Dark Kitchens and your Restaurant Business – how to make it work for you.

Date: 10-11-2017

Deliveroo is planning to roll out 200 ‘Dark Kitchens’ across Britain, Australia, the Netherlands and Dubai before Christmas.  In this article, we discuss what are Dark Kitchens, where did the concept come from and how they operate.  We look at how Dark Kitchens will impact your Restaurant and we look at some responses that Restaurants are having to the Dark Kitchen Concept.

What are Dark Kitchens?

Dark Kitchens are Restaurants that are built specifically for Take Out.  There are no tables, no FOH staff.  The marketing usually has no address and sometimes no phone number.  Ordering is done online.  The name has come from ‘Dark Stores’ which are supermarkets which have no customers, they are for online order fulfillment only.

The Evolution of the Dark Kitchen.

The Dark Kitchen is not so much a revolution as an evolution of the Restaurant business Plan.  Dine in Restaurants are always a factor of their location.  Primarily there is walk in traffic, but ‘destination’ restaurants, eg Restaurants that are popular enough to draw customers to the location.  The strength of the brand denotes the distance that people are prepared to travel.

Food trucks aim to solve the problem of quick convenience food at a location where a crowd is.  They have mobility to take the kitchen to the people and so are perfect for moving the location of the restaurant to where crowds are.  The popularity of food trucks is because they can target multiple high traffic areas in a single day, moving to different events.  The customers are often highly willing to purchase food especially if they are out for an event or the normal lunchtime crowd walking to get food.

Delivery has always about being able to offer food to customers in their own home.  For Restaurants there are 2 benefits, firstly the ability to offer a different experience to a different audience, eg eating at home, with no need to worry about corkage, babysitters, and drink driving.  Home delivery becomes more about convenience than ambiance.  Secondly, the number of tables in a restaurant is a constraint, so Restaurants where kitchen throughput is higher than table throughput are able to extract that extract value that they normally wouldn’t have been able to access, eg cooking more mains even though the dining room is full.

Dark Kitchens are a hybrid of the Food Truck and the Take Out.  The kitchen is moved to an area with a high density which will support delivery.  It brings the supply closer to the market so that delivery is both economical and timely.  Too long and the food will no longer be at the optimal temperature.

Deliveroo and Dark Kitchens –

Deliveroo’s version of Dark Kitchens is called Deliveroo Editions and they call the kitchens Rooboxes.  It sees a location with around 8 – 10 purpose built dark kitchens which are made available to different restaurant brands.

The strategy for Deliveroo is to get on key partners, offering what we believe are significant discounts to the normal commissions that they charge,

Deliveroo is potentially looking to offer Editions opportunities to Restaurants outside of their home country, enticing Restaurant owners with the ability to take their brand global.  Of course, without getting the email address of customers, it is questionable how strong that brand will be and how much at risk the brand would be at, if another Restaurant looked to pay higher commission to secure a lucrative location.

Is Deliveroo Editions vertical integration into the Restaurant industry?

Traditionally Deliveroo has acted by clipping the tickect on the way through of an eCommerce transaction and providing delivery fulfillment for the Restaurant.  It is a similar business model to Just Eat and Grub Hub, except with a much higher commission, but also supplying the delivery component of the service for the Restaurants.  Many restaurants were happy to pay the higher commission because they either didn’t have to worry any more about delivery, or they were provided exposure to delivery customers without having to go through the process of

One of the big concerns with Deliveroo Editions is that it is the start of the Vertical Integration process for Deliveroo.

Issues with Deliveroo

The Sydney Morning Herald has an interesting interview with a Deliveroo driving who discusses some of the concerns with the employment of Deliveroo riders, including no sick leave, their treatment as independent contractors, no testing of road rules and some riders not even being able to speak English and understand road signs.  The requirement to delivery quickly means that there is an implied incentive to ‘cut corners’ with some of the road rules.  Deliveroo has faced legal issues, both in Australia and in Britain over the employment status of riders.  This is an extension of the concerns that courts are having with employment contracts for people working within the gig economy.  Some lawyers are arguing that Deliveroo riders are controlled, managed and disciplined by Deliveroo and that they are “clearly do not carry out their own delivery business.”

Deliveroo was valued at $2.6 billion when it raised $488 million in September to fund the rollout of Deliveroo Editions.

The long term effect of the crippling 35% commission will inevitably mean a decrease in food quality as restaurants are forced to compete on price and will need to change portion sizes, recipes and ingredients in order to manage food costs as a percentage of revenue.

Are Dark Kitchens right for your Restaurant?

Using a Dark Kitchen like the the ones provided by Deliveroo Editions may be right for your business, and it enables a Restaurant to scale it’s deliveries, but it is not without cost.  Obviously their is the commission.  Typically Deliveroo is charging 30 – 35%, but the more insidious cost is the fact that Deliveroo does not provide customer contact emails.  This enables Deliveroo to do a couple of things.

  • Build reliance in Restaurants for the marketing.
  • Create a rich database of individual consumer’s dining preferences.
  • Run marketing campaigns more effectively than Restaurants.
  • Extract higher commissions from Restaurants.

Some Restaurants are struggling both with the massive commission and with the fact that Deliveroo is appropriating their customers contact details and using them to build their business and database and not that of the Restaurant.  Matt Hunter, from Pizza Religion ceased using UberEats stating that the costs where unsustainable.  Pizza Religion has developed their own online ordering app.  Initially UberEats was cahring 22%, then raised it to 30% and now they  are asking 35%.  Pizza Religion also had to deal with customer complaints about the delivery service, which was out of their control.

We are seeing a growing number of Restaurants go with their own Dark Kitchen solution.  Kitchens in commercial areas with much cheaper rents based on decrease space requirements and no need for a retail space.  This coupled with a well run delivery team can be highly profitable for Restaurants, especially when they are building their email marketing database.

For all Restaurants looking to take orders online, try the Free Restaurant OnLine Ordering system.  We know have customers in Britain, the US and Australia who are not only enjoying commission free ordering, but every week their email marketing database is growing, which over time decreases their marketing costs and adds to the profitability of their businesses.  This is a great alternative to Deliveroo and UberEats, especially if you are already providing delivery services.

Another great tip that we covered in our podcast about the economics of restaurant online ordering is to drive customers to pick up.  Dominos Pizza are experts at this with the concept of a $5 pizza that is $12 when delivered with free delivery.  The cost of delivery is baked into the delivery cost.

The bottleneck in a traditional restaurant is the number of tables and the bottleneck in a take out restaurant is often the number of delivery drivers, so driving consumers to pick up opens up the bottleneck and increases revenue and profits.

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