Eating Between the Lines
A rise in off-premise business models, omnichannel technology, and new industry players are setting the stage for the future of restaurants.
This is our first deep dive into one of our top 10 foodservice trends. Read the full list here.
What defines a restaurant? An inviting place to share a meal? A delicious dish, prepared from the kitchen of an inspired chef? A cool brand that serves ~vibes~? Or is it just a way to satisfy our hunger? Like a lot of things in 2020, the concept of a restaurant has been flipped on its head.
Facing unprecedented constraints, operators have had to get creative and scrappy in a shuttered world, reimagining how, where, and what to serve hungry consumers. Tactics like refining curbside pickup and delivery, launching virtual brands, and creating new offerings like meal kits have been quite successful, and have uncovered new-found flexibility and opportunity that operators didn’t have before. Not only has this created options for existing operators, but has also helped attracted new types of restauranteurs into the fold. So, while the industry anticipates a steady “return to normal” as the vaccine rollout continues, many of these changes could be here to stay — altering the industry for good. In this deep dive, we’ll cover the new off-premise business models, omnichannel technology, and emerging players that are gaining traction.
Off-Premise Business Models
“They go by many names: cloud kitchens, ghost kitchens, dark kitchens, virtual kitchens, dark restaurants, digital restaurants. No matter what you call them, they are all (broadly) the same thing: a food-service business that only offers delivery or dine-out options.” Back of House
Off-premise dining is having its heyday, and operators and savvy business people alike are finding new ways to capitalize on its growth. Ghost kitchens, virtual restaurants, host kitchens, and other new types of businesses designed for off-premise are gaining traction as a result, each with their own unique advantages.
Ghost kitchens
These off-site kitchen facilities are used to prepare and fulfill off-premise orders for both physical and virtual brands. They can be leveraged by new brands, help restaurants streamline operations, or allow a concept to more easily expand their footprint.
Midsize chains like Nathan’s Famous and Saladworks are finding success establishing ghost kitchen space with providers like REEF Kitchens and Ghost Kitchens Brands, and are able to quickly grow without incurring the typically high capital costs.
Virtual restaurants
These restaurant concepts are accessible only through online ordering platforms and off-premise channels, and do not have physical/branded storefronts. Virtual concepts can be more accessible for operators, especially if they already have a kitchen they can leverage for fulfillment.
Virtual Dining Concepts has co-branded numerous concepts with celebs, like Mariah’s Cookies and Tyga Bites, over the past year. Due to the plug-and-play nature of the business model, the new concepts are making a big splash with little upfront investment — for example, the viral MrBeast Burger opened 300 locations across 35 states on Dec. 19, 2020, and had sold 1 million burgers only 3 months later.
National brands have also caught onto the trend, launching virtual restaurants from of their legacy kitchens. It’s Just Wings, the virtual restaurant from Chili’s parent company Brinker International, is on track to hit $150M in annual sales since launching in June 2020.
“Host” kitchens
Existing restaurants may leverage their underutilized kitchen space and staff to fulfill off-premise orders for both other (virtual and physical) brands. It’s a promising revenue model for many, as there is little-to-no upfront costs and no need for menu design, brand development, or marketing.
Companies like Franklin Junction (who coined the term) and Nextbite have emerged to pair virtual and physical brands with “fulfillment partners” who can prepare dishes for their off-premise customers. Not only does this allow brands to grow their footprint without the need for heavy capital investment, but it also provides a new revenue stream for restaurants with under-utilized kitchens and staff.
Omnichannel for Restaurants
“The average restaurateur expects that 62% of their 2021 business revenue will come from delivery and takeout, and 18% of restaurant owners and managers expect to be completely dependent on delivery and takeout in 2021.” (Square: Future of Restaurants)
With the rise of off-premise and the technology that supports it, a restaurant’s experience is no longer solely defined by the four walls of it’s physical space. Operators must consider how all touchpoints — online ordering, third-party integration, in-store service — work together to create a seamless experience for their customers.
Omnichannel ordering and delivery
The network of ordering platforms (direct or third-party), fulfillment methods (delivery, pickup), and in-store technology (kiosks, contactless payment) is ever-expanding and increasingly complex. As a result, it’s crucial for restaurants to keep track of where and how their customers are interacting with them — and make sure the experience is seamless and consistent no matter what.
An increasing number of restaurant tech solutions are emerging to help restaurants take control of their customer experience. Specifically, as divisive third-party platforms continue to charge steep fees, customizable in-house ordering and delivery solutions like those from Sociavore and Olo are gaining major traction, with Olo going public earlier this year.
Omnichannel marketing
Finding and attracting new customers across different channels can be elusive for operators. Technology partners like Bikky are creating robust and integrative tools to help restaurants collect, understand, and activate on their customer data, helping them attract and retain customers more effectively.
Crowded Competition
The pandemic put every calorie from a restaurant up for grabs, re-contextualizing how consumers interact with food. The necessity of eating brought down the walls we held so tightly, ushering a new era of convenience through convergence. (Hngry)
Seeing an opportunity to feed hungry customers stuck at home, new players like meal kit companies, grocery and convenience stores, and independent chefs have joined the fray as new competitors to the traditional restaurant.
Grocery and Convenience
While grocery spending spiked early during the pandemic, grocers are seeing the importance of pivoting to address increasing customer demands of convenience and value. Some, like Albertsons, are doubling down on meal offerings in their stores, addressing needs of cooking-at-home-fatigued customers. Others, like Chicagoland Mariano’s, are making even bigger bets by launching experimental fresh markets that center around “easy, quick, fun, poised to go and get food” that competes directly with restaurants. 7-Eleven may be the most aggressive player in the space, aiming to launch 100 new store-restaurant-combo models in 2021 alone.
Meal Kits
According to Grandview Research, the meal kit delivery service market could reach nearly $27 billion by 2028. The growth is due partially to changes brought on during the pandemic, but was already expected to grow due to an increasing preference in homemade meals. Many in this market — whose offerings can be segmented in “heat and eat” or “cook and eat” — have been trying to differentiate themselves, for example by collaborating with celebrated chefs or offering diet-specific meals.
New Food Entrepreneurs
With restaurants shutting down or going virtual during COVID, many enterprising chefs, operators, and tech companies have experimented and found success outside the conventional structure of a restaurant. Some have utilized social media to entice and sell directly to consumers; Chicago’s Professor Pizza has leveraged his following and expert reputation into a gangbusters “grandma-style” pizza pop-up on Tock.
Tech companies are also taking advantage of the current experimental landscape to provide new revenue streams for these food-trepreneurs. For example, Shef provides a platform to connect cuisine-specific chefs and consumers hungry for authentic dishes at home; Virtual Dining Chicago has created a network of experts (chefs, bakers, bartenders, sommeliers, and more) available to host unique and engaging virtual experiences with customers at home.
Conclusion
As we’ve seen in this deep dive, new off-premise business models, omnichannel technology, and emerging “restaurant” players are gaining traction in this new wild west of foodservice. While some might fade as the pandemic wanes, we believe many of these experiments could be here to stay — altering our industry for years to come.
