causing in the food and, in particular, the restaurant industry.

Food delivery apps like Uber Eats, DoorDash and Grubhub are reshaping the $863 billion American restaurant industry. As more people order food to eat at home – and as delivery becomes faster and more convenient – apps are changing the very essence of what it means to operate a restaurant.

No longer must restaurateurs rent space for a dining room. All they need is a kitchen — or even part of one. The restaurateurs are able to market their food to the app’s customers, without the hassle and expense of hiring waiters or paying for furniture and tablecloths. In most cases, diners who order through the apps may have no idea that the restaurant does not physically exist.

As described in the article, the shift has popularized two types of digital culinary establishments. One is “virtual restaurants,” which are attached to physical dine-in restaurants but make different cuisines specifically for the delivery apps. The other is “ghost kitchens,” which have no physical dine-in presence and essentially serve as a meal preparation hub for delivery orders.

Rise of Ghost Kitchens

According to the article, delivery-only establishments in the United States date back to at least 2013, when a start-up (the Green Summit Group) began work on a ghost kitchen in New York. With Grubhub’s backing, Green Summit produced food that was marketed online under brand names like Leafage and Butcher Block.

In Europe, the food-delivery app Deliveroo also started testing ghost kitchens. It erected metal kitchen structures called Rooboxes in some unlikely locations, including a derelict parking lot in East London. Last year, Deliveroo opened a ghost kitchen in a warehouse in Paris, where Uber Eats has also tried delivery-only kitchens.

Ghost kitchens have also emerged in China, where online food delivery apps are widely used in the country’s densely populated megacities. China’s food delivery industry hit $70 billion in orders last year, according to iResearch, an analysis firm. One Chinese ghost kitchen start-up, Panda Selected, recently raised $50 million from investors including Tiger Global Management, according to Crunchbase.

Is food delivery a trend or is it here to stay?

Delivery sales have outpaced other restaurant sales for some time, a trend that likely will continue. Between 2018 and 2023, delivery is projected to grow at more than three times the rate of on-premises sales, with the preponderance going to digital order. Much of the growth comes from changing consumer preferences. Online ordering has captivated a diner demographic increasingly pressed for time and harboring expectations shaped by the sophisticated world of consumer ecommerce. A key segment is high-income households and millennials. Research states that by 2020, consumers 21 to 36 years old will take up 70 percent of at-home delivery services.

So, what is next?

Restaurants can survive digital disruption, right?

There are success stories of restaurants preparing for and staying ahead of the disruption in their industry. But there are also lessons to be learned from other retailers’ false starts, e.g.:

  • Taking the fast and easy route of partnering with a third-party provider for its online delivery business (only to have them acquired by one of its biggest competitors)
  • Over investing in an elaborate warehouse and distribution system for an initial foray into selling online (rather than using existing store assets to build scale)
  • Building a supply chain system from scratch that results in empty shelves and unhappy employees (rather than choosing a best-in-class, time-tested solution)

For restaurants to succeed in the face of industry disruption, they need to:

  • Have leadership vision and commitment
  • Look outside the industry to fill resource and experience gaps
  • Explore what the world has to offer in terms of business models and solutions
  • Be open to coopetition partnerships and acquisitions
  • Select a technology partner that has:
  • The industry expertise, resources, and tools to help it create its vision and build a strategic plan and roadmap
  • Market-leading “innovation to execution” pre-integrated modular solutions
  • Long-term financial stability to invest in new technologies such as artificial intelligence, machine learning, conversational commerce, blockchain and more
  • Global experience with local presence and expertise
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Donald Snyder

Donald Snyder, CPA, has more than 30 years of experience in public accounting. He provides audit, accounting and advisory services to clients in numerous industries, including food and beverage, restaurant, manufacturing, wholesale/distribution and technology. Donald is a well-known business…Learn More