Ghost, dark or cloud kitchens – also known as virtual restaurants – are commercial facilities purpose-built to run restaurant kitchens on a delivery-only basis. Although still a relatively novel concept in South Africa, there are a few in operation locally and their low-cost business model is providing a unique advantage amid the Covid-19 lockdown.
Anthony Theodosiou, who runs a ghost kitchen in Johannesburg with his business partner, Jake Axelrod, talks to finweek about why he did away with his traditional dine-in eatery in Melrose Arch in favour of this model.
Can you tell us how your business works?
Myself and my business partner, Jake, run three brands (ONO, Metalab Meals and Pap ’n Chuck) out of one kitchen space located in the industrial side of Sandton. We use UberEats as a platform to deliver our meals. This platform only works for the immediate 5km around our site. So, to target a larger market and reduce the commission structure that UberEats charges us, we are launching our own web platform that we will run, which will facilitate the delivery of our brands across Johannesburg.
What made you decide to forgo your sit-down eatery?
I spent three years in retail spaces only to come away with a lot of effort expelled for very little return. The rentals were just too high for the level of foot traffic these retail spaces were ‘promising’. Without a license to sell alcohol, a restaurant needs to sell high-volume; low feet = low volume.
Do you think switching to this model put you in a better position going into lockdown than if you’d still been operating on the dine-in model?
Absolutely. There would be no way of coming out of this for the small brands that we currently run. The economy was already depressed throughout 2019 and 2020, the lockdown has exasperated this. As it stands, our brands are 50% down on sales, and in a retail space it would be worse as foot traffic would be at its absolute minimum. Not only that, there are no sit-downs allowed and that cancels out all alcohol sales. These stores are now doing a fraction of the turnover they once did by trying to reach online customers through apps, with the staff and overheads they’ve always had.
Explain how your kitchen works in terms of sharing costs, labour, supply etc.
Imagine a shared working space like WeWork. Brands come in and get incubated until they can go off on their own steam. In a way, it works the same here. We have three young food brands under one roof, we share all the equipment, staff and raw ingredient costs. We split the overheads, irrespective of sales for the month (mostly because they are more or less the same).
Other than reducing overheads, what are the other financial and strategic wins?
Split overheads and running costs, and your brand suddenly seems a lot more viable. In a mall you would be paying a lot more on rent based on the premise of high foot traffic; online deliveries would simply be an added benefit. Our location is pretty central, so we have the benefit of reaching the (pre-Covid-19) Sandton corporates without the Sandton City rental. Our staff end up being super-efficient and productive as they know the menu and prep of all brands, and don’t often sit around with nothing to do. Our equipment is communal, so we share extractors, stoves and walk-in fridges with specific sections to store and cook different proteins and produce. We have a great working routine with pre-service prep and service times so that everything runs smoothly.
With having no ‘store front’, what are some of the unique marketing challenges?
The only negative to this business model is visibility, which is easy enough to circumvent with enough targeted advertising and, even better: word-of-mouth. I think it is especially prevalent now, but brands need to be top-of-mind all the time. People are also spending more time at home, less time driving around and in stores. So targeted ads and a good selling platform are key here. Visibility and reach are why we decided to build our own web platform to offer meal packages around the whole of Gauteng.
Was the decision to launch the website based purely on the need to increase revenue streams due to the lockdown?
Initially, yes, it was largely based on making sure we targeted every route to market we saw available, as well as keeping the margins up (i.e. reducing the commission costs of third parties). Even when things go back to (the new) normal, why would restaurants not consider an online platform? It’s really just another avenue for revenue generation and a convenient method of getting food into a home that is not generally within the immediate neighbourhood of the restaurant.
What will be available on your website?
It will be a one-stop shop for health and nutrition. We are creating fresh food packs that are goal-orientated – lose weight, gain weight, build your own etc. Jake and I are all about fresh food, and we are trying to steer away from frozen food as much as possible like other brands are accustomed to doing. Having said that, we recognise the convenience of this and will incorporate it with a creative spin. Admittedly, there are others that have created such offerings, but our food offering is fresh and new. We’re incorporating shakes and fresh juices as well as a pantry section. With the pantry section our aim is to include smaller niche health brands of grains, coffees, chocolates as well as the Metalab supplements. Everything South African and locally produced.
Ghost kitchens aren’t for everyone, but Covid-19 has exposed the need for flexible rental agreements. What needs to change going forward?
I think landlords need to realise that retail is not what it was, and the structures of their leases need to reflect that. It is to their benefit that they encourage entrepreneurship and make sure that the brands they sign on as tenants survive, as it is these brands that drive traffic to their malls. Leases should be turnover-based, and 12- to 24-month contracts with 6-month break clauses. Then it is in the interest of the landlord to drive traffic as much as it is in the interest of the brand to offer a great product. I hope to see the restaurant retail space change for the better between brands and landlords as this will benefit everyone, including the consumer.
Now is a strange time to make any predictions, but what is the outlook for your industry?
It is a difficult time for the entire industry – barmen, waiters, chefs, cleaners – it’s these people who I really feel for. Places that were once institutions are closing all over the place. I think it is going to take some creativity and balls to think outside the box and make sure brands weather the storm. People are going to be eating out less from now till who knows when, so it’s about bringing them the product, and essentially the experience.