Are dark kitchens a threat to traditional real estate, asks Ian Hanlon, director of JLL Foodservice Consulting…
The food delivery market continues to grow at a rapid pace throughout Europe, with the UK being at the forefront of growth. The UK foodservice delivery market is worth approximately £8bn (up 13.4% on the previous year) and is expected to grow 21% by 2021 to reach £9.8bn. In comparison, the UK eating out market is estimated to be worth approximately £88bn, and growing to £96.5bn by 2022, so eating out is still very much at the forefront.
Major players in the UK market include Deliveroo, Uber Eats and Just Eat. However, this consolidation between players does come at a cost – Deliveroo recently announced that it was withdrawing completely from the German market.
The expansion of the food delivery sector is being driven by the unsuitable appetite of the millennial market and the convenience that restaurant-quality food delivery brings to the time-pressured consumer. A longer-term trend is the increasing shift to urban living, which is putting increased pressure on city living accommodation. In 2017, 54% of the global population lived in urban environments and this is expected to increase to 70% by 2050. As more space-efficient housing is built to meet this demand, it’s the social spaces, particularly the kitchen areas, that are reducing in size, driving the need for both eating out and eating ‘in’.
Hand in hand with this growth has been the emergence of dark or ghost kitchens – purpose-built facilities where restaurant-quality food is prepared and delivered from. Deliveroo Editions, for example, operates about 16 sites in the UK, providing the workspace for foodservice operators to prepare and cook food for delivery only. Each Editions kitchen typically hosts between six and 12 tenants, a combination of branded high street players and ‘local heroes’.
There is no rent, no business rates and no utility bills for the foodservice operators to pay; instead each tenant pays a commission on each order to Deliveroo, who also provide the riders and drivers to deliver the food. Deliveroo, as the aggregator, provides the platform and the transport infrastructure, leaving the tenants to focus purely on food production. The rent for Deliveroo is low as the dark kitchens are typically located in tertiary areas such as industrial estates or car parks that are close to the catchment areas that they service.
The advantages to operators are clear: there is no tenant capital investment and write down of investment associated with a bricks and mortar store. In conjunction with this, there is a reduced labour cost as there are no guests and therefore no front of house staff or washing up staff, and so on. It provides tenants with the ability to test the water into new markets without having to open a full restaurant. Finally, the short-term nature of taking space means tenants can exit without onerous costs.
There are some disadvantages however. Spoilt food (spillages, temperature loss, etc) during transportation can damage brand reputation, as can poor social media reviews. Fundamentally, food delivery will never be able to provide an experience that a bricks and mortar unit can generate, with staff/guest interaction, the tactility of the dining experience and the social aspects.
So, are dark kitchens a threat? Or are they a new asset class? The reality is, it’s a balance between bricks and mortar units and food delivery. The bricks and mortar restaurant will provide the experience, the ‘showcase’ for the brand – the delivery will provide the incremental revenue and meet the needs of the time-pressured consumer.