It’s no exaggeration to say the COVID-19 has rocked the economy, causing substantial harm to most industries, especially food service – not everyone was able to pull through by shifting to a carry-out-only model but many that did were able to do so because of emerging paradigms like apps catering to food delivery trends. Of course, this was less than ideal for some companies because of the commissions collected by businesses like DoorDash, Uber Eats, and so on which led to more creative solutions or workarounds to keep the flow of revenue from screeching to a halt.
By introducing new, profitable tech into the mix that’s helping rev up old ideas with new spins, a few phenomena in and about the foodservice industry are about to become definitively mainstream. The restaurant industry is one of creativity and resilience which is why many are actively seeking out modern tech to fight back against the pandemic and most importantly, prepare for the future. So, in this piece, we’re going to start by looking at the concept of the ghost kitchen, the role of apps powering food delivery trends, then discuss the future of technology in this realm.
The rise of the ghost kitchen
The idea of the ghost kitchen isn’t exactly new. Until recently, the model seemingly wasn’t widely discussed in public view but ghost kitchens (or commissary kitchens) are spaces that have been utilized by food entrepreneurs to effectively and legally prepare food products for ages. Now that this model is becoming more popular, it’s affording new opportunities for food entrepreneurs to enter the market as well as providing extra income for restaurants that host such spaces.
Quite simply, a ghost kitchen refers to a commercial space that is leased or rented to an outside business for the sake of making food products. There is a substantial need in the foodservice industry for access to space and equipment that enables businesses to produce food products without the overhead and resources that are required to run a full restaurant. Because most regions have regulations in place requiring that any food sold to the public be prepared in a health-department-certified, commercial-grade kitchen, this gives the business renting such spaces an inexpensive solution to get their product on the market. Restaurants offering up their kitchen space typically either collect a modest, fixed rental fee or use a more dynamic model that’s based on sales.
Now, some businesses are turning to technology designed to bring together both those offering space for ghost kitchens and food entrepreneurs. One platform known as Kitch works much like freelancer sites Upwork, Fiverr, or TmrO that Blue Label Labs developed – businesses offering kitchen space can add a searchable listing on the marketplace for those seeking commercial space to prepare their food products. Another player on the market called Cloud Kitchens offers a model where they provide a comprehensive set of services that includes commercial kitchen space, maintenance and cleaning, as well as software for ordering ingredients, scheduling, and delivering the product.
Between the organic rise of ghost kitchen popularity and new platforms that vastly increase the visibility for both kitchens and food entrepreneurs, businesses that have been negatively impacted by regulations that forbid in-house dining are better able to recoup some of their lost revenue. Plus, this provides a valuable opportunity for newcomers to enter the market and use the money they save for marketing. When executed correctly, it’s a win-win for both parties.
Using third-party delivery or building your own?
One path that many restaurants explored as a result of the pandemic was to get on board with food delivery trends by signing on with apps like Uber Eats, DoorDash, Postmates, or other services that provide a turn-key solution for getting food to customer’s doors. Each platform provides a similar setup that allows restaurants to upload their menu such that customers can place an order. Once an order is placed, it’s transmitted to the business via an app and pings nearby delivery drivers for pick up.
While this is ideal for businesses with high enough profit margins, others are turned off by the roughly 30% commission that’s collected from each order. For some, namely franchises like McDonald’s that partners with Uber Eats, the commission is eaten by the company as the increased sales and insane profit margins offset the delivery costs. Other companies raised their prices for their delivery menus to make up for the commission while some explored other options like augmenting staff with delivery providers. Unfortunately, many were faced with circumstances where they couldn’t (or simply didn’t) adopt a viable delivery service and suffered as a result.
Realizing the restaurant market is keen on food delivery trends, a few companies looked at the big picture and decided to go big. Rather than partner with an existing delivery provider, PF Changs recognized that by furnishing an app and providing delivery services, they would eventually see an ROI after the increased revenue surpassed the development and marketing costs.
Another financially sound move the company recently made was opening a fast-casual derivative of their restaurant known as PF Changs To Go. These locations also offer delivery but more importantly, they expand the company’s reach in areas where they operate. They’re an ideal supplement to PF Changs’ delivery initiative as these locations are able to operate leaner than the full restaurants, putting them in a perfect position to take advantage of the company’s internal delivery service. Moreover, this move from PF Changs aligns with another trending model that’s taking hold in the industry: smaller restaurants. These locations that cater to take-out and delivery allow businesses to focus on the product as well as spend less money on real estate and other expenses.
Even without an internal delivery option like PF Changs, Church’s Chicken experienced a massive uptick in sales from ‘order ahead’ functions from their app. By using the app, customers can place an order and skip the drive-thru, collect customer rewards through their loyalty program, as well as save order preferences and find locations. The key takeaways from Church’s success are that 85% now engage with the brand through a mobile device and the company increased ‘order ahead’ sales by 540%.
Businesses with enough funds to invest in an app are in the perfect spot to capitalize on the market’s desires for food delivery trends. This prevents the need to charge extra to compensate for a food delivery app’s fees and further helps the company earn revenue they would otherwise miss because of forced closures. In the event of another pandemic somewhere down the road, restaurants with such a tool at their disposal won’t be as affected as they would without an efficient solution in place. In the long-term, an app allows the restaurant to reach a broader customer base with low overhead to make more sales.
What the future of restaurants and food delivery trends might look like
Thanks to the combination of buzz around ghost kitchens and platforms that help connect the dots, you should expect to see more food brands emerge everywhere. These models will add a greater variety of permanent local dining options everywhere you look. It will also help businesses that prepare food items to sell at farmer’s markets, co-ops, and other local establishments generate legitimate income.
This will certainly add more competition in some areas as food entrepreneurs turn to ghost kitchens to launch and grow their businesses. Some will inevitably fail, others will expand to full restaurants, and certain businesses will maintain under this model. Ideally, this will serve as inspiration for continued innovation in the industry and instill the mindset in more restaurant owners to keep an open mind about implementing new tech to improve their business. Even something as simple as bringing a Clover POS system to streamline transaction processing and record-keeping can prove to be a huge step up for the many small restaurants still using low-fi solutions. For example, we are currently working with a Midwestern coffee chain by building a contactless ordering system on top of Clover that handles payment processing and transmits orders to the cafe.
Another trend that we expect to see is the emergence of white-labeled or out-of-the-box solutions from software development companies that would offer a valuable feature set and a quick time to market. Though these solutions typically have short lifecycles when compared to custom apps that are regularly maintained, they would help restaurants get their feet wet with such technology, and in some cases, generate enough revenue to invest in a more capable platform.
Finally, we all need to come to terms with the fact that robots will be taking over certain roles and food delivery is a prime target for such technology. A couple of years ago, DoorDash partnered with the self-driving vehicle development company, Starship Technologies, to create and test their delivery robot concept. While this idea still has yet to fully come to fruition, it has been verified to work for short-distance deliveries. When it becomes more cost-effective to build such units, we’ll start to see high-grossing companies adopt these solutions for a new wave of food delivery trends. As such, the market is ripe for a provider that can inexpensively provide such devices and keep up with demand.
Blue Label Labs is primed to bring great technology to the foodservice industry
We seek out challenges in design and outcomes by embracing innovation and confronting the unconventional. By comprehensively studying market trends and creating engaging experiences for users, our software takes the businesses we serve to the next level. Our insights into the restaurant industry allow us to build cutting-edge software for everyone from the company just looking to bring their custom app to life to those who have truly innovative ideas. Feel free to reach out to us to learn more about our services and discuss your idea.
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