Just in case you didn’t know it, ordering food to be delivered to your home has exploded in the past few years. More and more customers are going online and placing orders for food that they expect to show up at their home quickly. For the product managers who are working at the restaurants that are providing all of this food, times have been tough. As the number of orders has been increasing, the restaurant’s ability to create and ship that much food has been strained. What the product managers need is more kitchen space. They are starting to think that they may have found a new place to build more of what they need.
A New Life For Old Malls
What the restaurant product managers have realized is that they have to update their product development definition. There are a lot of malls around. These malls are all struggling to get more people to visit them and most of them have lost some of their major customers. This means that they have large amounts of empty space. Product managers are building kitchens in empty mall space and parking lots to fill food-delivery orders, a new approach in the fast-growing business of shuttling meals to customers. The plan is to make restaurant food for delivery in former retail space. This melds two industries that have been upended by e-commerce. Restaurants are struggling to find a cost-effective formula for meeting their growing demand for delivery of online food orders. Meanwhile, developers say “ghost” kitchens can create new interest in retail and warehouse space that has been vacated by merchants that have struggled to compete with e-commerce.
A retail developer is working with a hospitality company to develop some 200 commissary kitchens to cook up restaurant-quality food for customers at malls and hotels as well as delivery for people nearby. Growth like this can look good on anyone’s product manager resume. The first of those are planned to roll out in New York, Chicago, San Francisco, Los Angeles and Miami. The companies say that their goal is to create a 5,000-square-foot ghost kitchen in a Brookfield Properties development that will provide delivery for the nearby Hudson Yards and surrounding areas in Manhattan. They are attempting to use all available area: the group will also develop delivery-only locations in mall parking lots, storage areas and unused retail space.
The group has also signed four leases with CloudKitchens. This company is the delivery-kitchen venture of former Uber Technologies Inc. CEO Travis Kalanick. Their plan is to open additional delivery locations at some properties in Los Angeles. Product managers view this as a relooking at all real estate that is obsolete. The companies declined to say how much they are investing in the partnership. Delivery now accounts for roughly 9% of the $282 billion U.S. fast-food sector and is currently growing faster than dine-in and drive-through sales.
How Restaurants Will Use All Of That Extra Space
Restaurant product managers realize that the move to making delivery a bigger part of their business carries with it a number of risks. Restaurants are expanding their delivery offerings to generate sales despite the fact that those orders often have an impact on their operational efficiency and profits. The good news about remote kitchens is that they can reduce their real-estate costs while expanding the reach of the restaurant. Wendy’s, Chick-fil-A and Sweetgreen are among those chains turning to remote kitchens that don’t serve customers to move delivery orders outside their existing restaurants. Product managers know that it’s about unlocking additional demand.
Some product managers and startups are seizing the opportunity to build and lease those “ghost” or “dark” kitchens. Some restaurants and chefs that already operate at offsite properties will design menus for new kitchens. A group that is creating remote kitchens plans to open 85 kitchens this year and at least 100 more by the end of next year. They anticipate spending about $60,000 on upfront costs at each location and reaching profitability in about six months if a kitchen manages to fill around 125 orders averaging $30 each a day. The kitchens will rely on established delivery companies to carry food to customers, such as Uber Technologies’ Uber Eats, DoorDash Inc. and Postmates Inc.
A 230-square-foot CloudKitchens site can be built in two weeks at a cost of around $30,000. A traditional 3,500-square-foot restaurant costs $1 million to outfit. Venture-capital firms have invested nearly $5 billion in companies operating virtual kitchens since 2018. Some in the restaurant industry are skeptical of ghost kitchens. The doubters predict that the model will only be profitable for big brands that can generate high order volumes at more than one mealtime. Some restaurants, such as Fat Brands, are testing separate delivery-only operations at existing restaurants. The company is preparing and delivering food out of some existing Fatburger locations. That is generating an average of $1,000 in additional sales for those stores each week, adding around 5% to the overall store revenue. Those deliveries are helping generate sales outside the standard lunch and dinner rushes.
What All Of This Means For You
Restaurant product managers have a real problem on their hands. With the growth of at home ordering of restaurant food, they have never been busier. However, their kitchens have not become any larger and so they are struggling to create and deliver all of the food that is being ordered. In order to solve this problem these product managers are starting to look at their product manager job description for other locations where they could set up new kitchens. They need someplace that is both local and large.
It turns out that such a location may exist close to most of these product managers. Traditional shopping malls have a lot of space and many of them have vacant stores because the previous tenants went out of business. New developers are planning on creating 5,000 sq foot “ghost kitchens”. This new purpose is allowing real estate that had previously been ignored to be reevaluated. The good news about remote kitchens is that they can reduce their real-estate costs while expanding the reach of the restaurant. These remote kitchens can reach profitability in about six months if they fill enough orders each day. Some restaurants are adding delivery only operations to their existing locations.
Restaurant product managers are facing the kind of problem that we would all like to have to deal with: too much business. However, they need to solve this problem and solve it quickly or else they’ll lose the customers that they need. Expanding into new unused locations is a great way to go about solving their immediate needs. We’ll have to see if going to the mall provides these product managers with the solution that they are looking for…
Question For You: How far away from a restaurant do you think a ghost kitchen can be located?
Click here to get automatic updates when The Accidental Product Manager Blog is updated.
P.S.: Free subscriptions to The Accidental Product Manager Newsletter are now available. It’s your product – it’s your career. Subscribe now: Click Here!
What We’ll Be Talking About Next Time
In just the past few years, the music industry has been rocked. Once upon a time people would go out to the store and purchase a CD with the latest music album on it. However, that all changed when Apple opened their online music store. Now people were able to purchase digital copies of their music and download them onto their phones, tablets, and computers. Well, things have changed once again. Music streaming services have shown up and now people can tune in to listen to song after song in a wide variety of styles and types. If the user subscribes to the music streaming service, they can listen to music from one specific artist or a specific set of songs. India is one of the world’s largest untapped markets and music streaming is only now arriving there. Which streaming service will serve this new market?