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Restaurants Need To Adapt To The Rise Of Dark Kitchens

Like every part of the retail and leisure sector, traditional restaurants are being disrupted by new technology.

The latest iteration of this — the rise of dark kitchens and the food delivery apps that they service — occupied the mind of Vapiano Advisor and former Executive Board member Mario Bauer at Bisnow London’s Retail Revolutions 2018 event.

“Dark kitchens are something totally new for us, and we are having to adapt. We are competing against a different animal now,” Bauer said. 

People have always been able to pick up the phone to order takeaway, and they have been able to order online as well for some time. But these orders were typically fulfiled by restaurants, and the range was limited.

Apps like Deliveroo and Uber Eats have vastly increased the range and quality of restaurants able to fulfil takeaway orders, making ordering in a much easier experience.

Now, these companies offer restaurants the ability to fulfill these orders from outside the brick-and-mortar traditional storefront. Deliveroo has more than a dozen dark kitchen sites across the U.K., which it previously called Rooboxes but has now given the more prosaic name Editions.

These dark kitchens tend to be repurposed buildings or more often shipping containers fitted out with the kitchen equipment required to cook an off-site meal exactly as it would be cooked in a restaurant kitchen. Diners can get restaurant quality food without the need for a physical space. 

Deliveroo raised $385M in September, valuing the company at more than $2B, and a chunk of the new funding is earmarked for the expansion of its dark kitchen operations. The company operates across Europe and in Australia, Singapore and the United Arab Emirates. Uber Eats does not have dark kitchens, but has been running in the U.S. for two years.

Vapiano's Mario Bauer; Gowling WLG's Joe Morris; Maybe*'s Emerson Osmond; Argent's Anna Strongman

“Those restaurants that do not embrace orders won’t live very long,” Bauer said at the event. Vapiano, an Italian chain which started in Germany and now operates across Europe and some other global areas, saw sales grow 8% to €498M, but its business is changing rapidly. Bauer said 15% of its sales now come from online, and the channel had radically altered the competitive landscape.

“We might spend €2.5M to fit out a new restaurant,” he said. “If you are a new entrant now you can take space in a dark kitchen, pay a 30% commission and you have no upfront cost. We can compete, but we have to put in a lot more investment up front.”

Delivery apps have also forced restaurants to improve how they relate to customers digitally.

“The new guy has also done a better job in communicating online what their offer is,” he said. “Before, you were dependent on the landlord and where they put you in a centre. But online and on Deliveroo you are ranked differently. You have to adapt and learn how to move a big animal like Vapiano.”

Vapiano already incorporates variety into its restaurants by having different stations serving different varieties of Italian food, but Bauer said it was looking at whether it needed to adapt to the choice offered by food apps by offering different types of cuisine. This might become increasingly possible by mimicking the flexibility of the equipment that exists in dark kitchens.

Vapiano

“You are seeing the anti-chain movement and the increasing popularity of food markets,” Bauer said. “We will have an umbrella concept, curated by Vapiano. Each restaurant today needs to be different and focused on its regional market.”

Bauer added that the pace of change brought about by the digital world was increasing restaurant capital expenses in other ways, and this was changing the financial model for restaurants.

“People are not loyal any more, they are loyal to channels, not brands,” he said. “McDonald's used to have a 10-year remodeling cycle. Then Wagamama came [a]long and it was eight years. Now it is two or three years. The life cycle for brands is shorter."

Bauer cited U.S. chain Panera Bread as one of the companies leading the way in terms of traditional restaurants adapting to the online world. “They have been a front-runner on all three channels, in terms of their click-and-collect offer and their loyalty programmes, and using shops as a pickup point and experience point.”

It is an example the sector will need to follow as apps and dark kitchens put a fire under restaurants.