The Bright Side of the Dark Kitchen

BY - Don Boroian
Chairman, Francorp Inc. Nov 29, 2019 / 15 MIN READ

A new and exciting concept has hit the restaurant industry which is known as dark or cloud kitchen. What exactly is a dark kitchen? It involves operations where there is no customer seating but just delivery. Don Boroian, Chairman, Francorp Inc. points out the salient aspects of this new trend

The ‘dark kitchen’ has two iterations. First, there is a model which only picks up and delivers the order from several restaurants in an area. It has no real production capabilities, just delivery. The second version is one in which the dark kitchen actually occupies a space, either in a former restaurant or in a low rent or industrial park area, equips it with standard, new or used restaurant equipment, and produces and delivers the products directly to customers with no seating arrangements.

This can be done with a single concept, such as fried chicken or pizza or by offering a variety of products, including pizza, chicken, fish, burgers, and even breakfast items as well as seasonal items such as turkey. In terms of the ‘lasting power’ of the dark kitchen, it may fit even better for long-term potential. There is no threat about McDonalds opening up across the street and hurting your business. The food service industry and the public are already well-committed and accustomed to delivery of food items.

The Success Mantras

The key to success for a dark kitchen is its menu, offering an appealing selection of products, appropriately priced, and that will have good ‘holding time’ in order to maintain product integrity through an extended time for delivery. Next is marketing, which helps in developing the customer base. Finally, how well are your operations? That is, are you well-organised and have consistent productivity? This means a well-defined process from concept to customer begins with recipes, food ordering processes, food handling, food production, packaging, pricing, and finally the delivery.

In the early stages, the focus should be on the delivery aspect and not on the price and menu. We have seen this in the pizza industry. From the beginning, the fine pizzerias did not deliver. However, the growth in the pizza industry, at the consumer level, was fuelled by operators such as Domino’s, where convenience and price was the driving force. Now, not only the upscale pizzerias, but many restaurants utilise outside delivery services, such as Uber to deliver their products to their customers, typically at an additional charge.

In order to be successful, a food service operator who wants to cash in on the home delivery market potential will need to focus on the higher margin menu items. This is important in order to accommodate the increased costs of marketing and delivery. It will be difficult to pass on all these costs to the consumer, especially as the concept of home delivery becomes more competitive. For this reason, a broad menu offering, featuring low food cost items as well as those with a minimum of higher raw goods costs will be important.

Favourable Aspects

The biggest advantages the dark kitchen concepts have are occupancy cost with low rents, minimal leasehold improvements, minimal furnishings and fixtures, and, of course, the convenience of delivery. There are no decor costs, signage costs or the customer-friendly interior costs and the expensive seating components. Without the necessity of a wait staff, the dark kitchen eliminates the constant battle with being able to recruit, hire, train and retain waiters, waitresses and busboys. Dark kitchens will also have the added benefit and capacity to do more catering, school lunch programs and special events, which often are a problem for restaurants that try to accommodate these kinds of applications during busy lunch and dinner times in their restaurants. They can also extend their geographical and demographic reach to areas, in some cases, as much as an hour away.

Opportunities and Requirements

Finally, dark kitchens offer a tremendous opportunity for franchising. By eliminating the investment of buying land, building a prototype building, lease deposits on high rent locations, expensive build-outs, high working capital requirements and heavy debt loads, franchising can be accelerated. The biggest financial requirement for a dark kitchen will be the initial franchise fee, equipment, start-up costs, working capital and the initial marketing costs. Since customers will not be driven by and be attracted by a beautiful location or signage, it will be incumbent upon the dark kitchen operators to develop and fund effective marketing strategies which are provided by the franchiser.

This would include, especially, utilising social media, direct mail, door-hangers, email blasts, etc. The franchiser will also be required to have programs for ongoing marketing and advertising support. There should be a high percentage of repeat business, if the delivery and product quality and pricing are good. There is also no question that the dark kitchen concept, particularly, which lends itself to franchising has all the components for success like increasing market for delivery of prepared foods, low cost of entry, simple food preparation technology, flexibility and adjustability of menu.

It would also typically include low operating and labour costs, ready and available financing for franchise buyers, and the training, assistance and backup of an experienced food service franchiser. Experienced food service people can easily obtain the financing to establish a dark kitchen operation. It will be incumbent upon the franchiser to provide them with the complete roadmap and assistance to establish, develop, and sustain a successful operation. In my view, the dark kitchen concept is the most exciting and opportune potential strategy we have seen in years and the early adaptors will, if done right, cherry-pick what is a market strategy waiting to explode.