Dark kitchens… are they a pandemic fad or here to stay?

Hey Hot Potatoes,

Welcome to the latest edition of the Hot Potato Newsletter. This week, we look at the important role dark kitchens have played in the hospitality scene in recent years. Today we explore whether they were just a pandemic fad during COVID or are they here to stay longer term?

In today’s email: Dark Kitchens… are they a pandemic fad or here to stay?

What is a Dark Kitchen and what are the benefits?

Source: Deliverect

Dark kitchens, also known as cloud or ghost kitchens, are delivery-only restaurants that offer an efficient and cost-effective way to be a ‘restaurant’ without a physical storefront.

Key Points:

1. Delivery Only: Dark kitchens operate exclusively through delivery and by eliminating dine-in services, overhead costs can be significantly reduced.

2. Concept Creation and Testing: They enable rapid menu experimentation and the ability to test out new concepts in different markets.

3. Expand without Restrictions: They allow brands and food businesses to grow since there are fewer geographical restrictions, making it much easier to launch in new locations.

Dark kitchens provide a scalable model that can adapt to evolving consumer trends. They give brands the flexibility to test market demand in an area and can rapidly launch innovative concepts without the hefty investment associated with traditional brick-and-mortar establishments.

Dark Kitchens and The Pandemic Period

Source: The Week / Forbes / GCA

Dark kitchens emerged as a popular solution during the COVID pandemic, allowing restaurants to operate when physical locations were closed. They adapted quickly to new safety regulations and requirements, whilst being well equipped to cater to the surge in online orders.

Data derived from CGA’s Hospitality at Home Tracker showed that delivery and takeaway sales were 273% higher in May 2021 when compared to May 2019, with many entrepreneurs and brands seeking to capitalise on the opportunity dark kitchens presented.

Key Points:

• Celebrity Endorsement: The dark kitchen concept evolved where celebrities and influencers began to create virtual delivery-only food brands. Most notably YouTube sensation Jimmy Donaldson aka Mr Beast, launched Mr Beast Burgers; a virtual brand that operated out of dark kitchens. His burgers were also licensed for restaurants to cook and serve.

• Big Investment: The popularity of virtual kitchens attracted billions of dollars from investors and start-ups. Many well established brands were announcing plans to expand into this space. In 2021, Wendy's announced plans to open 700 ghost kitchens with start-up Reef Technology.

• Optimistic Future: Many in the industry considered the delivery-only trend the next big development in the industry. Market surveys indicated that that the global cloud kitchen market size, estimated at $43.1B in 2019, was forecasted to reach $71.4B by 2027.

It goes without saying that dark kitchens played a pivotal role during the pandemic; helping restaurants and brands cater for the increased demand in takeaways. It was a time when so many were confined to their homes having to isolate. Takeaways offered either respite to the many stressful days heroic NHS staff and Key Workers endured, as well as a change to the monotonous days the majority of the population were living.

Post Pandemic Shift - Dark Kitchens proving not as popular

Source: Globest / NRN

Post-pandemic shifts have exposed challenges for dark kitchens in the delivery sector.

Key Points:

• Return to Dine In: We all missed eating out! Consumers were "craving that relationship with the brands themselves," says Dorothy Calba, a senior research analyst for food service at Euromonitor International. Wendy’s CEO Todd Penegor in early 2023 said they no longer envisioned delivery kitchens being a large element of their growth trajectory moving forward, choosing to focus on encouraging customers back into stores.

• Quality Issues: Uber Eats removed 8,000 'storefronts' from its listings last year over complaints of poor quality, inaccurate orders or duplicated brands. Jimmy Donaldson also ended up suing his partner Virtual Dining Concepts over reported quality issues.

• Limited Revenue Channel: Brands recognised that it was incredibly risky only having one main revenue channel. Restaurants, despite higher operational costs, can benefit from diverse revenue steams - including dine in, click and collect, and delivery. This multi-channel approach not only spreads risk but also creates more growth opportunities.

After the pandemic lockdowns ended, customers returned to the restaurant scene, causing difficulty for large chains and brands operating dark kitchens to cope with the extra orders, leading to a rise in customer complaints. Restaurants were either forced to reconsider the strategy or abandoned their dark kitchen altogether.

The Future - Are Dark Kitchens here to stay?

Source: MCA 

Whilst delivery demand has cooled from its peak, dark kitchen operators like Karma Kitchens are still experiencing robust growth.

Key Points:

• The Rise in Corporate Catering and Meal Prep: The rise in brands needing dark kitchens for ‘non-delivery’ is growing. Corporate catering and meal prep brands need production facilities in central locations, which dark kitchens provide. The desire for convenient yet healthier lunch time options is helping drive this demand.

• Still an Appetite for Large Brands: Brands looking to launch in international markets still see dark kitchens as part of their strategy for growth. In 2023, Popeyes opened seven dark kitchens in London alone.

• Connecting to Customers: Food delivery can still be seen as a great way to connect restaurants and brands to their customers. Last December, Ynyshir, the 2 Michelin Star restaurant in Wales for a very limited time only delivered a ten course tasting menu. Head Chef Gareth Ward prepped and cooked these dishes at Karma Kitchens’ site in Bermondsey.

We can see despite the drop in popularity, there are still ways for dark kitchens to remain operational, relevant and profitable. It just takes some creativity, flexibility and having a good sense of what is happening in the market.

We’ve spent some time today reviewing the rise, fall and rebirth of the dark kitchen concept. So if you didn’t know what a dark kitchen was, hopefully you do now! I’m curious, would you be inclined to explore this world?

Thanks for reading and don’t forget to subscribe to this weekly newsletter to stay updated on all things hospitality!

Next week we are exploring takeaways, should every restaurant embrace food delivery? Perhaps it might not be the right choice for some…

Bon Appetit,

Max

P.S. Don't forget to add us to your safe sender list to ensure you don't miss out on any of our tasty content 🔥🥔