The renaissance of the food delivery industry and associated apps has boosted a “new normal” niche market of meals delivered straight to your door.

Most of this has been as a result of established restaurants and fast food providers needing an alternative means of income with their sit-down and take away business being curtailed because of the COVID-19 pandemic regulations and shut downs.

Obviously, the winners in this game has been the delivery services, Uber Eats, Grubhub, Just Eat, Deliveroo, Wolt etc. who are taking between 20%-35%  of the bill being ordered as their fee from the outlet. Credit card fees are generally absorbed by the delivery service but the delivery fee etc. is added to the delivery food item cost:

Food Delivery cost breakdown:

Delivery Fee: The basic fixed price cost for food delivery

Surge Pricing: When there are busy times, the prices for food delivery are higher.

Service Fee: Usually over looked. Service fee is a percent of the cost of the order added to the final bill.  Up to 15% of the cost of the meal!

Delivery Minimum: A delivery minimum can’t be ignored. Unless you are buying the minimum amount set by that company, you can’t get what you want delivered.

Merchant Fee: A merchant fee is added to your bill by certain restaurants who ask the delivery companies to include it to help them offset the profits lost from food delivery.

All this accumulated is proving to be a major negative impact on the already reduced revenues that food outlets and restaurants are struggling to achieve.

So a fresh new take and model on the social eating business is emerging and is proving to be more profitable than ever…The Ghost Kitchen…

Ghost or virtual restaurants are popping up  everywhere, changing the way food operators and restaurants operate and customers dine. This emerging vogue is in step with the growing trend of pragmatic retail and the changes in the wake of the “new reality” that will continue to impact other industries as well.

1.What Are Ghost Kitchens / Virtual Restaurants

Ghost kitchens can be thought of as a co-working space for food or a restaurant without a storefront. The Ghost Kitchen doesn’t have a traditional back and front of house. It strips the traditional restaurant of its fancy decor, furnishings, signage, and a large dining room. Instead, this model only requires a professional kitchen for menu creation and a system to deliver to customers.  It also gives the opportunity for a number of diverse restaurant cuisine types to operate out of the same ghost kitchen, either working from the same facility or breaking the space into separate areas.  Customers can order from any combination of the restaurants in the same order and have it delivered all at once.

The Ghost Kitchen / virtual restaurant concept reduces operator costs and overheads because of the simplified structure and the consolidating of the traditional restaurant model with varied and stylized menu selections and an off-premise food sale delivery.

A restaurant without the dine-in space and seating of guests alleviates the dependency on table turnover for revenue generation and with less risk than operating a traditional, brick-and-mortar restaurant. 

Deliveries are ideally made by the restaurant’s own delivery fleet or alternatively by a third-party service. If a third-party delivery service is used then the additional cost of fees for the service is offset by the saving made  reducing all the traditional expenses — rent, furniture, utilities, staff payroll.

Some existing high-end restaurants and even hotels have created a sub-brand for delivery while keeping their traditional in-house dining. They prefer to host their own virtual kitchens and use third-party delivery companies to streamline logistics. This allows the main restaurant to reach an entirely new group of customers looking for quality food delivered with a lower price tag because the meal does not include exclusive table service.

Ghost kitchens also provide opportunities for emerging chefs and restaurant entrepreneurs trying to make it in the extremely risky food industry. The initial investment to operate a ghost kitchen /restaurant is much smaller than opening a full-service restaurant.

The future of social and even private dining is definitely being aimed towards the simplicity of the Ghost Kitchen / Virtual Restaurant concept that forsakes traditional in-house seating. The concept has naturally found a niche as shelter-in-place orders forced restaurant operators, fast food outlets and hotels worldwide to close their dining areas.  The boom in ghost kitchens as a reaction to the coronavirus will likely outlast the pandemic itself and is seemingly more than just a passing trend.

A Different Dining Experience

The Ghost kitchen /  Virtual Restaurant concept is creating a dining alternative that is fast becoming the new normal. Even without taking the “Corona Effect” into consideration a growing number of customers, especially the millennials are  preferring to eat in the comfort of their own homes without having to wait in line for a table or being limited to specific times and even seating time limits.

Ghost kitchens provide menu flexibility for diners by giving them diverse menu choices and influence over exactly what they’re eating, when it will arrive and all from the same kitchen source. Most ghost kitchens are using cloud-based mobile ordering, so customers can personalize exactly what they are ordering and get their individual meals made to order. They can try restaurants that wouldn’t be in their area otherwise or that might usually be out of budget.

A Restaurant in the Clouds

What has become clear is that a successful restaurant business can be built purely on delivery and also not stifle the chef’s creativity. Financial success is obviously related to the cost factor: and with no front of house a major component of a restaurant’s cost is eliminated.

Rental prices in most major cities will rise as usual and the increased penchant for “quality food on demand,” has created a perfect culmination for the phenomenon of the Ghost Kitchen / Virtual Restaurant.

Millennials are a crucial demographic for the Ghost Kitchen / Virtual Restaurant concept.

Recent studies found that nearly 75 percent of millennials prefer to utilize delivery service. These 21- to 36-year-olds are generally tech-savvy, gravitating to online delivery apps as a means for ordering their meal.

Typically, traditional restaurants deliver foods that are pale comparisons of their dine-in served items and do not always travel well. The new ghost kitchens are meeting this market need by offering a wider menu selection that is cooked specifically for delivery. This is their core business where as for upscale restaurants, apart from the simpler burger and pizza delivery services, the delivery part of their business is second tier. The market trend for upscale and specifically ethnic meal delivery is headed toward a more discriminating customer and is more sophisticated in a number of different ways:

Quality Food Delivery

The preference for higher-quality ingredients in home delivery foods is increasing as customers have been subjected to chef-driven, fine dining restaurants doing take way. Delivery-only dedicated kitchens can offer the same and even a better experience right from the start. From hygiene & food safety to packaging & customer centric content that is at the forefront of the new wave of doing business in the food delivery sector.

More innovative items are being demanded as customers recognize that food does not have to be standard just because it is take-out.

Vegan & Healthy-Food Delivery and Gourmet Street Food

There had already been a strong shift in 2020 towards vegan & organic food. But with the latest reality taking the globe by storm, this trend will soon become a lifestyle for many. People will be more conscious about the food they eat and this market will see a rise in vegan only brands. A lot of chef driven ghost kitchens will actively be promoting plant- based menu items and alternative products, foods & more.

Upmarket Street Food

Most major cities have a diverse selection of  street foods and people love it. However, with hygiene and cleanliness being a primary area of concern now, street eating might not be people’s preferred option for eating out for quite a while to come. Thus, we will see a rise in the need for upmarket street food cooked and available in an organized way that can provide great taste coupled with hygiene and convenience of delivery

Growth and the Future

According to experts in the industry, sales via ghost kitchen / virtual restaurants will rise by a projected  25% each year for the next 5 year. For this reason, prospective new operators and existing restaurant models would likely benefit by investing in the ghost kitchen model long-term.

The global online food delivery services market is expected to grow from $107.44 billion in 2019 and to $111.32 billion in 2020 at a growth rate of 3.61% and is hurtling toward a projected $365 billion by the end of the decade

There has been a temporary slowdown in the first half of 2020 mainly due to the economic situation resulting from the pandemic and the measures to contain it. But the market is then expected to re-bound and grow in part because people are demanding more choices now that they recognize they have viable options between traditional dining out and the opportunity to have the same standard of food and service delivered to their door.