Why Virtual Kitchens Are Disrupting The Food And Beverage Industry
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Restaurants are notorious for their low-margin business model. After all is said and done, their profitability ranges from 5% to 10%, a number I’ve gathered from a variety of National Restaurant Association articles and surveys. The reason for its low margins is because of the prime cost — food cost and labor — which typically accounts for more than 55% to 65% of the revenue.
As technology rapidly advanced, so did innovation within the food and beverage sector. Third-party apps like Uber Eats, Grubhub and DoorDash have made ordering out easy with just a click of a button — no need to step foot in the restaurant. It is with the advancement of this technology that has allowed new businesses like virtual kitchens, also known as cloud kitchens, ghost kitchens or dark kitchens, to thrive.
The virtual kitchen concept has revolutionized the food and beverage world by taking out one of the major components for any restaurants: the dine-in area. A virtual kitchen is basically a commercial kitchen optimized for food delivery. What that means is that you can have your restaurant ready for takeout orders, without ever needing a dine-in space, which means less investment, lower rent and less labor cost.
After the past five years developing my very own restaurant chain and recently having it acquired, I can see why the majority of my consultation clients are all flocking to this model. Below are four main advantages of why every restauranteur should optimize for this model.
1. Lower Operational Costs
The most direct advantage of operating a virtual kitchen versus a conventional restaurant is the rental cost. Since virtual kitchens do not serve walk-in traffic, they require substantially less operating space, sometimes as much as 50% less space, I’ve observed. The virtual kitchens are also located in more discreet areas away from any walk-in traffic, which contributes to the lower rental cost.
On the same thread, because of the nature of virtual kitchens and how there is no need for dine-in service, the front-of-house staff is no longer needed, which also means lower labor costs. With no customer usage of the facility comes less overall maintenance cost as well. However, this cost is often balanced out with the commission that third-party delivery apps charge, typically 20% to 40% of revenue.
2. More Efficiency And Fewer Headaches
Aside from the direct-cost savings, virtual kitchens can be more efficient than typical restaurants. The virtual kitchen operators only need to minimize the production time and to ensure great food quality. Focus does not need to be spread to deal with the front-of-house experience. There is no need to deal with training, servicing, ambiance and all the headaches that go into operating a traditional restaurant.
The major struggle that restaurateurs encounter is finding capable and trustworthy staff. Oftentimes, this is what drives restaurateurs to the point of burnout. This variable is completely taken out when operating in a virtual kitchen where the only staffing needs are chefs.
The drawback of operating a virtual kitchen is that you must ensure all dishes overcome the 30-minute takeout box test. This really puts the chef’s execution and understanding of the ingredients to test.
3. Ability To Experiment
Another major drawback of operating a traditional restaurant is that once the restaurant experience or renovation is built, it becomes the brand, the soul, for years to come. Whether the restaurant concept does well or not, the restauranteur is still stuck with that concept and cuisine. It is much more difficult to pivot because of this limitation.
The key advantage of operating from a virtual kitchen is the ability to be nimble. Operators at virtual kitchens can run multiple different concepts, brands and cuisines from the same kitchen. They can set up multiple storefronts on third-party apps to test out the engagement and receptiveness of the menu. If the concept doesn’t work or has no traction, the operators can ditch it and move on to the next until they find the perfect product-market fit.
4. Shift In Consumer Behavior
One of the major reasons to pivot toward virtual kitchens is the pandemic. As restauranteurs struggle to find ways to succeed in the new normal, consumer behavior has also shifted radically. Consumers are no longer comfortable with dining out, and many are tired of cooking at home; hence, the sudden increase in demand for ordering takeouts. Third-party apps became one of the biggest winners of the pandemic in the food and beverage industry.
This is how operators of virtual kitchens can benefit as well with the sudden change in mass consumer behavior. One thing that I do promote caution about is whether this demand will subside post-pandemic. After all, humans crave face-to-face interaction, and sharing a meal with friends and family will never go out of fashion.
Operating a virtual kitchen has a lot of advantages over operating a traditional restaurant: lower operational cost, lower risks, more efficiency and more flexibility. Yet, despite all these advantages, virtual kitchen operators still need to be wary of the potential drawbacks, namely whether this shift in consumerism is here to stay or just another fad when all is said and done. Time will tell.
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