Unlike a traditional brick-and-mortar business, opening a virtual restaurant focuses on online orders and third-party delivery services. This new restaurant concept has quickly gained momentum and is already essential in bustling cities like Los Angeles, New York, and Chicago.
Learning how virtual kitchens operate, as well as their advantages and disadvantages may make traditional restaurants take another look at their business model.
Virtual vs. Traditional Restaurants
Also referred to as a ghost kitchen, a virtual restaurant only offers food delivery by eliminating the option of dining in. Instead, customers order through third-party delivery apps or the business's website, which sends the request directly to the kitchen. Once the food is prepared, it is delivered to the consumer through an in-house employee or external driver, and the payment is processed.
By saving costs pertaining to operating a dining room, these restaurants can invest in their kitchen space to streamline order fulfillment and capitalize on online ordering. Whereas a brick-and-mortar restaurant juggles the expenses of maintaining a larger facility and trying to gain an online presence to maximize virtual orders.
However, many large restaurant chains, such as Wendy's, are testing ghost kitchens due to the increasing popularity of delivery services. A study shows that delivery apps such as GrubHub, DoorDash, and Uber Eats are growing three times faster than dining in.
Established virtual restaurants, including Carter's in downtown Los Angeles, have shown to have success and longevity in large cities where there is a high demand for niche restaurants. While these locations usually offer inflated real estate prices, ghost kitchens only require limited space allowing them to reduce expenses while gaining exposure from surrounding consumers.
Pros and Cons of Virtual Restaurants
Trends and technology in the restaurant industry are always changing, creating a race among businesses to optimize sales through various methods. Therefore, restaurant owners should consider the various advantages and disadvantages of opening a virtual kitchen, including-
- Low Overhead Cost - Eliminating the front of the store, customer restrooms, and the parking lot allows virtual restaurants to limit rent expenses. Instead, these businesses can focus on the existing kitchen and how to optimize order fulfillment. They also save time and money spent on printing and updating physical menus by utilizing digital platforms to showcase menu items. Reducing these expenditures allows virtual restaurants to increase their profits and bottom line.
- Optimize Online Ordering - While virtual kitchens can further save capital by solely fulfilling online orders through their own websites or apps, utilizing third-party services can significantly increase sales and exposure.
- Fast Start-Up - Unlike a traditional restaurant business, ghost kitchens do not have to be in a location with high foot traffic to be successful. Therefore, restaurant owners can quickly get started by renting a small facility within their budget, regardless of location.
- Comprehensive Insights - With modern restaurant technology, such as a point-of-sale (POS) system, ghost kitchens can receive extensive insight on customer demand through data-based reports.
- Large Online Presence - By operating exclusively online, virtual restaurants can take advantage of web platforms and social media channels to increase their exposure.
- Creating Deliverable Meals - By only accepting delivery orders, these businesses face unique challenges. Virtual restaurants need to develop adequate packaging to ensure the meals remain intact and at their optimal temperature during delivery. Through properly insulated containers, customers should be able to enjoy online food orders as much as traditional dining.
- Eliminating Customer Contact - Although virtual restaurants still exist in a physical facility, consumers cannot stop by to inquire about their menu items. By not offering communal dining, restaurant owners lose a direct relationship with customers.
- Online Reputation - For ghost kitchens, marketing ventures, delivery orders, and customer engagement all rely on their online presence. Without adequate digital exposure, a small business can fail to attract new customers. Virtual restaurants also need to ensure that their online reputation is positive, as potential consumers will see reviews when researching restaurant brands.
- Integrating Third-Party Services - While integrating third-party home delivery services can increase customer reach, they add an additional expense and risk for virtual restaurants. Apps including GrubHub, Postmates, and DoorDash charge delivery commission and payment processing fees per food order. These apps also pose a risk for the restaurant's reputation, for if the delivery driver offers poor customer service, it can reflect badly on the establishment.
What to Consider Before Opening a Virtual Restaurant
For business owners considering opening virtual restaurant locations, there are several logistical elements to consider, including-
- Location Expectation - While virtual restaurants do not need a dining area, a physical facility is still necessary for the kitchen. The location does not need to be in a densely populated city with high foot traffic but should be relatively close to residential areas.
- Delivery Expenses - The most significant expenses for ghost kitchens include inventory, storage, employees, rent, but most importantly, delivery services. If a restaurant owner decides to outsource additional online ordering services, they should look into how each provider prices. By understanding their pricing strategies, the business can alter menu item costs to optimize profit margins.
- Increasing ROI - Virtual restaurants can receive high return-on-investment (ROI) by carefully determining operation times, online ordering services, and menu items. However, restaurant management should plan to implement detailed ROI tracking to measure the most lucrative investments.
- Marketing Campaigns - By saving on rent costs, virtual restaurants can afford to invest in marketing strategies. Digital marketing over social media and search engines can extend customer reach and generate more online traffic.
Opening a virtual restaurant can be very successful, given the recent surge in online and third-party home delivery services. However, restaurant owners should understand the different advantages and disadvantages these business models provide compared to traditional restaurants.