Why the restaurants of the future might not be restaurants

Calling a restaurant to ask “hey, are you guys allowing customers to dine in with more than five people at a table?” might have seemed strange a few months back. Today, it has become the new normal. Deciding where to go out to eat has become difficult in the past few months given the guidelines for which restaurants are taking during the COVID-19 pandemic. While some restaurants have been able to stay open in these challenging times, others have not been able to create enough profit where it seems worth it for them to stay open.

“How restaurants are creatively maintaining social distancing” by ET Online via Economic Times

What makes opening a restaurant so difficult are the expenses. Restaurants today are struggling to stay afloat to pay rent in the spaces they are established in. Opening a restaurant in a highly populated city costs owners much more than if they were to open a restaurant in a more remote area. Keith McNally says the cycle for restaurants is as follows: find a space, sign a lease and begin the process of designing your restaurant.

Here’s What To Expect When Dining Out At A Restaurant During The COVID-19 Pandemic

Going to restaurants is a way for people to practice the face-to-face interaction that so many lack. The best way for restaurants to optimize dining experience comes with a price — an incredible amount of precautions as given by the CDC must be followed. These legal guidelines have impacted the current state of restaurants because people do not feel comfortable in these environments.

A growing problem for restaurants is cost. People just can’t afford to eat out the same way they used to. Food and restaurants can be promoted all day long, but that doesn’t change the issue that money has to be put towards higher priority expenses before it can go towards luxuries.

Food banks during the early months of the pandemic saw a two to four time increase in people they typically serve. Although the rave during this time was to support restaurant owners by eating out, millions of people could barely afford to eat in.

What’s keeping restaurants in place? Honestly, not much. Over 100,000 restaurants have closed in the last 6 months because consumers can’t spend their money on take out food the way they used to. And, although consumers are aware of how much this industry is hurting, it would take a lot more than one person to keep these places up and running.

“A long period of being shut in and not spending as much has led to the realization that so much of our consumer behavior is about instant gratification, not lasting happiness.”

Platforms like TikTok have allowed users to interact with brands in a unique way. Chipotle engages with their followers by partnering with YouTube influencer, David Dobrik, to promote their brand through sponsorships, giveaways and offering winners a chance to have their Chipotle order featured on the official menu.

The pandemic prompted changes in millions of people’s lives, most prominently with their food habits. Companies like IKEA, Disney Parks, Chipotle and DoubleTree Hotels shared their recipes with the world as a way to keep their products relevant, yet still accessible until it was safe for consumers to venture out for the real thing.

“As restaurants have broadened their menus, these consumers have many choices when they dine out. “It’s here for them. It’s part of (their repertoire).”

When looking at supertrends, improving health has become increasingly important across all generations. People are more aware of their health goals. Restaurants and chains have had no choice but to adapt. Taco Bell is one of the few chains that has always had a modifiable menu, but they have now created an ordering request of what is called “fresco style” to the system.

“I think older generations use social media to escape from the real world. We use the real world to escape from social media.”

“These popular fast-food chains are serving plant-based meals” by Erica Wida via The Today Show

Gen Zers want to cultivate meaningful relationships with businesses the same way they do with their friends. Gen Zers made 14.6 billion resraurant visits in 2018 and represented 25% of total foodservice traffic. Restaurants have to know their customers or they’ll lose control.

How a Smaller Space Could Make a Big Difference

For the food industry, convenience is key. Cloud kitchens or “ghost kitchens” do not include dining rooms or lines to order in. Customers order in advance on the restaurant’s app directly, or through third party apps. The design of a cloud kitchen refines the cost of traditional brick-and-mortar restaurants with less labor and real estate. Owners can rent out space where basic equipment is provided and back of house staff members cook orders as they come in. DoorDash and Chipotle have already begun taking on this approach. In fact, Chipotle’s third quarter digital sales more than tripled in 2020.

November 25, 2020 | GoodUncleFood on Instagram

One company known as Good Uncle launched its business in 2016 at Syracuse University before expanding to 15 other campuses across the U.S. Students order through the [Good Uncle] app and retrieve their food at specific locations. On average, one meal is $12, which is low compared to third party delivery services where prices can fluctuate between $18–23.

“Delivery is a super expensive business, and it’s a shame. It’s why you see some of these major delivery companies struggling to make money.”

Blocking forces with a cloud kitchen pertains to delivery fees. Rent is low for cloud kitchens, but the percentage cut that third parties take to deliver orders could lead to this potential innovation seeing little profit. Places that offer their own delivery or pick-up do not have to compete with the loss of money from third parties, but a standalone establishment on an independent app will have prices much higher to account for the cost of limited space. This could impact the niche of customers who are able to afford the price of food. Companies will have to make the call for whether its more profitable to be a cloud kitchen giving cuts of their profit to third parties, or offer its own delivery and pick up system, but limit themselves to the types of consumers who can afford their food.

College students do not want to spend money where they don’t have to. Social media has transformed the places people choose to eat at, the options available, and how ‘worth-it’ the prices of delivery services really are. It has transformed how restaurants choose to stand out based on the experiences they offer. Things are different in a cloud kitchen environment. Cloud kitchens are a commonplace for highly populated areas where multiple restaurants can be accessed all in one spot. Their popularity is increasing in college towns. There is a working idea to give university students the option to pay for these cloud kitchen meals through meal swipes and dining dollars.

A cloud kitchen offers newcomers to the Food & Beverage industry a higher rate of success. The main objective of cloud kitchens is to prepare food for multiple restaurants. Opening and maintaining a full service restaurant will present itself with more challenges than usual. Cloud kitchens eliminate the cost of rent, design, payroll and front of house staff.

The restaurant experience has created value by acknowledging the importance of cost, convenience, and dietary restrictions. Investing into cloud kitchens is possible for the future, but just the same difficult.

Dining-in has become less popular because people do not feel comfortable sitting in a crowded restaurant. What was once farm to table is now kitchen to sofa. Cloud kitchens give companies the chance to expand their locations all over the country. In-N-Out, a West Coast exclusive chain, could expand their business to the East Coast through cloud kitchens.

What the Future of Food Might Look Like

Cloud kitchens may be the food industry’s next evolution.

In an April 2020 conference in Pasadena, Lee Peterson and Joanne Heyob of WD Partners said “The Restaurant of the Future Isn’t a Restaurant.”

What was once a debacle of finding a place to eat can now become a seamless experience of ordering from a handful of restaurants and picking it up at a single location, or getting it delivered.

Media will play a significant role in this. The people we follow online influence us to tell us what matters, what’s trending, and why we need to experience it for ourselves. The power that media has paves the way for upcoming brands, current ones and inspires ideas for the future.

“60% of US consumers order delivery or takeout once a week.”

A best-case scenario for cloud kitchens is this: dine-in restaurants eliminate the dine-in aspect and shift their units to strictly delivery and takeout. Cloud kitchens become the new normal — no more having to wait to be seated, worry about reservations, or thinking about how long it’s taken your food to come out.

Being more realistic, this is what’s more likely to happen: not every restaurant is going to take on this adaptation to remove their dining experiences entirely. But, restaurants can profit by building new locations that are strictly ‘cloud’ based. Customers still want an experience — so keep the original locations, but expand through cloud kitchens. A restaurant’s remodel program averages a budget of $700k-$1m, whereas a cloud kitchen remodel (offering pick-up/delivery) averages a cost between $400k-$500k.

The concept can be competitive with normal take-out if cloud based kitchens can offer the same quality of food as a competing restaurant with less wait time and a lower price.

With the rise of cloud kitchens, media executives can adapt to putting their name on third-party apps that customers order from. Consumers can spot very quickly when things are being done solely for profit. To create a successful campaign, the advertisements and the people chosen to represent a brand need to show their audience why these cloud kitchens matter. Media executives will need to market cloud kitchens to reflect convenience, innovation and the ability for brands to advertise on these ordering systems — for all age groups.

“As someone who ran a social channel with 4 million-plus followers, I used to do a lot of paid advertisements and contests. The amount of traffic these content and posts got was insane, and it created a lot of brand awareness. I totally get why these companies do this. But if everyone is doing these sorts of partnerships or contests in some form, is there really a competitive advantage anymore, or is it just commonplace?” says a former Associate Editor for America’s Test Kitchen.

Social media is a great place to promote content, reach new fans who resonate with your content, and even find new products to review or try out via targeted ads. So what should media executives do to capitalize off of cloud kitchens? Both parties can expect to see an increase in profit as media executives partner with food establishments that are cloud based.

Every company is a media company. If companies cannot deliver some sort of participation in their product, consumers will quickly move on and find a one that will. Levain Bakery, a cookie company that is known for selling gigantic, warm, gooey cookies at their storefronts in Manhattan and D.C. chose to release their recipe to audiences who may have never had one of their cookies before, but were now able to. Companies were able to bring in new customers simply because they were sharing it all online. These companies were able to engage with audiences who might have never traveled to Manhattan to try one of Levain’s cookies.

The food industry is becoming a media space because there is so much more engagement between the companies and consumers. The ability to build a loyal consumer base is done through non media companies (the food industry) partnering with one. By releasing the infamous recipes that consumers used to only be able to get in-store, the presence they created in the media grew their audience tremendously.

These decisions are so potent in a media environment that’s playing to win. For media executives, the expansion of cloud kitchens will create profit in new areas as limited location establishments can see increased profit by being able to be placed anywhere in the world. Marketing a Levain’s Bakery cloud kitchen on the West Coast is valuable, because right now it is an East Coast exclusive.

Newcomers to the world of cloud kitchens would be person-to-person payment platforms. Venmo offers up to three percent cash back for certain purchases made with a Venmo card, and cloud kitchens can bring themselves into this experience. To generate repeat business and make better sales, cloud kitchens’ partnerships will attract consumers to use their payment platforms cards on cloud kitchen purchases and receive money back. Customer engagement will increase as each order placed with payment connected to these person-to-person payment platforms.

This form of advertising will fail if the partnerships don’t resonate with the target audience. Profit for these partnerships have great potential, and illustrate how one of the “four C’s” (content, consumer, curation, convergence) will play an important role in the adoption of a cloud kitchens success. Consumers have to buy into the newest form of what the food industry is offering enough to shift their perspective on what dining-in used to be, versus what it can become. This can easily be ruined if too many media companies are not authentic in how they choose to place cloud kitchens in movies, advertisements or partnerships. A worst-case scenario has cloud kitchens being portrayed as cheap, worse-than-normal-fast-food establishments. Roughly 45% of the world’s population has access to smartphones, so advertising on apps for cloud based kitchens generates a great amount of revenue for both parties involved. The opportunities are without a doubt available, but it has to be done with meaning and intent.

Media executives can adapt to using cloud kitchens as a tool to show everyday people how their favorite music artist, actors/actresses and other celebrities use cloud kitchens in their day-to-day life. If done the right way, a best-case scenario for this partnership includes re-naming food items on cloud kitchen menus. We have seen how music artists such as Travis Scott partnered with McDonalds to promote the “Travis Scott Burger” which created a 4.6% increase in sales during its third quarter, contrast to their previous 8.7% decline in the second quarter of 2020.

Economic growth, one of the six supertrends, plays a role in the world of restaurants. Right now, there is more leisure time, which means there is more time for restaurants to restructure their plans for the future. With more downtime, restaurants can analyze how effective it would be for them to shift their dining experiences to strictly cloud kitchen based, as a way to cut costs, but still stay open.

What will pose a threat to the success of cloud kitchens occurring is people no longer have the means to use their money towards luxury expenses. Alternatives to cloud kitchens is what we are currently seeing in New York City, where dining in has completely halted and takeout is the only option for Manhattan residents. It’s slow, it’s not the same, and both parties are suffering.

While the adoption of cloud kitchens will start off slow, it will impact existing units as well as ground up ones. There is a large margin for profit in this area as cloud kitchens are able to offer multiple restaurant pick-up orders in one location.

So, you could get your Travis Scott burger from McDonalds, with a side of waffle fries from Chick-fil-A, because they are hosted in the same unit. What’s the first thing you’re going to order?

Junior at Syracuse University studying Information Management & Technology

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