The Difference Between the Virtual Restaurant Waves of ’16 and ’18

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The Difference Between the Virtual Restaurant Waves of ’16 and ’18

By Kitchen United CEO Jim Collins

Reviewing the history of restaurants without dining rooms, sometimes called ghost or virtual kitchens, shouldn’t take too long… After all, we’re talking about an industry that for all intents and purposes is only 3 years old. What’s interesting is that we’ve already seen the birth, death, and rebirth of this model. What’s fascinating to me – as both the CEO of a company building facilities packed with these restaurant kitchens and as the owner and operator of my own restaurant – is why.

A little history:

Sometime in late 2014-2015 someone woke up to the fact that big cities were seeing a dramatic rise in prepared food delivery. Seamless had explosive growth in NYC (and dominates the market today) and GrubHub was rapidly growing in Chicago. Other services were seeing growth as well.

Around this same time the Tech Investment marketplace also realized that there was a HUGE industry called FOOD (+/-$600 billion in the US) that hadn’t undergone the retail revolution. Someone – in fact, several someones – had a great idea: “Let’s turn food into an e-commerce business.” An array of companies with vast funding were formed. The future was bright. Valuations skyrocketed.

There was just one problem: It turns out that being a restaurant is hard. Consumers don’t want fried chicken, they want GOOD fried chicken. And when your fried chicken is bad, they have incredibly efficient ways of telling their friends not to order it. Trying to run multiple concepts on over-stuffed hot lines made economic sense. Since the new brands were entirely virtual why not have the same cooks cook Italian, Mexican and Chinese all together? The results were predictably bad. Sales and then investment capital dried up and the first iteration of the market disappeared.

There are a huge number of parallels in other industries. People who know nothing about the science of photography market themselves as photographers because they had a little money and could buy a big, black camera. They created bad pictures. Consumers said so. Now those folks are doing other things. If you don’t know anything about clothing design, does it make sense to start making sweaters? Would it be any surprise that fit and finish aren’t what they need to be to lure a large consumer audience?

Why would food be different? Someone who can make a great dish can’t necessarily do it 100 times in a row. And someone who can make one thing well can’t necessarily make a lot of different things well. So it should come as no surprise that these concepts failed.

What’s different now?

Kitchen United isn’t in the business of making food. We also don’t involve ourselves in the machinations of delivery. We get that food and delivery are hard. As it turns out, building kitchens is also hard. At KU we decided that it’d be great if we could figure out a way to let the folks who are great at making food make it, and the folks who are great at connecting to consumer demand do that. We provide a safe, licensed environment for food preparation and the technology to connect the kitchen to the consumers. We also provide a bunch of services that make it easier for our restaurant partners to function in our Kitchen Centers (but that’s kind of technical and boring).

So there is a new emphasis on working together with a constellation of companies rather than trying to go it alone that gives us a much better chance of success.

The other factor is just as important, and that factor is market maturity. In short, we have a much better idea of what consumers want than folks did years ago. And what consumers are telling us they want, loudly and clearly, is food from restaurants they know and like. If it’s a new option, great, but it needs to be known and it needs to be consistently great. It needs to be fresh and fast, and it needs to be priced right.

The great news is that we’re really just at the very beginning of what has become a real market. All financial and restaurant models agree that over the next few years volume will dramatically increase in markets where services already have a footprint, and those that don’t will see the marketplaces entering soon. How restaurants will address the new market opportunities will depend on their go-to-market strategies.

One thing is certain. The market will look very different over the next few years. Restaurants and the companies that support their growth will need to be nimble, pay attention, adapt and execute to succeed. Sounds like fun.

Jim Collins is the Chief Executive Officer of Kitchen United.

KU offers restaurant brands a turnkey way to expand into new markets and reach the off-premise diner. Subscribe to the KU Insights newsletter where we break down industry trends and give an insider view of what’s happening in the world of KU.

Featured photo by Brett Jordan on Unsplash

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