A few days ago we anticipated that one of our favourite subjects or trends for 2021 were the so-called “Dark Kitchens” (a.k.a. cloud, ghost, virtual, remote, etc.). We believe these will be some of the best trends for 2021 and will remain far beyond Covid-19. We discussed the utopian idea with Fabrice Grinda at Angel Investor School, where he believes that in the near future, houses and apartments may be built without the space required for a kitchen. His main point, although shocking at first sight, is that dark kitchens will make it possible to have quality food everywhere, at affordable prices (possibly even cheaper than buying food and cooking it yourself), and with very small delivery times. In his view, this will render home kitchens unnecessary and allow for that space to be used differently.
The rise of Dark Kitchens
So what are they? A dark kitchen is a professional kitchen that only produces food for delivery (or take-away). They contain the necessary kitchen equipment and facilities needed to prepare food but have no dining or seating area for customers. Many don’t even have a storefront, delivery counter or even a sign.
But some of us will think this is not something new. In the streets of some neighbourhoods in South-east Asia, many homes do not necessarily have kitchens and people usually buy their food from street kitchens. This is far less common in developed countries (with the exception of Domino’s, or the typical street-food stalls and emerging high-quality food-trucks).
But the concept was born around 2010 given increased demand for high-quality food and rising rents for restaurants. Since then it has been growing in popularity and quality. And with digitally savvy millennials (demanding the world be run by an app) and the advent of Covid-19, they became very popular. With restaurants (and their dining space) closed, as well as most people locked down, the option of getting high quality food (and not having to cook all day, every day) was very appealing for consumers. But dark kitchens, in our opinion, will transcend Covid-19 and they may prove a worthy investment.
With over 7,500 dark kitchens in China, 3,500 in India and rising numbers in the US and Europe, the trend is clear. According to reports the online food delivery could be worth more than $200 bn (although other estimates place this at multiples of that figure).
Why will Dark Kitchens prove worthy?
Lower investment needed. First of all, they require far less space, investment, and running costs than restaurants, while producing the same quality food. With less employees to worry about, less square footage and high overheads and high rents, chefs may seek to focus on what they care about most: food. Setting up a dark kitchen does not need costly furniture, space and market research as to where to install the kitchen or how many diners you can serve per night. And going back to 2020, just think of the number of restaurateurs that had to close up shop. They would have been able to keep running their businesses and would be in a better position to fight off the pandemic.
Technology and partnerships as the key enablers. Previously, restaurants that wanted to deliver food within their neighbourhood needed to hire delivery people directly. We all remember the pizza delivery cars in the US which were run by the restaurant’s employees (usually the more junior ones). However, nowadays apps, tech and startups such as GrubHub, Glovo, Rappi, UberEats and DoorDash, allow restaurants to take in orders without any hassle, plus having them delivered in a timely and cost-effective way. This was not possible years ago when orders had to be taken over the phone and there was no real-time or algorithmic estimate of the delivery time. Technology has allowed customers to place orders and reduce their waiting time (or their anxiety levels). Logistics ready-made solutions will be key partners with off-the-shelf products.
Data (surprised?) and flexibility are your best friends. Who would have thought that large amounts of data would also influence a specific kitchen or chef style? Dark kitchens will have the capabilities of changing and adapting based on big data, which would tell the chef what to sell, when and where. Reviews, production and delivery times, customer reviews and opinions, willingness to pay a certain price, etc. will influence like never before a kitchen’s output.
Output can therefore easily be adjusted quickly as per demand, and tech will allow chefs to even buy produce automatically for the busy days. Although the dark kitchen menu is usually optimized delivery food (how the food arrives to its destination) and ease to produce, some dark kitchens prefer to focus on high-quality Michelin star style food, albeit more costly, depending on location and demand. Moreover, chefs can change the menu as per the season or as per the produce they can source, providing enhanced experience and constantly adapting as per customers’ tastes. Data will also prove worthy when trying to scale or franchise your brand.
White-label kitchen. As with outsourcing any software or call centre, dark kitchens provide an additional value add in the sense that they are able to cater for other restaurants, and food providers. In this sense, a particular dark kitchen can handle the outsourced delivery orders from a famous restaurant, allowing the restaurant to focus on the people dining in, which will in turn enhance their experience. Or they can cater for other dark kitchens or events, provided they have spare capacity.
Marketplaces and bundling? Imagine a world where customers enter their favourite delivery app and order food without a known brand. They will be able to choose which kitchen they want where past reviews, delivery time, and menu will be at the tip of their fingers. Or they may even be served by a completely unknown kitchen that was ready to deliver as quickly as possible.
Moreover, bundling products together with food will be easier and highly available. Not sure if dark kitchens will be able to sell a current account, but imagine flowers or chocolate boxes to commemorate your Valentine’s day.
On the challenges side, dark kitchens may face high margins imposed by their delivery or aggregator partners, low profit margins, no customer interaction (or significantly low) and customer data masking. However, we believe these are minor points and can be worked around.
Which are the biggest and best up-and-coming dark kitchens?
We believe there are certain different models within the realm of dark kitchens, other than the ancillary and much needed complementary services such as logistics, delivery, apps and data, and produce sourcing. UberEats, GrubHub, DoorDash, Deliveroo, Rappi, Glovo and many others, have made possible the development of dark kitchens.
Within the dark kitchens themselves, the main business models we see are:
VC and angel money has started to flow into this trend lately. Leading the space are the following companies:
Cloud Kitchens. A company founded by Uber founder and ex-CEO Travis Kalanick which has already invested over $150 million in the space. They rent kitchen equipment and the tech to take and fulfill orders.
DoorDash Kitchens. DoorDash has gone the extra mile. Having a very successful food delivery brand (and amazing recent IPO), the company has set up kitchens for US restaurants to use. This way chefs and restaurants can expand without the need of setting up costly restaurants and structures, but allow them to offer their cuisine across the US. They are probably the first delivery platform to take this additional step into the physical realm of dark kitchens. We will keep an eye out on how this develops and we are sure others are to follow their steps.
Kitchen United. A ghost kitchen company based in Pasadena, California, providing equipped professional kitchen space to restaurants for the preparation of delivery-only meals. Kitchen United offers restaurants a top-tier food production facility combined with insights and ideas on how to profitably expand into the food delivery business. For high-volume commissary businesses, KU offers commercial kitchen space, business intelligence, and resources to succeed with minimal risk and capital outlay. With founders from Taco Bell and McDonalds, and over $40m in funding including funding from Alphabet’s parent, Kitchen United is a clear front runner in the US that you cannot miss.
Virtual Kitchen Co. With backing from no less than Andreessen Horowitz, Virtual Kitchen is the distributed restaurant platform empowering restaurants to thrive in the delivery economy. With kitchens in San Francisco, Virtual Kitchen Co. is well positioned and one to keep an eye out for.
Rebel Foods. Thought to be the World’s largest internet restaurant company, Rebel Foods spans across 3 countries with over 320 dark kitchens and has a presence in more than 35 cities in India.
Panda Selected. The shared kitchen facilities of Panda Selected are designed for take-out restaurants and catering operations to help them save overhead costs and to meet demand. Besides renting space, Panda Selected is offering merchants other services such as management of supply chains and promotion. Panda Selected has attracted $50 million in Series C funding led by Tiger Global along with existing investors DCM and GenBridge Capital.
The future of Dark Kitchens?
So there you have it. We believe dark kitchens and the delivery economy are here to stay. And don’t even get us started on robot kitchens and drone deliveries, something we are sure Amazon is looking at as we type. But we also believe larger brands (McDonalds, Burger King, KFC, etc.) will want their piece of the pie and will figure out how they can adapt to this “new” normality and excel in delivering food.
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