Virtual Restaurants Are a New Reality

virtual restaurants

Posted: Oct. 22, 2018

From leasing commissary kitchens to partnering with regional restaurants, third-party delivery apps are dabbling in food preparation. 

Third-party delivery companies are crossing over into food preparation and are inventing a new model of food service in the process. The concept is called a “virtual restaurant,” and it offers brick-and-mortar restaurants several interesting opportunities.  

We’ve discussed before the many ways technology is shaping the food industry, and virtual restaurants are the newest thread in the topic.

Food-Delivery Apps Are Partnering with Restaurants to Reach More Customers

The days when it was just pizzerias delivering food to customers are long gone. Nowadays, customers can order take-out from their favorite restaurants through third-party delivery companies like DoorDash, Postmates, and Uber Eats. Every food delivery company wants to lead the $30 billion industry, and the fierce competition is driving apps to experiment with unorthodox ways of attracting customers.

Leasing Dark Kitchens and Partnering with Restaurants for Online-Only Orders

Several delivery-app companies are experimenting with leasing kitchen spaces and filling them with kitchen staff from partnering restaurants. These commissary kitchens—also known as “dark kitchens”—are an idea Postmates and DoorDash have been experimenting with for some time already. They market the kitchen space to restaurants as a way to target new customers and earn more profits. So far, dark kitchens have proven to be a hit.

In Los Angeles, Postmates tried out a virtual kitchen for the first time with the popular Tatsu Ramen. Over 150 bowls of ramen were sold in five hours on the first day. Their success attracted more restaurants to Postmates’ dark kitchen, and the company is now looking into leasing more kitchens.

In San Jose, California, DoorDash rented space from the Santa Clara fairgrounds and partnered with Bay Area-pizza chain, Little Star. The pizza company used DoorDash’s virtual restaurant to test the San Jose market for expansion, operating under a different brand name, the Star. They, too, had success making online-only orders through the delivery app. What’s more, Little Star learned what San Jose’s consumers preferred before opening a new location.

Other restaurants are using commissary kitchens for the same reason: market research. Not sure how the California market would respond to his menu, Chicago-based Honey Butter Fried Chicken used shared-kitchen space Forage to try out the market. From the Forage kitchen, owner Josh Kulp could then partner with delivery app Caviar to gauge his new Californian customers. With a high volume of delivery orders, Kulp is distinguishing which recipes work and can open an official restaurant location with confidence.

Using Data to Identify Culinary Gaps and Supply the Demand

In the case of Uber Eats, the company is using data to appeal to more customers and build mutually-beneficial partnerships with existing restaurants. Here’s how: The delivery company finds the most desirable food by studying the search queries in its food app. Then, Uber Eats identifies restaurants with the kitchen capacity and staff know-how to prepare the popular food items.

For example, after determining that customers in Chicago wanted to order Hawaiian poke cuisine, Uber Eats established partnerships with Japanese and sushi restaurants. At that time, there were no restaurants making poke bowls. Using the know-how and kitchen space of existing restaurants, Uber Eats could supply Chicago customers with Hawaiian poke-style food.

Uber Eats Program Manager Elyse Propis says for restaurants, partnering with the food-delivery app is a great option. “There’s essentially no upfront investment unless they need to purchase new ingredients. It’s incredibly low-risk.”

Despite the success other companies are having with running commissary kitchens, it’s unlikely that Uber Eats will start leasing its own kitchen spaces. “I think it goes back to us viewing our business as ‘How do we use the data that we have to allow our restaurateurs to utilize the spare kitchen capacity that they already have?” says the head of UberEverything Jason Droege. “I think that’s something we’re really good at.”

Delivery Apps Aren’t New Restaurant Competitors

The food delivery industry is a crowded market, and companies are turning kitchens into their next battlefield. From renting out kitchen trailers and introducing pop-ups to leasing out full-scale commissary kitchens, some worry that the competition is coming dangerously close to stepping on restaurant territory.  

Imagine: What if delivery companies cut out restaurants all together for self-operated commissary kitchens that serve popular foods for lower prices? Like Costco’s Kirkland except for restaurant dishes. Critics worry that without the overhead of a restaurant, the quality of food could be maintained without compromising flavor or quality.

According to Jonathan Maze, executive editor of Restaurant Business magazine, no-brand-name food delivery isn’t something restaurants need to worry about. Neither is delivery’s impact on your bottom line. “Proclamations on delivery’s potential impact on restaurants tend to be overstated,” he says. “Yes, delivery is booming. Many people love it. But it’s still a tiny percentage of industry sales. There are still questions about third-party services’ future, and costs remain a concern.” 

Costs are of concern, especially for delivery apps leasing their own kitchens. Take Caviar, which absorbs the rental fees, while others like DoorDash are deciding whether they should sublease to partners or charge a higher commission.

By working with existing restaurant kitchens, it appears Uber has solved a big problem its competitors are still working out.

For many reasons, virtual restaurants are no threat to the traditional dining experience. Instead, they are presenting exciting opportunities for restaurants to broaden their audience, test out new regions, and earn more money. And this is just the beginning!

One of the most successful ways to attract more business is to give great customer service. See our Roadmap to Giving Great Service for tips!

It’s a fact: A restaurant point of sale can change your business.

Posted: Oct. 22, 2018 | Written By: Emma Alois

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