Episode 10: Understanding How Brands Are Using Ghost Kitchens

Tracy Henderson:
Welcome to the 10th episode of the web series Revenue Stream with RMS. I’m Tracy Henderson, founder of Center Reach Communications. With me today is Richard Delvallee. He is the senior vice president of consulting services for RMS. Hi Richard. Thanks for joining us.

Richard Delvallee:
Hi Tracy.

Tracy Henderson:
So today we’ll be talking about a hot topic, ghost kitchens. And Richard will talk about how brands are betting and some are winning on the concept along with some inherent benefits they bring. So Richard, before we jump into this super hot topic, you are very responsible for the data-driven insights and profit optimization strategies of RMS’s clients, some of the largest organizations in the restaurant industry. So as we enter a year that’s taken us all a bit by surprise with all the new outbreaks, what’s top of mind for you and the clients you advise?

Richard Delvallee:
So summarizing the word, I would say creativity. In the customer-driven and on-demand economy that we are in right now, thinking outside the norm is no longer the startup kind of mentality. It’s really about survival for most of the brands we work with. It’s actually something that we’ve seen again and again for the pandemic is how fast brands we’re able to adapt. We have seen casual dining, launching, take out, curbside services, pavement seating, even adding delivery options, dealing with digital menus, adapting to safety regulations. Those are changing over and over again, all of this in a very short period of time. And another innovative direction that we’ve seen, and I don’t even want to call this a trend and I’ll get back to this later, is ghost kitchens.

Tracy Henderson:
Sure. I want to dig in with, dig into it with you, Richard, but first, can you explain what a ghost kitchen is to those that might not be as familiar with the term?

Richard Delvallee:
A ghost kitchen is essentially a brick-and-mortar commercial kitchen that set up only for delivery. Basically, there’s no dining in.

Tracy Henderson:
Yeah, it seems to make a lot of sense for these times.

Richard Delvallee:
That’s right. So ghost kitchens make a lot of sense financially first. There’s no storefront. So you don’t need for the house staff. And rents are typically lower than typical retail space. So the kitchens basically get the food in the hands of the diner efficiently and cost-effectively. This is really good business right now, especially as we know that consumer trends heading into 2022 indicated off-premise demand will continue to rise.

Tracy Henderson:
Yeah, that’s interesting. Can you talk to us a little bit about the findings of your recent survey?

Richard Delvallee:
Sure. So we know that behaviors from the early days of the pandemics are now becoming habits. Things like the take-out delivery are some of those main habits. In our last survey from November 2021, we actually saw that 49% of the respondents have used delivery at least once a week. And actually, 64% of the respondents are using takeout once a week. I would say the other thing that’s very interesting is that those numbers have not changed much as customers actually go back to on-premise dining.

Tracy Henderson:
So it’s interesting, even as diners go back to restaurants, they’re still choosing delivery and takeouts. So it’s not either-or it’s both-and.

Richard Delvallee:
Right. So for quick service in November 2021, we actually saw average check going up 21% compared to the same period in 2019.

Tracy Henderson:
Wow.

Richard Delvallee:
Sales actually increased by 5%, but when we look at traffic for the same timeframes traffic trended down 13% this year where compared to November 2019.

Tracy Henderson:
Yeah, so that’s interesting. That 21% increase is quite sizable. Clearly consumers want to cook less at home, even if that’s where they end up eating. I guess the question is, how do ghost kitchens fit into these trends?

Richard Delvallee:
Right. So quick-service restaurants and even fast casual brands most certainly can and actually have taken advantage of ghost kitchens. This actually allowed them to meet the increased demand that we’ve seen for delivery. When this, for example, is actually saying that they will open 700 locations across the US, the UK and Canada by 2025.

Tracy Henderson:
Wow.

Richard Delvallee:
Some of our viewers may also know about the concept called “it’s just wings” which is a concept operating out of Chili’s and Maggiano’s Kitchen. In the first year between June 2020 and June 2021, US sales actually exceeded 117 million Dollars.

Tracy Henderson:
That’s incredible. With so many brands jumping in, are there concepts brands that shouldn’t pursue a ghost kitchen?

Richard Delvallee:
That’s a good question, Tracy. And this is why I said earlier that ghost kitchens are more of an innovation and a trend. This isn’t just like adding a new item, like plant-based item on your menu. That will be a trend. Here we’re talking about creating a whole business line. So who doesn’t fit the ghost kitchen model? Actually, maybe restaurants that want to execute a large menu. That will be definitely an issue. Right? So given the small, sometimes even shared footprint of those ghost kitchens, just not possible to attempt that. It’s better to experiment with new concepts and double down on simplicity.

Tracy Henderson:
Sure. So what should brands consider as they’re reducing or limiting an existing menu to accommodate a ghost kitchen or actually just to accommodate some of the other issues in the industry right now?

Richard Delvallee:
So we always tell RMS clients that before creating a limited menu, whether it’s actually for ghost kitchen or not, that they must think about three points. The first one will be product ability. We know right now with supply chain issue, you really have to think about this. The second one will be cost of labor. So you really want to ask yourself how complex an item is to make and really basically ask you the question, can I make this item with limited staff? And then the third point would be how profitable an item is. So we really want to think about the margin of each item and really that’s going to help you determine if an item should make the cut.

Tracy Henderson:
Well, definitely sounds like reduced menus and ghost kitchens are a natural fit. In talking about kind of the other benefits beyond financial, what should brands be aware of as it regards to ghost kitchens?

Richard Delvallee:
Right. So I would think one big benefit of a ghost kitchen simplified menu or limited menu would be that it allows you to conduct analysis and testing. So first, brands can actually test at a smaller scale before committing to a full system test or larger systems test. And second, ghost kitchens actually reduce the fears that brands have about testing items in the regular location. It really creates an impartial way to test different menus, menu styles, or even some item deletions. And you really can get a lot of variable insights before you fully commit to your whole system change.

Tracy Henderson:
Yeah. So it’s a ghost kitchen and a test kitchen all wrapped into one.

Richard Delvallee:
That’s right. The most important things to keep in mind is that nearly two years in, I think we can safely say that new dining behaviors are here to stay. We know that people want to eat restaurant prepared food at home, even when they have the option to dine-in.

Tracy Henderson:
Yeah. That’s really interesting how we so quickly moved to, I actually like it at home.

Richard Delvallee:
Right.

Tracy Henderson:
Anyway. And on that note, if you’re thinking about a ghost kitchen, know that I will be ordering from it. It’s been such a pleasure to talk to you today, Richard. Thanks so much for your time.

Richard Delvallee:
Same here. Thank you, Tracy.

Tracy Henderson:
To learn more about the latest consumer insight sales and traffic trends or to get in touch with Richard or any of RMS’s experts, you can visit revenuemanage.com. And make sure to tune into future Revenue Stream episodes. Coming up, we’ll discuss 2022 trends and RMS’s groundbreaking research on how consumers navigate mobile menus and to get the latest from Revenue Stream. Be sure to subscribe to our channel, like this video, and don’t forget to hit the bell.