The dust seems to have settled on the shiny new toy of the restaurant industry: the ghost kitchen. Benefits to this model were initially touted as lower real estate and operational costs versus traditional restaurants, zero front of the house costs, flexibility of menu, brand, and pricing, and an opportunity to attract a new clientele via third-party delivery apps. And at the outset, those seemed to be very compelling reasons to “startup” a ghost kitchen.
Many startups across varying industries, eager to disrupt, often make a lot of mistakes out of the gate, the restaurant space is no different, however, here, the main blunder made by some of these startups was not understanding the business of hospitality from the get-go. Ask any successful restaurant veteran what the secret of success is for any profitable and long-standing brand, and they’ll all say the same thing—consistency, and a focus on the customer. By focusing too much on operational ease and efficiency, many ghost kitchen startups failed to convert orders into repeat business, misspent capital, underestimated the needs of diners, and cast a dark shadow over partners that dared to risk their brand reputation to unproven operators.
I spoke to CEO and cofounder of OOMI Digital Kitchen, Markus Pineyro, about what he’s doing differently with his new ghost kitchen business to ensure success into the future and avoid some of the costly mistakes of his tech predecessors. Pineyro is an example of one operator who has sat back, watched the model launch, and took copious notes. He attributes his patience and good timing to what he believes will be the winning ghost kitchen strategy.
“I’m a firm believer that there is success to be found in sitting back, watching and analyzing what works and what doesn’t before proceeding with anything new in hospitality,” Pineyro says.
This kind of patience shown by next wave ghost kitchen operators just may turn out to be the key reason that they become successful versus the initial rush of waders into the pool. Brands like OOMI Digital Kitchen are banking on their wait- and- watch approach and believe this patience will be the virtue in virtual.
OOMI Digital Kitchen is a digital food hall that launched October in Dallas. It offers items from a roster of well-established brick-and-mortar brands along with craveable items from their chef crafted virtual concepts. With a menu created expressly for takeout and delivery, all OOMI’s brands purport to focus on providing both the culinary excitement and the food quality consumers expect from an on-premises dining experience.
By examining the approach of the tech-focused entrants into ghost and virtual, OOMI carefully avoided some pitfalls to the underlying initial strategy for ghost kitchen and virtual brands. The lower real estate costs can be a benefit, but also a weakness that generates the need to increase marketing spend that will drive brand awareness. Rather than pay into the marketing rabbit hole, Pineyro and his cofounders instead decided to build their Digital Kitchen in a high-density urban-residential area in the middle of the hustle and bustle of downtown Dallas.
“We believe the optimal place to build and locate a ghost kitchen is smack dab in the middle of where our target demographic resides—and in an area that is familiar and easily located by both our on-demand workforce of delivery drivers and our customers. With cheaper out of the way buildings, drivers often have a hard time locating ghost kitchens, this frustrates and alienates them as they want pick up and deliver food as quickly as possible to optimize their tips. We’re also focused on providing customers with the shortest delivery times possible to enhance the quality of our product and the entire customer experience, something our V1 ghost kitchen predecessors grossly overlooked,” Pineyro says.
When the preparation facility is located far from a delivery customers address, there’s a cost to both alienating the people responsible for delivering your food and to providing a poor customer experience from long wait times and/or delivering cold or soggy food.
OOMI Founders never really believed the “zero front of the house costs” proposition touted by early ghost kitchen entrants either.
“Zero front of the house costs are never really zero, they’re just re-allocated into other unforeseen expenses; expeditors, order packers and even greeters who direct delivery drivers all need to be hired to produce and deliver a quality product for delivery. There seems to always be a cost, both direct and indirect to each decision you make when deviating from the traditional restaurant model,” Pineyro says.
Veteran hospitality operators like Pineyro know that beyond just location and service, to be successful in any restaurant business, there needs to be a focus on the menu and the food product. The menu needs to be both operationally optimized for efficiency as well as appealing to the customer. One of the main reasons that many of the current ghost kitchens that offer virtual brands aren’t finding success is that they haven’t yet focused on the customer or on creating a consistent quality food experience. Pineyro believes that his approach considers all the facets of the nuanced hospitality business that need be addressed to be successful for the next incarnation of ghost kitchens.
Pineyro open-sourced his strategy playbook so that other operators can benefit from this wait-and- watch approach to building a successful off-premises business.
10 Imperatives for Ghost Kitchen and Virtual Brand Success
1. Leverage as Much Data as Possible: Hire outside support to uncover customer habits within your delivery radius that zero in on the foods your potential customers want to buy and when. Use travel pattern data, urban planning data, geo fencing cell data, gap analysis and even SEO search analysis to uncover insights into what sells.
2. Partner with or License Compelling Brands- Don’t just partner or license any given brand, choose brands that have built in customer awareness and affinity and create virtual brands that compliment them. Better yet, find brands that have a cult following and an avid influencer base that will magnify your marketing reach organically.
3. Eyes Drive Buys: Reducing costs by procuring hidden real estate is a mistake, find a location that is convenient for both your customers and your drivers to locate, engage with and keep top of mind. This will optimize both your delivery and your carry-out business, both are equally important.
4. Centralize Production: Business models that rely on a patchwork of labor resources in a disparate set of kitchens will see this result in inconsistent product. Keep production in one location to capitalize on product consistency and food quality.
5. Oversee Your Own Operations: Don’t trust unproven entities with your brand, your recipes, your reputation. Having a dedicated operations manager on-site where your product is being made is key to quality and cost control.
6. Vary Revenue Streams: In addition to just a basic delivery model, set up catering partnerships with workforce food program companies, offer brands and menus that will generate revenue during varying dayparts and have a robust offering of marketplace products that can be added on for delivery.
7. Cross-Utilize but don’t Cannibalize: When matching licensed or virtual brands to your ghost kitchen try to overlap and use each inventory SKU across brands and menu items to limit cost and waste and to optimize inventory throughput. At the same time still be creative enough to utilize unique SKUs to form interesting builds that vary from menu- to- menu and item- to-item to retain consumer interest and excitement.
8. Provide the Consumer with a Holistic Experience: Focus on each step along the food procurement journey to provide a thorough and thoughtful convenience solution for your customers. Make discovery, sales, order, pick up/delivery, eating and feedback processes simple, intuitive, efficient, and experiential. Focus on both the food product and the hospitality experience, end to end.
9. Conduct Ongoing and Consistent Quality Control: At each point on the product to consumer journey regularly check for points of failure and opportunities to improve. Preparation, order accuracy, production, make line processes, packing, pickup and delivery stage gates should each be evaluated and monitored frequently.
10. Invest in Pick Up Technology: Food integrity is a key element to food quality. Pick up tech helps to keep food safe, held at the proper temperature and makes it convenient to access for the delivery drivers who are stewards of your product. Invest in great packaging and locker pods.
Liz Moskow is an F&B industry expert with a Culinary Institute of America pedigree and over two decades of brand, culinary, hospitality and CPG experience. Moskow is considered a global leader, trend spotter, and trend setter in the food industry. She is based in Denver and is Principal of Bread & Circus Ltd, a consultancy focused on the future of food.