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Could Dark Kitchens Be Part Of The Future for Hotel F&B?

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Our Monthly Long Read.

Deliveruined or Deliverlighted?

Whilst analysts were quickly excited by a potential boom in orders - and therefore revenue - at the beginning of the covid-19 outbreak, it didn’t take long for a very different reality to set in; leading Deliveroo to announce that it’s axing 367 of its 2,500-strong workforce this week. The current perfect storm for a once seemingly unstoppable growth sector came at the exact time the UK competition watchdog provisionally approved a £462m investment in Deliveroo by Amazon.

It seems that, like shopping malls in the real world, online marketplaces rely on anchor tenants too. And with several high street stalwarts including Wagamama, Nando’s, and McDonald's shutting up shop, there was less of an incentive for an already worried workforce of riders to venture out to work. This puts a strain on the system and led to long wait times for those operators still trading, and sub-standard food arriving at their customers’ doors. Add to this the general nervousness about contact and transmission and it's easy to see why the fizz has fizzled from Deliveroo’s glass.

There’s a problem here which we’ve always flagged to clients in an attempt to dispel the myth that the roads riders use to whizz food to their customers’ door are paved with gold. If you’ve got a busy restaurant with excess capacity then selling via Deliveroo, Uber Eats and others can be lucrative businesses on top of the existing operation. But potentially healthy margins quickly evaporate if delivery from a prime, high street location becomes the bedrock of your operation, to the point where it’s just not worth trading. Especially in current times, when companies can furlough their staff and be done with the majority of their wage bill altogether.

Could this be why several independent operators such as Honey & Co and Borough’s Padella were quick to sign up to Deliveroo and Uber Eats, but closed down their delivery operations almost as soon as they were live?

Dancing in the Dark

So whilst the general market continues to face unprecedented challenges, the long-term success of dark kitchens seems almost certain. Even if it is in for a bumpy ride (and we don’t mean the speed bumps making a mess of your Thai Green Curry) in the short term.

Pre lockdown, the dark kitchen market in Europe was forecast to be worth $253m in 2019 and growing to a whopping $655m in 2026 so there’s no doubt that the bright side was outshining the dark, as consumers quite literally stuffed their faces via Deliveroo, Uber Eats, Postmates and the like.

According to Deliverect, one of the leading providers of software to the dark kitchen sector - “Less free time, the rise of online business models, a fixation on convenience and personalised experiences: these are just a few elements that influence almost every industry today – including the food business. The demands of digital-age consumers combined with new technologies are transforming the way restaurants operate from the kitchen floor and up”.

When you combine the efficiency of space, lower rents, simplified and de-skilled menus, and much lower overheads it’s easy to see why so many brands - and Deliveroo themselves - have invested in locations that are centrally-located, but off the beaten track. JKS Group’s Motu Indian Kitchen has been a runaway success (we’re fans and regulars ourselves) and just this week, Soho’s incredible Bao (another JKS-backed business) have launched Rice Error, a Deliveroo-only dark kitchen brand.

And whilst the skeptics were quick to point out the future of robot chefs, deliveries by drone and other dystopian culinary calamities, there is a kinder side to dark kitchens. When established, respected, successful operators diversify and set up their side hustles on city industrial estates across the world, we can’t really see a problem with that.

Hotel, Motu, Ordering In

(Pardon the pun, I couldn’t resist)

Over in the hotel sector, the land grab for Select Service hotel brands by the developer community sees no sign of abating. We’ve been working closely with Marriott on their burgeoning Moxy brand and its more established counterpart, Aloft so it’s an area we’ve come to know well.

There are both challenges and opportunities within hotels across various sectors, as they seek to satisfy their guests’ increasingly discerning expectations. The select-service model relies on low cost to build, skeleton staffing, and limited f&b. And yet generous loyalty schemes provoke repeat stays by guests who quickly tire of a one-size-fits-all model. Even full-service hotels struggle with agility and with maintaining interest and variety in their offer.

Whether they enjoy prime, city centre and neighbourhood locations or service business parks and airports, many hotels would benefit from a shakeup in the way they think about f&b. Their local communities would be better off too.

Hotels often have excess kitchen capacity outside of the space and labour-intensive breakfast service, often coupled with teams to service them. So could this present an unmissable opportunity to give local operators space from which to launch their own dark kitchen brands?

With the opportunity for multiple operators to cook and dispatch from the same space, guests may get the variety and choice that they crave from hotels not blessed with great culinary neighbours. Can hotels in buzzing neighborhoods also drive opportunities to increase revenue by serving their communities in a way they’ve never been able to do before?

At airports, where clusters of chain hotels cater to weary travelers, layovers, and one-night stays, there’s an even greater opportunity to win by servicing other hotels who face similar challenges. And in the select-service sector where kitchen equipment is kept to a minimum, companies such as Rational are working closely with operators to deploy tech-led ready to heat solutions. This is perfect for operators who have the capacity to prepare food off-site - at their restaurants, say - and utilise efficiency, simple processes, and speed to dish up meals to demanding guests in record time.

Hatch and Dispatch

On a recent trip to the US, we were impressed with White Lodging’s Zombie Taco taqueria at the Moxy Chicago Downtown. The simple, open kitchen perfectly integrated with the in-house, brand-standard food operation, and some cleverly placed merchandise. Throughout the day and late into the night, a hatch out on to the street serves hungry passers-by, late-night revelers looking for a tasty settler before they head home, and delivery service riders too.

With a proven model, it’s easy to see a scenario where the identity and product could be flipped simply and cost-effectively at the whim of the operator or at the request of the guest. Surely, it’s a win-win for everyone. And as the world shows signs of a gentle reopening after Lockdown, we need to be looking after each other more than ever.