Innovating the Off-Premise Food Business

From third-party delivery to ghost kitchens, off-site innovations help keep restaurants’ lights on.

May 20, 2020

By Chris Blasinsky

ALEXANDRIA, VA—The coronavirus pandemic crisis has led to millions of job losses, and one industry continues to feel the devastating impact: U.S restaurants have suffered far more job losses than any other industry since the beginning of the coronavirus outbreak, per National Restaurant Association data.

The association notes that the current magnitude of job losses effectively erased more than 30 years of restaurant job growth, although there is some expectation that many of these jobs will return as states lift their lockdown regulations.

The situation is not totally bleak, however, as many quick-serve and limited-service operators were already equipped to handle the move to an off-premise model—which for some is how they’ve been able to keep the lights on.

Geoff Alexander, CEO of quick-serve chain Wow Bao, said in a QSR magazine webinar that his chain was one of the first concepts to partner with the top five third-party delivery models in Chicago: Caviar, UberEats, DoorDash, Grubhub and Postmates. And thinking outside of the box, the chain now allows other restaurants to produce and sell its menu of Chinese steamed buns and pot stickers for delivery.

The idea was in the works before the pandemic, which made it easier to execute when the business needed to pivot. “We realized that other restaurants could sell our products to grow their sales during slow times,” Alexander told the Chicago Tribune. “We talked about ice cream stores. When no one is buying ice cream in the winter, they could be selling Wow Bao out the back door. What about catering kitchens? If they don’t have an event, they could sell.”

The “ghost kitchen” concept, where meals are made for off-premise consumption, was thought of more as a fad but is now poised to take off thanks to a significant increase in online/mobile food ordering and delivery. For Wow Bao menu items, Alexander says that the product is delivered frozen and already made, so there’s no waste, and prep can be done on standard kitchen equipment. “The landscape today is people want one-stop shopping. By having multiple brands come out of one ghost kitchen, I don’t think it’s a flash in the pan,” he said during the webinar.

Alexander continued that the restaurant business is an innovative industry. “We’ve been through every possible type of crisis and we always come back stronger and more entrepreneurial. This is a great example of innovating within your own kitchen and finding new ways to operate. The ghost kitchen idea is going to grow exponentially and change the landscape of how we’re doing business.”

Pasadena, California-based Dog Haus, which launched in 2010, became interested in the ghost kitchen concept to test new brands that would be easy for its franchisees to incorporate on menus and operate with the same supply chain, and reach new markets through delivery. Pasadena Weekly writes that for restaurants like Dog Haus, ghost kitchen brands allow for “capital-light” local expansion with a variety of different menu concepts appealing to different market segments. 

“We were already planning for something that would be well suited for the crisis,” said Dog Haus CEO Hagop Giragossian. “When the pandemic hit, we allowed our franchisees to open their kitchens to operate these extra brands,” he said, adding, “The restaurant space is changed forever but only for the positive.”

There are challenges to the concept that go beyond just making the product and marketing it: Cost-efficient last-mile delivery is an issue that is still evolving. The fees charged by third-party delivery companies have come under scrutiny since the pandemic, with some cities and counties looking to cap the commission fees these service providers can charge restaurants during the pandemic. CNBC reports that Jersey City, Seattle and San Francisco have implemented caps on delivery fees and the New York City Council recently voted to restrict food delivery fees paid by restaurants to delivery providers to 15% or less of the order.

Fees aside, both Alexander and Giragossian credit third-party delivery services for the restaurant industry’s survival.

“This is how our industry is responding and getting food to our guests. We can try to get the guest to buy from us direct, but then we would need our own delivery system and I don’t see that right now,” said Alexander, suggesting that restaurants should think of these companies as an extension of their brand. “Chances are you signed a contract and never talk to [your account rep]. We are now neck deep with every third-party partner and have national account reps who we talk to six to eight times a day each, whether it’s a problem or offer we want to do. Treat third-parties as a partnership and not a vendor.” 

If the pandemic happened prior to third-party delivery services existing, Giragossian said that the outlook for the restaurant industry would’ve been much worse. “I actually think they saved it. They’re not just delivering our food; they’re generating interest in our concepts. They are driving sales to our businesses,” he said, adding, “I don’t like paying fees, but I don’t want to be in charge of creating a delivery system of my own. Even if we did our own delivery, we’re not going to capture as many guests without those partners.”

Chris Blasinsky is the content communications strategist at NACS.