Dark kitchens: the burgeoning business model of the moment. A cooking facility with no physical premises for its consumers. Instead, a food delivery service that exists purely online. Also referred to as ghost, shadow, virtual, or cloud kitchens, the model holds many names but a clear purpose: to increase profits and build up brands fast.
The pandemic push
While dark kitchens were gaining traction pre-pandemic, they have offered food businesses an antidote to lockdowns and social distancing over the last two years. As a result, their growth has accelerated: according to TradingPlatforms.com, Uber Eats experienced a 152% year-on-year increase from 2019 to 2020; and Statista projects Europe’s online food delivery revenue to reach $31m in 2021 (a 26% annual increase). To date, Euromonitor states that there are now 1,500 dark kitchens in the US, 7,500 in China, and 750 in the UK – and counting.
Dark kitchens: a bright idea
Food firms are increasingly attracted to dark kitchens for their profitable structure. Operating a delivery-only service removes the need for customer frontage. Food businesses no longer require a capacious dining room, or even a pick-up area. Gone are the plush furnishings, atmospheric lighting, and expensive artwork. Instead, the rental blueprint is reduced to a kitchen, whose leasing costs can be shared with other businesses. On top of this, no front of house means no front of house staff: another expense spared.
In addition, the nature of a dark kitchen means cheaper and faster business expansion. A traditional restaurant takes time to research, refine and grow, and requires costly feasibility studies; but a dark kitchen can flourish with low levels of investment. Location and premises become less important, and the kitchen can be purpose-built or incorporated into existing restaurants. All this makes dark kitchens quick and easy to set up. Furthermore, while partnering with an online delivery service such as Deliveroo, businesses can distribute meals economically, and join a platform with a huge customer base to expand their brand rapidly.
The Ghost kitchens of Christmas Past?
As we return to greater normality, investors must question if dark kitchens offer longevity. Crucially, food delivery figures were rising swiftly before the pandemic. Euromonitor calculates global sales to have doubled between 2014 and 2019, and predicts a $1tn market by 2030: this would account for a third of consumers’ annual food spending.
Consumer trends have been changing for longer than just the pandemic period – and accordingly, so have business models. Food delivery offers more convenience, more choice, and better value for money than eating in a restaurant. And improvements in technology make the service ever-more efficient and user-friendly.
While dark kitchens have been prevalent in urban locations with younger citizens, elderly consumers have started to recognise the advantages of delivery during the pandemic. With an aging population, growth amongst this demographic is expected to continue. Similarly, with the UK’s shift to working from home, we might see more people moving away from city centres, spreading demand to new areas.
Given the advantages for both operator and consumer, it seems unlikely that cloud kitchens will blow away any time soon.
BDO Research Analyst
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