Why delivery-only concepts with no physical dine-in space are catching on
By Nili Malach Poynter, ChefReady
At this time last year, the average eater or chef didn’t know much about virtual kitchens. Now, these often delivery-only concepts are popping up in almost every U.S. city and are slated to be a $1 trillion global market in the next 10 years.
It makes sense—food delivery, according to The Washington Post, is one of the few areas in the restaurant industry seeing growth right now. According to the National Restaurant Association’s December 2020 report, 87% of full-service restaurants report an average of 36% drop in sales revenue, and 17% of restaurants have closed permanently or long-term.
However, many of the food industry problems exacerbated by the pandemic have been problems for years: rising rent and labor costs, razor-thin margins and high overhead. Restaurants must overcome many challenges to stay afloat and work even harder to become successful.
To combat these problems, many European countries, as well as China, India, the Middle East and other regions of the world, have been leveraging “virtual kitchens”—delivery-only concepts with no physical dine-in space—for years. The U.S., though late to the game, is seeing an explosion in these types of kitchens and is expected to “dominate the global market” by 2027.
Virtual kitchens, with their low barriers to entry and focus on streamlined delivery, are a smart and inexpensive way to get food into customers’ hands. Here are four reasons why a virtual kitchen could be the smartest move during these challenging times:
1. Adapt to the Rapidly Changing Delivery Landscape
Millennials, who often prioritize convenience and on-demand services, have been the primary force driving the success of delivery-focused restaurants. However, more recently, the COVID-19 pandemic encouraged people of all ages to try restaurant delivery, creating new habits that will likely continue. According to the Wall Street Journal’s recent article on virtual kitchens, 82% of diners said they plan to continue ordering online at the same frequency they are now, even post-pandemic.
2. Flexibility Can Help Reap Rewards
The reason many restaurants only have a profitability rate of 5-10% is largely due to food costs and labor, which account for 65% of a restaurant’s revenue, according to Forbes. Rentable virtual kitchens, with no dine-in space, require less investment, lower operational costs, lower risk, increased efficiency, lower rent, less labor costs and more flexibility.
The virtual kitchen model is different from brick-and-mortar restaurants in that there are no front-of-house costs—no decor, no facade, nothing to remodel or build out. Their kitchens often are “plug and play,” equipped with commercial hoods, sinks, back-up generators, AC, heat, electric and gas hook-ups, and pest control. Whether a restaurateur is looking to start a new concept or phase out of a traditional brick-and-mortar, a virtual kitchen space can provide cost savings on nearly every aspect of a restaurant.
3. Ditch the Traditional Landlord
Virtual kitchens don’t want tenants to fail, creating high turnover. Unlike traditional landlords, some virtual kitchens, including ChefReady, provide valuable, hands-on assistance to get concepts up and running, then help build and maintain momentum, including:
• Help from experienced kitchen architects, to assistant in personalizing kitchen stations
• City permitting guidance
• Marketing assistance, including advertising, public relations, social media and events (once it’s safe)
• Delivery assistance, including providing software that aggregates all third-party delivery companies
Another facet that can set virtual kitchens apart from each other is how management plans to deal with the beast that is third-party delivery apps. Third-party delivery apps are extremely contentious, sometimes charging the restaurants a 30% fee.
We at ChefReady believe virtual kitchen spaces should be active advocates on the state level for caps on delivery fees and work directly with third-party apps, leveraging the number of restaurants at one location, to get restaurants the best price.
Support offerings greatly vary between virtual kitchen spaces. If a restaurant is seriously considering a virtual kitchen space, they should inquire first with management about their amenities and support.
4. Get Creative in Offerings
Rather than investing in a food truck where success depends on in-person foot traffic, restaurants can reach a much wider audience with a delivery model found in virtual kitchens. Virtual kitchens can be a low-overhead training ground with a short one-year lease for a first-time restaurateur who is nervous to sign a big lease; serve as a second kitchen for a concept expanding into breakfast or lunch; be a test kitchen for an established restauranteur to experiment with a new concept; give a restaurant extra space to strictly fulfill delivery orders; and much more. The breadth of virtual kitchen tenants is expansive and can help restaurateurs reach their culinary dreams.
As the world adjusts to a “new normal,” some restaurants won’t be able to open (or reopen) as brick-and-mortar restaurants. Virtual kitchens can provide an affordable, stable avenue for restaurants to re-establish themselves with significantly decreased operational costs, while adapting to the rapidly changing delivery landscape.
ABOUT THE AUTHOR
Nili Malach Poynter, co-founder and president of ChefReady, has spent more than 17 years at the intersection of entrepreneurship, data and technology. As Colorado natives, she and her husband Robert co-founded Vinyl Interactive in 2004, a successful performance-based data science and marketing firm. In 2018, Nili watched their friends’ traditional brick-and-mortar restaurants shutter one after another due to rising costs, low foot traffic and low profit margins. In order to offer a solution with greater efficiency and a greener footprint than other virtual kitchen companies, she and Robert co-founded their second business: ChefReady Virtual Kitchens. For more information, visit chefready.com.