The ghost/virtual-restaurant segment has evolved quickly over the last few years, as has the Canadian public’s understanding of these concepts.
There are a wide variety of monikers to describe businesses in this burgeoning segment of foodservice, including ghost, virtual, dark and cloud kitchens/restaurants. And, as the range of business models continues to diversify, concepts dubbed virtual food courts, collective kitchens and off-premise kitchens are leaving their mark.
Lola Kassim, director & general manager, Uber Eats Canada, addressed the growing range of concepts during the Canadian Restaurant Investment & Leadership Summit in November. She explained that while the models and terms used to describe them are diverse, the key unifier is that “these tend to be delivery-only [and/or] takeout-only concepts.”
“I like to think about this space in terms of two broad buckets,” she elaborated, “the first being what you could refer to as a ‘virtual restaurant.’” This she describes as a restaurant operating a virtual brand out of its location, leveraging its existing staff and resources. These can be created by the restaurant or brand — such as Pizza Pizza’s Chicken-Chicken brand or Paramount Fine Foods’ Krispo Chicken — or they can be licensed from other companies.
The other main category Kassim identifies is ‘ghost kitchens.’ These are models that don’t have a typical storefront, whether they’re home to an individual brand or a collection of them.
Regardless of what they’re called, these concepts are ultimately about meeting guests where they are, with the brands and items that they want, in a way that is more agile and asset light.
As Yianni Fountas, senior director, Emerging Brands & Partnerships, Strategic Projects and Business Insights, Recipe Unlimited Corp., points out, overarching shifts to e-commerce, digital ordering, delivery and convenience channels are re-shaping the business of foodservice. “If we continue to see the demand and volume through the takeout and delivery channels, the [existing] economic and operating models will be challenged,” he explains. “We’ll need to further adapt our business to efficiently and profitably serve our guests.”
He also notes that, by having a concept dedicated to off-premise channels, operators can better focus on delivering great guest experiences through these channels. “Most traditional restaurants were not built to service these channels, let alone the growing demand we’re experiencing.”
And, beyond quality and service, these concepts can help reduce the cost to operate and enter a market. As Vince Sgabellone, industry analyst, Canada Foodservice, The NPD Group, points out, compared to a traditional restaurant, these models can operate with reduced real-estate costs, largely eliminate front-of-house costs and often involve sharing or consolidating back-of-house costs by operating multiple brands out of the same kitchen space.
While this is often presented as making the path to market easier and more accessible, Ryan Moreno, CEO & co-founder of Surrey, B.C.-based Joseph Richard Group — which operates Meal Ticket Brands — stresses that, in order to succeed, building digital brands is just as involved as building a new restaurant brand. “What we’ve said to other restaurateurs looking to do it is: ‘it’s not as easy as you think,’” he explains. “A lot of the conversation that we’ve heard is ‘it’s great, you can come up with these concepts and just fire them out online’…[but] it’s not that simple.”
He notes that market research, staff buy-in and ability to deliver on guest experience and meet expectations are just as important for digital concepts as traditional restaurants. “People were forgiving, to some extent, when everything got shut down and [restaurants] were jamming through takeout [strategies],” says Moreno. “But, as everyone’s adapted and time has progressed…the standard now has to be elevated.”
Evolution and Growth
As this young segment continues to mature and expand, thanks to the continued evolution of digital-ordering technology, new takes on off-premise-only concepts continue to emerge.
At the same time, those with an established presence in the segment continue to tweak and perfect their business models.
“[Digital engagement] was a trend that was taking place and the pandemic simply accelerated both the demand and the supply,” says Sgabellone. “And that is just going to continue.”
“The pandemic forced businesses to be creative and implement new strategies to interact with their consumers,” says Adam Armeland, co-founder and CEO of Toronto-based Kitchen Hub. “For restaurants, focusing on off-premise sales allows brands to expand quicker than ever before because they’re able to serve their customers in unique ways
A key area of development has been concepts and platforms that allow customers to access multiple brands or cuisines in one order — delivering an added level of convenience. Kitchen Hub, which is touted as “Canada’s first virtual food hall,” offers operators dedicated turnkey kitchen space optimized for takeout and delivery, while giving consumers access to a unique combination of offerings.
Ultimate Kitchens and Meal Ticket Brands’ The Canteen concept also give customers the option to combine brands in a single order, however, they feature their parent company’s brands, as well as partner brands.
But this is far from the only development on this front.
“The biggest development I’ve noticed is a blurring of the segment lines across the entire food industry,” shares Fountas. “Existing brick-and-mortar restaurants have turned into ‘host kitchens’ (one restaurant leveraging its facilities to serve as a ghost kitchen for another’s food); grocery and other retail items have become more prevalent across the offerings in what used to be a restaurant-dominated aggregator environment; and we’re starting to see the ghost-kitchen model employed as a cost-efficient strategy to cultivate new brands.”
Speaking to this blurring, Sgabellone points to Toronto-based Ghost Kitchen Brands’ (GKB) partnership with Walmart, which makes these ‘ghost’ operations highly visible, as well as an extension of Walmart’s retail meal solutions. Another example he points to is SkipTheDishes’ recently launched Skip Express Lane pilot project. This new concept, which currently offers two locations (in Winnipeg and London, Ont.), operates as a ghost retailer, with all sales made through the Skip app. The concept offers convenience, grocery and other retail items, including a selection of products from local producers. “They’re cutting out the retail middle person,” Sgabellone sums up.
Beyond pushing into new spaces, many brands within this segment are expanding, driven
by sustained demand for these offerings/services.
Illustrating the scope of the digital-foodservice landscape during Recipe Unlimited’s Q3 2021 earnings webcast, CEO Frank Hennessey stated: “Our e-commerce business continued to grow even with the return of dining-rooms. E-commerce represented 18 per cent of our total restaurant sales in the quarter and was up 17 per cent versus Q3 2020.” And, based on this growth, he added, “We expect that e-commerce sales for Recipe could surpass $700 million this year, which would place Recipe in the top-10 e-commerce companies in Canada.”
These positive results are driving the expansion of Recipe’s Ultimate Kitchens, with three new locations set to open between Q4 2021 and Q1 2022 and additional “development plans for significantly more units.”
Armeland also shares that Kitchen Hub has set its sights on substantial national growth. “We’re focused on expanding our geographical reach through new locations — with the plan of opening 50 locations across Canada in the next five years,” he explains.
And, GKB has not been shy about its ambitions, as the company’s mission statement includes having “a Ghost Kitchen open within every 12 km.”
Industry experts don’t doubt that this off-premise-focused segment has a long runway.
“We’re expecting continued growth and expansion…I have no doubt that this is going to continue to grow and evolve,” says Kassim. “You’re seeing the innovations, you’re seeing the improvements in technology and, at the end of the day, the demand is there.”
“The segment is absolutely in its infancy and while it will be tough to predict what shape it will take, we are seeing a stickiness to the off-premise sales across our network, even as the operating environment has opened up across the country,” Fountas agrees. “This demonstrates a further potential for growth and we’ll continue to see innovative new models explored to meet new business objectives or leverage existing infrastructure and capacity.”
BY DANIELLE SCHALK
