Travis Kalanick, ousted founder of Uber, recently made his next big investment. His real estate company, City Storage Systems, bought a stake in Rebel Foods Pvt. in India, a cloud kitchen company that has a valuation of around $525 million.
Cloud kitchens, sometimes called KaaS (kitchens as a service) or ghost kitchens have emerged as a new model, driven by the rise of online ordering and delivery services.
The latest PYMNTS Order to Eat Tracker highlights how several major brands are embracing (or resisting) third-party delivery services, new models and new ordering solutions in an effort to win over customers.
Recent data indicates that consumers increased their spending on online food delivery in 2019 by almost 15 percent year over year. Food delivery will likely become a significant part of many restaurants’ earnings, with a projected compound annual growth rate (CAGR) of 6 percent by 2023.
Over 80 percent of restaurant operators agree that the use of technology in a restaurant provides a competitive advantage and nearly four in 10 plan to invest more in expanding their off-premises business in 2019.
Ghost Restaurants
Off-premises spending is anticipated to account for up to 80 percent of the restaurant industry’s growth by 2025, and virtual kitchens might play a role in its progress.
The prevalence of third-party apps is pushing more chains and quick-service restaurants (QSRs) to consider ghost restaurants, which only offer delivery services and don’t have dine-in locations.
Uber Eats started testing the virtual restaurant model in 2017 when it saw customers searching for poke bowls on the app and coming up short.
Similarly, Uber Eats contacted a local pizzeria in Chicago after noticing that people in the area were searching for “chicken” through the delivery app and not finding available options. They propositioned the pizzeria to start a virtual restaurant that only offered fried chicken, chicken tenders and chicken pizza, all made in the pizzeria’s kitchen using equipment they already had.
The virtual restaurant business model is becoming increasingly popular as technology improves the user experience. The benefits of virtual restaurants include lower overhead costs, lower rent due to needed smaller space, menu flexibility and the ability to test new concepts and reducing financial risk for smaller businesses and startups.
Not to be outdone by the competition, Grubhub is working with food magazine Bon Appétit on a new delivery-only restaurant model. Available items will include popular dishes from Bon Appétit magazine pages and Instagram feed, and can be ordered using the Grubhub app.
QSR chain Fatburger will utilize 15 of its Los Angeles-area restaurants as ghost kitchens for its sibling brand Hurricane Grill & Wings. Cooks at participating locations will be trained to make dishes that can be found on either menu, a move that consolidates the brands without requiring additional storefronts.
Kiosks
In an interview with PYMNTS, Taco Bell Senior Director of IT Rafik Hanna explained how new solutions fit with the restaurant’s omnichannel ambitions, while enabling customers to “own their ordering experience” and access a more personalization.
In addition to Taco Bell’s expanded delivery partnership with Grubhub, the QSR is also planning to install self-service kiosks across 6,600 restaurant locations. The chain plans to install them at all of its stores by the end of the year. The kiosks feature touch-screen monitors that allow customers to place their orders and pay via credit cards, debit cards, gift cards and mobile wallets. They can also check out with sales associates if they want to pay with cash.
Hanna said Taco Bell’s customers approve of the kiosks, which help them more easily discover menu items and place personalized orders, which appeals to customers with dietary restrictions because they can use the kiosks to filter out meat-based menu items, substitute items or place orders without dairy products.
Hybrids
Restaurant chain Big Boy is experimenting with a new fast-casual dining prototype that eliminates sit-down service. Customers will place orders through counter menus and enhanced online and mobile ordering capabilities. The new concept is targeted toward younger consumers who don’t have time for sit-down experiences. It also eliminates tipping for servers.
Holdouts
While national chains like Taco Bell and McDonald’s are partnering with delivery services, Domino’s Pizza has resisted the call of third-party delivery apps and will continue to go it alone.
Fast food brand Jimmy Johns is also rejecting third-party delivery and is instead relying on its own drivers, while Panera Bread has come up with a mixed approach. Customers of Panera Bread can order its food through third-party apps, but the chain’s own drivers will deliver the items.
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