The Power of Digital: How Ghost Kitchens market successful brands with 0 physical presence

Marketing Brew’s recent piece on Ghost Kitchens market themselves without physical locations is an exciting proposition for those of us in digital. And it’s not (only) because of the multitude of puns we can create with ghosts throughout October 😉

For anyone who has not already ordered from them, Ghost Kitchens are a new business model, dubbed “the third wave of food delivery”. Unlike restaurants, they have no dining space, and operate entirely through online delivery platforms.

While food delivery was on an upward trajectory even before Covid, lockdowns and restaurant closures have accelerated demand even further, with global digital restaurant delivery increasing 67% in 2020. Estimates even forecast that the German food delivery market will generate a staggering €393 million in annual revenue by 2024!

Ghost kitchens are truly coming alive 😊

According to Euromonitor, the ghost kitchen global market could be worth $1 trillion by 2030, capturing 50% of takeaway food services. Investments in this sector have increased 204% since 2016, with big players scrambling to grab a piece of the pie. Ex-Uber cofounder Travis Kalanick reportedly spent $120 million on a ghost kitchen startup which rents 40 commercial spaces as shared kitchens for restauranteurs, Kitchen United has been granted $50 million from Google Ventures, and Amazon has stakes in Deliveroo’s Ghost Kitchen project.

Why so much attention?

It’s clear that consumer behaviour has changed, and for better or worse, more and more consumers are ordering delivery instead of going out to a restaurant. Tapping into this heightened demand in an otherwise restrictive landscape (there’s a lot of extra planning involved in running a corona-safe dining experience nowadays!) is disruption at its best.

From an operations point-of-view, Ghost Kitchens follow a disruptive business model which drastically reduces overhead costs.

• They may be located in a competitive city centre space, but their small size makes them far more financially viable than a traditional restaurant.
• Some brands may share a larger kitchen, dividing fixed costs even further.
• If demand increases, the operation is easily scalable — renting a larger kitchen is far more affordable than expanding into a new restaurant space.
• Other costs such as labour, dishwashing and waste are externalised thanks to riders, and consumers who dispose of the food at their own home.

Could this trend get (GHOST)busted?

Of course, there can be some pitfalls. 90 percent of millennials say authenticity is very important when choosing a brand — and new, purposefully launched ghost kitchens may not conjure the same brand loyalty as traditional restaurants. For this reason, ghost kitchen corporations sometimes lease their kitchens to well-known brands with loyal fanbases. Entrepreneur suggests the 80/20 rule is at play, with 80% of weak brands failing, and 20% achieving the brand loyalty necessary to survive in a competitive market space.

However, a plethora of strong brands suggest ghost kitchens as a concept are here to stay.

There are 3 key success factors:

1. 📈 DATA-DRIVEN DECISION MAKING: Software solutions such as ItsaCheckmate, Deliverest and Omnivore integrate into the point-of-sale system to generate and interpret data on orders and consumer demographics. Discovering new insights such as which dishes are most popular in each neighbourhood (and with which consumers, at what time) help investors back sure-to-win new offerings. Diversifying and offering new choices for consumers may become easier than ever. A solid example of the kind of data-driven decision making we love to implement for our clients at Bloom 😊
2. 📣 ONLINE MARKETING: MrBeast, a popular Youtuber and influencer, successfully launched a “MrBeast” Burgers virtual brand using only his social media clout as promotion. The brand is delivery only, and partners with local kitchens to meet demand. With social media, MrBeast generated such hype that the brand sold 1 million burgers in just 3 months. This is the power of digital!
3. 🤖 AUTOMATION: Berlin startup Keatz is unlocking a new level of digital capability, using technology to cook the dishes. Cooling and heating is controlled remotely. This means uniform quality, and minimal input required from employees — so even less skilled employees can oversee a high quantity of dishes at the same time. This refines costs to the lowest possible point, guarantees quality, and frees up time for things which need a little human touch, from innovation to customer experience.

LESSONS TO NOTE

Clearly, Ghost Kitchens represent a solid opportunity for investors. What lessons can other CPG companies take from this almost overnight success story?

1. MAINTAIN FIRST-CLASS EXPERIENCE: Marketing Brew suggests customers still want to gain a sense of who prepared the food, and recommends communicating brand stories through packaging and user experience. The strong brand they create helps consumers overcome any doubts about quality — even when they have never seen the product. The lesson to note here: online-only services can provide just as much value to consumers as in-person ones. Go the extra mile to maintain the customer experience and all the “little extras”, so digital offerings don’t come second to analogue ones.
2. BUILD MEANINGFUL RELATIONSHIPS: Ghost Kitchens are dependent on aggregator platforms like food delivery apps to reach their consumer; and may be denied that direct contact which helps business relationships. If anything, this makes customer relationship building even more important. We can all take lessons from their expert use of social media marketing to reach new customers, email marketing to retain and reactivate existing ones, and high quality user experience to build the trust which leads to long customer relationships.
3. EMBRACE CHANGE: We already know that lower overhead costs help Ghost Kitchens “pop up” relatively quickly. Brands should see their data insights as a feedback loop, and constantly improve to offer something better, or new, for variety-seeking consumers in an increasingly competitive landscape. Constantly revaluate feedback, trends, and changing consumer desires. Accept change as an opportunity to innovate and build something unique, rather than a source to fear!

Overall, Ghost Kitchens are a fascinating example of how digital helps old industries rock new trends. At-home dining does not spell the end for restaurants. In fact, quite the opposite is true. Ghost Kitchens completely rethink the value proposition of a restaurant — and teach us all a few lessons about the power of digital in the process.