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Can Dark Kitchens Deliver For Food Manufacturers?

Can Dark Kitchens Deliver For Food Manufacturers?

Dark kitchens existed before the advent of Covid-19, but as with most digital-centric trends, the pandemic has accelerated its growth, leaving food service companies puzzled as to how best to take advantage of its benefits.

Whether dark, ghost or cloud kitchens, such kitchens primarily offer fares for the delivery market and offer restaurants the opportunity to extend their range, reduce overhead costs by dividing rooms and reduce labor costs by up to 80% lower.

Digital support is another selling point. Dark kitchen operators like Karma Kitchen from London and CloudKitchens from Uber founder Travis Kalanick emphasize that their services automate sales while providing aggregated data on user demand, which enables food service providers to react to local conditions.

„In recent years, new operational technologies such as digital orders and payments and cloud-based data hosting have been introduced, as well as efficient last mile delivery and data aggregation,” said Graeme Smith, Managing Director at AlixPartners in London. „Now the industry is entering the next wave to benefit from data and digital technologies.”

Smith suggests that this could be done by piecing together supply chain data, duty roster, customer demand planning, and bookings to drive operational change. For grocery suppliers, such data provides insights into how promotions work on a day-to-day basis, a view previously obscured when their connection with consumers was routed through wholesalers.

“In the middle step, we created data for suppliers,” says Smith. “The benefit for food companies comes when this data tells them where customer demand is, what is changing it, how it reacts to promotions based on factors like the weather or the opening of new competitors, so that they can really engage with consumers. ”

Deliver growth

In the UK, law firm Bird & Bird estimates there will be around 750 dark kitchens in operation by March, with the number rising sharply as established restaurants, virtual brands, tech companies and venture cital backers invest in the space.

The current size of the market is difficult to determine due to the sheer number of new players entering the market. Food service players, including contract caterers and event companies, are striving to reach aloof consumers by partnering with dark kitchen operators or launching similar services themselves.

The French food service giant Sodexo, which is acquiring a majority stake in the London office supplier Fooditude, is typical of this trend.

In March, Walmart announced a deal with Ghost Kitchen Brands that would allow buyers of the retail giant to order freshly prepared meals in-store or online for pickup or delivery (from a third-party provider like Uber Eats).

In October, US grocer Kroger announced the introduction of on-premise kitchens in two of its branches as part of a collaboration with US operator ClusterTruck.

Meanwhile, consumer goods manufacturers are also actively working with dark kitchens amid a convergence in the food service supply chain that has the potential to connect them more closely with consumers.

Unilever, which started working with ghost kitchens in the middle of the last decade, recently announced a partnership to help Germany-based ghost kitchen operator Vertical Food move from its current location in Berlin to cities like Hamburg, Frankfurt, Munich and Cologne expand.

“We have a ghost kitchen partnership in almost all of the 70+ countries in which we operate,” says Arnaud Leleu, Global Customer Development Director at Unilever. „This work has intensified over the past year as the demand for deliveries has increased in the context of the pandemic.”

The Vertical Food menu evolves from the dishes most frequently requested online in the respective delivery area. The company manages an order and processing software with which the routes of the drivers are determined algorithmically.

Depending on the needs of the dark kitchen partner, Unilever advises on nutrition, menu optimization, food safety, packaging, marketing and the operator’s digital skills.

The FMCG giant is one of several CPG groups experimenting with running their own dark kitchens and opening a virtual tea house under its TAZO brand in Canada.

In Europe, the US food company Kraft Heinz announced plans to deliver fresh ready meals from dark kitchens home after a successful attempt in the Netherlands. The initiative builds on its Heinz to Home service in the UK, which was launched during the lockdown to give consumers access to products such as baked beans, tomato soup, ketchup and lettuce.

Converging categories

These steps support what Melissa Abbott of food consultancy The Hartman Group calls a “hybridization of grocery, snack and snack delivery,” heralding a near future in which consumers can order from multiple restaurants and retail brands purchased from a single location at the same time.

This shift has accelerated the way PepsiCo’s food service arm uses data to help customers respond to growing demand outside of the store, as well as new business models like ghost kitchens.

PepsiCo even pioneered Pep’s Place, a delivery eatery that invites US consumers to place orders for Pepsi brands, and Cosmic Wings, another online-only restaurant that sells and serves „Cheetos-inspired items” through Uber Eats 1,300 plebee’s are served to kitchens nationwide.

“We’re learning through [these] Concepts to help our customers grow while experimenting new ways to build our own brands, ”Scott Finlow, PepsiCo Foodservice’s global chief marketing officer, told just-food.

Operationally, Leuschner compares dark kitchens with the hotels in which he used to work, whereby the decisive differentiating factor is the transportability of the end product. Therefore, bespoke packaging will be the key to advancement, especially as the fear of Covid-19 subsides and consumer concerns about sustainability come to the fore again.

In the UK, Westmill Foods, a unit of London-based manufacturer Associated British Foods that supplies Asian and Afro-Caribbean foods, says working with dark kitchens improves their understanding of trends and product usage, which helps them choose areas of focus for innovation and product development .

Nathan Herrmann, CEO of Westmill, points out other advantages of working with dark kitchens: “We often focus where we believe our product has a quality advantage – our Lucky Boat noodles have a very low percentage after cooking Broken pasta – therefore there is less product waste.

„Leveraging Dark Kitchens’ data will allow partners to understand trends, usage, waste, and performance, which provides commercial benefits.”

While sales on the Dark Kitchens channel remain small compared to the traditional foodservice market, grocery brand owners could also benefit from getting their delivery-focused partners to put their logos in front of consumers when they place digital orders, as they do Do try physical restaurant customers on table menus.

„Large food companies recognize that they can launch virtual brands and start from a dark kitchen,” adds Stephan Leuschner, Director for International Key Accounts at the German cooking appliance supplier Rational. „You can buy the burger in the supermarket, you can also have it delivered, but at the moment it’s more of a marketing matter.”

Calculating the risk

On the flip side, spreading your brand through channels you don’t directly control carries risks, both in terms of potential food safety issues and the quality (or not) of the product when presented to households.

In addition, dark kitchens receive negative press, not least from restaurateurs, who can see their attacks as an existential threat to their business.

“Dark kitchens are based on the Amazon Basics model – they take care of everything for you, so that you, as a food company, become a cog in the wheel,” explains Los Angeles-based cook and food author Jenny Dorsey. „They are reduced to a plug-and-play component until they realize that your concept is reproducible because you have passed all your data to them.”

Food companies, therefore, need to work carefully to keep an eye on restaurant-loving consumers while determining which brands are unique and strong enough to sell an occasion at home or with delivery on their own terms.

„It’s going to be a challenge – not just labeling each brand to get it to the consumer,” says Hartman’s Abbott. „Whether it is an ice cream or a plant-based offer, the brand must sufficiently involve consumers according to their daily whims in order to be successful.”

Kellogg offers a cautionary story in this regard after partnering with Deliveroo’s dark kitchen arm to launch its breakfast-focused food service Kitchen Creations in London and Manchester in 2019. The virtual stores both closed a little over a year ago.

In fact, Abbott sees the proliferation of new virtual brands and dark kitchen partnerships much like the meal set boom a few years ago when a large number of new players were sold and integrated into the grocery and retail sectors.

“There will be a lot of victims,” she says. „We will have to wait until traditional gastronomy is fully back to have a better indication of the frequency with which consumers will continue to use ghost kitchens.”

There are also unanswered questions about rental costs versus sales, hygiene standards, land use, data protection and working conditions, which, according to Bird & Bird, call into question the viability of current models.

Such uncertainty should give food companies food for thought before hustling themselves into the darkened kitchen space or working directly with delivery networks.

„If you’re a food company, isn’t it better to let restaurant brands compete with each other?” Asks Smith of AlixPartners. “You may lose a little margin, but it takes a lot of effort and you will be supporting the winner anyway since you are the supply chain. Besides how many restaurants fail? ”

This article was originally written in the June 2021 issue of Just Food’s bimonthly digital magazine.