Digital kitchens booming in SA
Dark kitchens, also known as digital kitchens, are gaining traction in SA, disrupting the traditional restaurant business model.
According to trends research firm, Flux Trends, the success of food delivery apps like UberEats, Mr D and OrderIn is paving way for a new concept of food establishments that offer delivery-only takeaway foods, eliminatingface-to-face contact between the restaurant and the customer.
Examples of these dark kitchens taking the local food and beverage market by storm include plant-based food delivery service, FÜDY; seafood online restaurant, Oishi Sushi; online burger kitchen, Fat Boy Burgers; andShwarma Lama, which specialises in Middle Eastern shawarmas.
Bronwyn Williams, trend translator and future finance specialist for Flux Trends, says while the virtual restaurants concept is not new globally, the trend is fast gaining prominence in SA.
“Digital kitchens have their roots in the increasing popularity of takeaway food delivery apps, which bring a new opportunity in the market for restaurants to cut out the middleman altogether and simply provide food produced for in-home delivery.
“So, what’s changed now, from the traditional restaurant model, is that instead of a restaurant offering takeaway services, we’re seeing more kitchens intended for delivery-only services without an in-house delivery team.”
This disruptive trend enables food establishments to save on a lot of costs, such as service, rental and overhead expenses, allowing the business to solely focus on producing and delivering good quality foods, sometimes superior to that offered by restaurants, explains Williams.
“Technology has brought about more variety by enabling the smaller players to also deliver food to the home, whereas in the past, only big restaurants that could afford the delivery service offered it. That’s where the gap has been filled by dark kitchens, which take advantage of the delivery apps ecosystem, offering customers convenience, lower costs and good quality foods. Dark kitchen overheads are much lower and those cost saving factors are passed on to the consumer.”
The value of food bought online in SA, along with delivery fees, will reach $453 million in 2019, growing to $726 million by 2023, according to research group Statista.
Former Uber CEO Travis Kalanick has invested millions of dollars in this fast-growing food delivery market, building a network of kitchens dedicated to serving online takeaway orders in the UK, US, India and China.
Quality, affordable food
Jasper Meyer is the founder and CEO of SmartkitchenCo, a food business that owns six Cape Town-based online-only restaurants, including Jazzy’s Pizza, Jiro Poké, Quick Convenience and King Chicken.
He explains the pros and cons of the dark kitchen business model: “The pros are that all our businesses are run from three kitchens and this allows us to increase efficiency by the sharing of resources, in turn decreasing our rental costs and allowing us to provide good quality foods at affordable prices.
“The main con is that the delivery apps take a considerable commission rate of about 30% per order. This really affects the speed and the growth of the business because this is the average profit made in the restaurant industry.”
As a result, dark kitchens are left with no option but to find smart ways to create larger profit margins without increasing the costs, he adds.
“This is why we have created more brands to increase our revenue streams: instead of setting up more kitchens to introduce a new brand, we have introduced more brands to share resources across the three kitchens.”
Another benefit, adds Meyer, is the low barrier to entry, allowing any experienced person with a kitchen in their home the ability to establish a dark kitchen.
“When setting up a dark kitchen in the home, the question is: can the entrepreneur service and scale the business? There are also some legal requirements to consider, including hygiene, safety and air quality management, etc.”
Recently, the dark kitchens concept has been experiencing increased local interest from venture capital companies.
Darth Kitchens,a Cape Town-based start-up that is pioneering the dark kitchens concept, has secured seed capital in excess of R5 million to date, with a further R30 million for expansion. The kitchen, based in a 400sqm purpose-built facility, is owned by co-founder of UCOOK, David Torr, and co-founder of OrderIn, Heini Booysen.
Booysen says his experience as co-founder of one of SA’s first food delivery apps means he’s well aware of the opportunity that the dark kitchen trend offers in the local food and beverage market.
“Most restaurants think of delivery or takeout as an afterthought – they tend to focus on their walk-in customers, which means very little thought goes into suitability of the food for delivery or packaging for delivery.
“Dark kitchens focus on these issues so that the customer experience is superior to normal restaurants. That, combined with rising operational costs and overheads in traditional brick-and-mortar restaurants, means the market will increasingly be forced to rethink their go-to-market strategies.”
Discussing the unfavourable circumstances,Booysen explains that due to the fact that the business is purely accessible via the delivery platforms, delivery apps take hold of the customer relationship.
“As a result, we don’t own the customer data and therefore cannot re-market to them directly. The only way to engage with the customer is through the food packaging and social media engagement. Also, the business is often at the mercy of the delivery platforms, eg, when it rains heavily, the platforms tend to either restrict delivery or shut down completely, which directly affects revenue.”