Online ordering boom gives rise to virtual restaurants

Online ordering boom gives rise to virtual restaurants

NEW YORK — Frato’s Pizza looks like a typical family restaurant, with its black-and-white checkered floor and red chairs. But in the kitchen, the cooks are whipping up dishes for four other restaurants at the same time.

There is, of course, the gourmet pizza that patrons have come to expect from Frato’s when they walk through the door. But there are also spicy chicken gyros for Halal Kitchen, barbecue chicken tenders for Tenderlicious, salmon grilled cheese for Cheesy Deliciousness, and Butterfinger milkshakes for Heavenly Shakes — all of which can only be ordered through online sites Grubhub, DoorDash and UberEats.

Owner Michael Kudrna launched the four spinoffs earlier this year in a matter of weeks as he races to keep his Chicago-area business ahead of a growing trend: restaurants conceived only for delivery or take-out.

Thousands of restaurants are experimenting with these virtual spinoffs tucked inside their own kitchens. Others are opening “ghost kitchens,” where all food is prepared to-go.

Both concepts have emerged to capitalize on the rising popularity of ordering out instead of dining in. The trend also speaks to the growing power of third-party delivery companies, which have transformed the way many people find restaurants and raised expectations for speed and convenience.

The $26.8 billion online ordering market is the fastest-growing source of restaurant sales in the United States, according to David Portalatin, a food industry adviser for the NPD group. Digital orders, while still accounting for just 5% of all restaurant orders, are growing some 20% each year. Restaurant visits, meanwhile, are remaining mostly flat.

Kudrna says the virtual restaurants are a way to gain enough incremental revenue to offset the fees he pays to the third-party apps, which now drive one-third of his sales. Restaurants pay commission fees as high as 30% per order.

“The beauty is I can create concepts and if they don’t work, I can move on to try another one,” Kudrna said. “I will have lost weeks of work, but not large sums of money.”

Chick-Fil-A, The Halal Guys and Dog Haus are among top brands that have opened ghost kitchens through Kitchen United, a start-up that builds kitchen commissaries for restaurants looking to enter new markets through delivery or take-out only.

Kitchen United, backed by $50 million in funding from Google Ventures and other investors, has two locations in Pasadena, California, and Chicago. It has an ambitious expansion plans to open 40 more kitchens in cities across the U.S. through 2020, said CEO Jim Collins.

DoorDash staked a claim to the trend last week. The delivery company partnered with four restaurant chains — including The Halal Guys — to open a bright red shared kitchen in Redwood, California, offering delivery or pick-up in 13 suburban Bay Area markets.

The idea is for DoorDash Kitchens to be a one-stop shop for restaurants looking to grow their business, said Fuad Hannon, head of new business verticals at DoorDash, although there are no immediate plans to expand.

“We are really at the early innings of this industry,” Hannon said. “It’s highly speculative at this point to understand where this will all go but what we know is that people love to get their favourite restaurants delivered.”

There have already been some notable failures. Maple, the delivery-only restaurant backed by celebrity chef David Chang, closed in New York in 2017 after two years. Pilotworks, a venture capital-backed start-up that offered commercial kitchen space and distribution services for small food businesses, abruptly closed its Brooklyn commissary in 2018, leaving nearly 200 vendors in the lurch with no warning.

“I had to call all of these businesses and tell them I didn’t have a kitchen. It was awful,” said Liz Santiso, owner of Brooklyn Biscuit Company, who is starting over after losing her whole-sale business that had delivered to Whole Foods and Dean & Deluca.

Both Kitchen United and DoorDash are staking their shared-kitchen models on helping successful restaurants grow, rather than serving as incubators for start-ups.

Grubhub and UberEats say their virtual restaurant programs help small businesses compete in this landscape. Both actively reach out to restaurants with suggestions for online spin-offs based on data gleaned from customer searches — extending their influence from how people get their food to what should go on the menu.

UberEats has helped launch 4,000 such virtual restaurants worldwide, about half of them in the U.S. and Canada, according to Kristen Adamowski, head of Uber’s virtual restaurants program.

One restaurant owner, Rick Scott, said Uber saved his Brooklyn business. Scott first opened a cafe serving coffee, pastries and ice cream in Crown Heights, a lower-income neighbourhood. But it was the only sit-in restaurant for blocks around and “the neighbourhood just wasn’t ready for it,” Scott said.

Sales were slumping when he reached out Uber, which told him there was latent demand for specialty burgers in the surrounding area. Scott launched Gerizim Burger Factory on UberEats with a Caribbean-inspired menu of jerk and calypso burgers.

Almost immediately, he said, sales jumped about 75%. A year later, he has two employees, rebranded his physical restaurant and launched a second Burger Factory in the borough of Queens.

“It was a 90-degree turnaround,” Scott said. “It changed our whole business.”

But Kudrna has found he can’t always rely on third-party suggestions. Heavenly Sweets, a desert concept suggested by Grubhub, has mostly flopped. The chefs at a training program he runs then came up with Cheesy Deliciousness and Halal Kitchen, which have so far taken off.

Grubhub spokeswoman Katie Norris said sales representatives suggest virtual spin-off ideas when they see untapped demand for a cuisine in a market, but it’s up to the restaurant to decide whether it makes sense for them.

Virtual restaurants have the obvious benefit of testing new concepts without taking on expensive leases or hiring more staff, said Rick Carmac, dean of restaurant management at the Institute of Culinary Education in New York.

But he said small restaurants should weigh risks before embarking on an online spin-off at the behest of third-party platforms, which offer no training for kitchen staff to adjust to new menus. Restaurants should consider whether their delivery packaging is right for new dishes, or whether they want to increase their reliance on outside delivery drivers.

“None of those things are minute, and none of those things easy, which is kind of what you might be led to believe,” said Carmac, who has consulted for UberEats and said he expressed his reservations about the company’s approach. “They give you the data, and then they leave.”

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

SARS-CoV-2 virus particles, which causes COVID-19, emerge from the surface of cells isolated from a patient in the U.S. and cultured in a lab in a 2020 electron microscope image. THE CANADIAN PRESS/AP-HO, National Institute of Allergy and Infectious Diseases - Rocky Mountain Laboratories
Alberta adds 463 new COVID-19 cases on Sunday

The central zone has 818 active cases

Red Deer teacher Janelle Van Tetering had her students write letters to attach to Blankets of Hope, which will be donated to the Mustard Seed. (Contributed photo)
Red Deer teacher, students donate ‘Blankets of Hope’ to those in need

A Red Deer teacher and her students are giving warm blankets and… Continue reading

RCMP have charged a Sylvan Lake man for allegedly defrauding five people of more than $100,000.
Advocate file photo
20-year-old woman killed in collision: Blackfalds RCMP

A 20-year-old woman was killed in a collision on Saturday, says Blackfalds… Continue reading

Patrick Malkin, co-owner of The Granary Kitchen, says he wants the provincial government to lift COVID-19 restrictions that shutdown in-person dining. (File photo by Advocate staff)
Red Deer restaurant owner ‘frustrated’ in-person dining restrictions are still in place

Dr. Deena Hinshaw announced the restrictions won’t yet be eased this past Thursday

As of Friday, Alberta has under 10,000 active COVID-19 cases. (Image courtesy CDC)
Alberta identifies 573 new COVID-19 cases, 13 deaths on Saturday

There are currently 9,727 active cases of the virus in the province

Terrance Josephson of the Princeton Posse, at left, and Tyson Conroy of the Summerland Steam clash during a Junior B hockey game at the Summerland Arena in the early spring of 2020. (John Arendt - Summerland Review)
QUIZ: How much do you know about hockey?

Test your knowledge of Canada’s national winter sport

Toronto Maple Leafs' Alexander Kerfoot, centre, tries to get the puck past Calgary Flames goalie Jacob Markstrom, right, as Noah Hanifin looks on during first period NHL hockey action in Calgary, Sunday, Jan. 24, 2021.THE CANADIAN PRESS/Jeff McIntosh
Morgan Reilly’s three assists lifts Maple Leafs to 3-2 win over Flames

Leafs 3 Flames 2 CALGARY — Morgan Reilly’s three assists helped the… Continue reading

Green Bay Packers' Adrian Amos (31) reacts after intercepting a pass intended for Tampa Bay Buccaneers' Mike Evans during the second half of the NFC championship NFL football game in Green Bay, Wis., Sunday, Jan. 24, 2021. (AP Photo/Jeffrey Phelps)
Road warriors: Bucs win 31-26 at Green Bay, reach Super Bowl

GREEN BAY, Wis. — Tom Brady and the Tampa Bay Buccaneers’ road… Continue reading

People arrive to be tested for COVID-19 at a clinic in Montreal, Sunday, January 24, 2021, as the COVID-19 pandemic continues in Canada and around the world. THE CANADIAN PRESS/Graham Hughes
Too soon to know if Canada’s COVID-19 case decline will continue, Tam says

MONTREAL — It’s still too soon to know whether the recent downward… Continue reading

Flowers are seen at the front door of Dr. Denis Vincent's dental practice in North Vancouver, B.C. on March 31, 2020, after he died of COVID-19. The British Columbia Dental Association has written a letter to Premier John Horgan urging him to include dentists in a priority group for the COVID-19 vaccine. THE CANADIAN PRESS/Jonathan Hayward
Dentists, teachers disappointed they won’t be prioritized for vaccine in B.C.

VANCOUVER — Dentists and teachers are among the groups that are disappointed… Continue reading

Indiana Pacers guard Justin Holiday (8) shoots over Toronto Raptors forward DeAndre' Bembry (95) during the first half of an NBA basketball game in Indianapolis, Sunday, Jan. 24, 2021. (AP Photo/Michael Conroy)
Anunoby’s hot hand helps short-handed Raptors beat Pacers

Raptors 107 Pacers 102 INDIANAPOLIS — OG Anunoby scored a season-high 30… Continue reading

A woman injects herself with crack cocaine at a supervised consumption site Friday, Jan. 22, 2021 in Ottawa. THE CANADIAN PRESS/Adrian Wyld
Drug users at greater risk of dying as services scale back in second wave of COVID-19

OTTAWA — Under fluorescent lights, Wendy Muckle surveys the supervised consumption site… Continue reading

The Canada Revenue Agency (CRA) headquarters Connaught Building is pictured in Ottawa on Monday, Aug. 17, 2020. nbsp; THE CANADIAN PRESS/Sean Kilpatrick
Taxpayers’ watchdog sees complaints spike, raising worries about pandemic tax season

OTTAWA — Canada’s taxpayers’ ombudsperson says his office has seen a steep… Continue reading

Most Read