ShareThe Commercial Market Insights June 2020 report discusses how the coronavirus has impacted U.S. retail and food services for which has resulted in the closure of many restaurants and bars. U.S. retail and food services sales continued a downward trend along with its subset food services and drinking place market and significant employment reductions. Advanced monthly sales for retail and food services for April 2020 were $403.9 billion with food services & drinking places accounting for $32 billion. Both represent a decrease from the prior month, 16.4% and 29% respectively.
Despite the downward trends of monthly sales of retail and food services and its subset markets, food delivery monthly sales for some of the largest delivery firms such as Uber Eats, Grubhub, Postmates, and DoorDash grew as restaurant customers and restaurants adjust to the new norm of providing no dine-in service.
Not only are monthly sales increasing, but it is contributing to the food delivery firms increases in total revenues according to food delivery firm financial statements such as Grubhub and Uber Eats. Uber Eats revenue for three months ending on March 31 grew 53% year-over-year to $819 million and Grubhub had an 12% year-over-year increase for $363 million in the first quarter of 2020.
Not only are revenues increasing but the number of users of on-demand delivery services is increasing as well as restaurants partner with food delivery companies in an effort to meet the steady increase in delivery demand and new demand as customers adjust to “stay-at-home” orders and no dine-in restrictions.
The resultant dine-in closures and an increase in delivery growth, in essence, have converted every operational restaurant into a ghost kitchen. Ghost kitchens, otherwise called dark kitchens or cloud kitchens, are facilities that contain the necessary kitchen equipment to facilitate off-site food preparation and cooking solely for on-demand food delivery without a traditional dining area for walk-in patrons.
While the concept has been receiving notoriety in recent months, more restaurants, third-party delivery platforms, and startups have pursued this path as a means to manage the demand for delivery services, increase efficiency, and by reducing rent and labor costs. The ghost kitchen model not only services higher delivery volume but in addition, they can be staffed exclusively with kitchen employees, thus lowering overall labor costs. Ghost kitchens are not limited to only restaurant companies though, as other businesses are in pursuit of the model such as mall developers, supermarket chains, delivery providers, and many more. Here are a couple of examples of ghost kitchens ventures:
- Malls located in Pennsylvania and Georgia have seen investors prepare to repurpose mall space for ghost kitchens. The Simon Property Group, who owns and operates the 1,558,678 square foot Lennox Square shopping center located in Buckhead district of Atlanta, Georgia and the 2,793,200 square foot King of Prussia Mall located in King of Prussia, Pennsylvania, will repurpose shuttered restaurant space as dark kitchen space. Simon Property Group, the largest retail real estate investment trust (REIT) and the largest shopping mall operator in the United States, and multinational hospitality group Accor formed a partnership with hospitality company SBE Entertainment Group in 2019 to form C3, also known as Creating Culinary Communities. Accor has a 50 percent stake in SBE. C3 will occupy space that was previously occupied by one brand. C3 will then bring in nearly 6 of SBE’s brands to share the new space. SBE brands include Krispy Rice, Plan Nation, Sam’s Crispy Chicken, Umami Burger, and many more. C3 then intends to deliver consumers their food in under 30 minutes for less than $30. C3 intends to open more than 250 ghost kitchens by the end of 2021 with 140 opening by the end of 2020 in major cities across the U.S. including Chicago, Miami, New York, Los Angeles, and San Francisco.
- Wendy’s began experimenting with ghost kitchens in 2019 as they announced the intention to utilize ghost kitchens as a significant portion of their expansion strategy at the company’s investor day. Wendy’s intends on using the model in high delivery volume areas and underserved regions where its physical locations are deficient. Wendy’s opened two delivery-centric kitchen locations, one in Kitchen United’s Pasadena, California facility in late February, and one in Chicago.
While the ghost kitchen model was increasing in popularity before the coronavirus, more are opening to meet the demand for on-demand food delivery services. According to Pitchbook Data Inc, a data, research and technology company, global investment in ghost kitchens and their operators continues to increase with investments totaling $1.9 billion in 2019 spanning 16 transactions.
While ghost kitchens may be in a position to assist with a restaurant's demand for delivery-only services in the midst of the global coronavirus pandemic and may provide an advantage towards medium and larger sized restaurant companies, the industry is still developing. While the ghost kitchen model gives the impression that it is a long-term viable model as food delivery demand continues to increase, it is largely unknown as its livelihood is based on delivery volume and consumer delivery habits.
To view in its entirety, the report can be downloaded here: https://www.nar.realtor/research-and-statistics/research-reports/commercial-market-insights.
