FAT Brands Embraces Ghost Kitchens

FAT Brands is adding ghost kitchens to its repertoire. The global franchising company has acquired a number of major restaurant brands, including Fatburger, Buffalo’s Express, and Yalla Mediterranean. And, in a unique spin on the ghost kitchen concept, some of those brands might be seeing their menu items available for delivery via other brick-and-mortar restaurants owned by the conglomerate.

Ghost kitchens represent a low risk delivery option for budding entrepreneurs and restaurants. For those looking to start a business in high-rent places like New York City, ghost kitchens save hundreds of thousands of dollars in square footage alone.

Updating and expanding a menu is also an easier and more lucrative process. Peter Schatzberg, the founder of virtual kitchen Green Summit, notes that for a traditional restaurant, it can cost over $800,000 to try a new menu. For Green Summit, if a menu fails to gain traction, the company only loses about $25,000.

According to Andy Wiederhorn, the president and CEO of FAT Brands, the company simply wants to do what is best for customers. “We want to take the opportunity to offer our brands everywhere we can,” says Wiederhorn. “We don’t necessarily have to have a brick-and-mortar location.”

Just last month, FAT Brands acquired fast casual chain Elevation Burger for $10 million. Elevation Burger currently maintains over 50 locations worldwide. Later this year, FAT Brands intends to offer a modified Elevation Burger menu out of select sister brand restaurants for delivery purposes only. According to Wiederhorn, the move would ideally provide a supplementary revenue source for franchise partners.

“It doesn't grow unit count, it grows total sales per franchisee,” adds Wiederhorn. “Our entire focus is on the success of our franchisees.”

FAT Brands has already implemented a similar co-branding strategy for its Fatburger and Buffalo’s Express brands. Over 100 of Fatburger and Buffalo’s Express restaurants are placed in the same location, uniting the two brands under one roof and driving up the average unit volume by 20 to 30 percent.

FAT Brands is also looking to experiment with adding a few plant-based and vegan Fatburger items to the Elevation Burger menu. Elevation Burger already prioritizes organic and sustainable meat, so FAT Brands is hoping current customers will be interested in trying plant-based options. And according to Wiederhorn, Tyson’s plant-based nuggets—courtesy of its Raised & Rooted brand—may also be on the menu.

NYC Council Investigates Third Party Delivery Companies

This past June, the Small Business Committee within the City Council of New York conducted a hearing regarding third party delivery business practices. The investigation, entitled “The Changing Market for Food Delivery,” is arguably the first of its kind. The hearing endeavored to address the growing tensions between restaurant operators and third party delivery companies.

“New York continues to be a trailblazer,” said Committee Chairman Mark Gjonaj. “I’m proud to be part of this historic moment.”

Restaurant operators hope that the hearing will kindle new government regulations that better protect the needs of the industry. According to Robert Bookman, counsel for the local industry trade group New York City Hospitality Alliance, “We’re calling for both the federal government and the state attorney general to look into this matter.”

The Small Business Committee called on restaurant operators, third party delivery companies, and various trade groups to share their practices, concerns, and complaints. The hearing was open to the public. Discussion ran long, and largely focused on rate structures, questionable fees, and the future plans of third party delivery companies.

The difference in perspective between the restaurant operators and the third party deliverers was considerable. Operators like Robert Guarino, the co-founder of 5 Napkin Burger, argued that delivery companies have every intention of moving toward discarding restaurants and offering their own meals for delivery. Third party representatives emphatically denied this claim.

Andrew Rigie, the executive director of the Hospitality Alliance, provided the council with an extensive list of questions for third party deliverers. Some of the questions addressed:

  • If financial factors don’t determine where a restaurant is listed on a third party’s app, what variables do? How can restaurants be safeguarded against erroneous fees?

  • Who owns the information on a restaurant’s customers who order through a third party, and what happens to the data if the establishment pulls out of the arrangement?

  • Does the prominence and penetration of the big third-party delivery services constitute a restraint of trade?

Restaurant operators appear to universally agree that third party delivery companies need to interact with restaurants in a clearer and more transparent fashion, and third party representatives at the council pledged to provide that. Next steps for both sides of the industry, however, remain unclear.

Third Party Delivery Life or Death for the Restaurant Operator

The conversation surrounding food delivery continues to be a major concern for today’s restaurant operators as they wade through a number of new technologies providing third-party delivery solutions.

GrubHub is up by over 38 percent in sales. The online delivery marketplace has also acquired Tapingo, Eat24, and LevelUp, and recently partnered with Dunkin’. However, not far behind, DoorDash just overtook GrubHub in U.S. monthly food delivery sales. The ever-popular Uber maintains a steady 91 million monthly active users in over 20 countries and provides food delivery for 50 percent of the U.S. population.

Nevertheless, our research here at Foodable Labs shows that there are some beginning signs of fatigue in both the operator and the consumer in terms of sentiment toward third-party delivery. An analysis of over one million conversations about third-party delivery reveals a few key areas that consistently problematize the companies’ claims to convenience.

Top 10 Third-Party By Sentiment Rating

Source: Foodable Labs

The Fees hit both the operator and the consumer. Operators typically pay third-party companies 20 to 30 percent of the base cost of the ordered food. Depending on the delivery service, consumers may pay a yearly fee or pay fees for delivery from certain restaurants. In just this past quarter, there has been a sentiment drop of 3.6 points on the consumer side across the top ten delivery services. On the operator side, the drop is even direr: sentiment fell by 5.8 points.

The Data represents a constant battle between the operator and the delivery service: who owns a guest’s information, order habits, items, and frequency of purchase? The restaurants believe the guests’ data belongs to them because the customer is their guest eating their food, whereas delivery services want to leverage the data to the max with deals, app notifications, and constant marketing.

The Brand is a key area that hits home for every restaurant business. Because the restaurant loses control of the delivery, brand continuity often comes into question. Food safety and new packaging is a constant concern for restaurants to ensure they maintain each customer’s business and overall enjoyment of the restaurant.

The Jimmy John’s sandwich chain, one of the first restaurants to embrace delivery services, has refused since its beginnings to deal with third-party companies due to these issues. “We’ve been researching … what is best for our customers and our brand,” says Jimmy John’s Chief Marketing Officer John Shea. “In our exploration, we came to the conclusion that we do it better.”

The question still remains whether food delivery companies like GrubHub and UberEats can come up with a program to solve these issues. My take is that the industry is incredibly complex: businesses range from independent to franchises to emerging chains to Titans of QSR, and each business has different needs and complaints regarding the current model of third-party food delivery.

Some members of the industry are seeking the bottom line of profit, while others are looking for top-line sales and incremental lift. The brand also comes into play, and profit is always a factor. The guest connection could also change the entire landscape of food delivery over the course of the next few years.

A few brands are taking matters into their own hands. Third party delivery can deeply cut profits, so fast-casual restaurants like Modern Market and Panera Bread are investing in their own ordering and delivery platforms. This move is risky, as it could limit the company’s competitive potential. But the choice ensures that the restaurant can maintain brand continuity and better address customer concerns regarding the food delivery process.

Third party delivery providers have a fiduciary responsibility to grow the business and create stockholder value. And history shows that pushback from the community can be a deterrence to the growth of these companies. The real difference here is that the dynamics of the restaurant industry does not fare well for third-party deliverers. The real future for the third-party delivery companies lies in the development of their own foodservice brands —whether they are cloud and virtual kitchens, or full on commissary systems that can meet massive demand. In my video report from last November, I break down the idea of how third-party restaurant brand development is the real gold rush for likes of Uber and GrubHub.

Building a Menu That Differentiates Between Takeout, Catering, and Delivery

On this episode of The Takeout, Delivery, and Catering Show, podcast hosts Valerie Killifer and Erle Dardick chat with Tad Low to discuss the importance of menu differentiation within off-premise.

Tad Low is the Director of Off-Premise for Moe's Southwest Grill, an Atlanta based fast-casual restaurant chain with over 725 domestic and international locations. Low is leading a team that is working to bring delivery to the forefront of the guest experience.

When it comes to maximizing opportunity with off-premise, Low credits Erle at helping him understand the importance of recognizing the different revenue channels that exist within off-premise.

“We really have four main channels of revenue here. We have our in-store business, we have our catering business, we have our online business and we have now our third-party business. And understanding that each part of the business while representing a different percentage of our overall sales they each have a different impact to our bottom line,” says Tad Low. “And understanding that in order to maximize each of those channels we probably need to have a menu that is geared towards each of those segments.”

Learn how each menu for Moe’s Southwest Grill’s different revenue channels differ from each other along with more tips for off-premise success by listening to the podcast episode above!

Vanessa Rodriguez

Vanessa Rodriguez

Writer & Producer


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Uber Drone Delivery Begins Testing This Summer

Your next takeout order could be delivered by drone in just a few months. Uber is performing drone delivery test trials in San Diego this summer, pending approval from the FAA.

The drone will not deliver food to customers’ doors during these preliminary trials. Instead, the drone will arrive at a designated safe landing zone where an Uber courier will retrieve your order and complete the delivery. Uber Elevate, the team handling drone delivery, intends to use this method to reduce the chance of noise pollution, collisions, devices and packages falling midair, and other safety concerns. Delivery boxes are crafted with carefully selected packaging materials that keep food warm throughout the trip.

Uber appears confident that the technology will become the new norm. According to data from previous company tests with McDonald’s, drones are three times as fast as other modes of transportation. Drones can travel 1.5 miles in seven minutes. With a driver or cyclist, such a trip takes about 21 minutes on average.

According to Eric Allison, Uber’s head of aerial projects, the company has invested in this technology in large part because of the growing popularity of Uber Eats. Allison believes drone delivery will give Uber Eats the edge over its competition, with “selection, quality, and efficiency” drastically improving thanks to the advent of drones. Uber analysts predict that within the next ten years, fast food restaurants will have completely remodeled their kitchens to better suit the needs of drone delivery.

Not far behind, Google has already been performing drone deliveries in Finland and Australia through its offshoot Project Wing. FedEx is developing a food delivery robot, and intends to partner with Pizza Hut, Walmart, and Walgreens in the endeavor.

Ever looking forward, Uber Elevate is also in the process of designing flying taxi technology. Test flights are tentatively planned for 2020 with an anticipated commercial launch in 2023.

Research by:

Paul Barron

Paul Barron

Editor-in-Chief/Executive Producer


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