Before the pandemic, people loved going out to restaurants. Sixty four percent of adults reported eating out at least once per week, according to a Feb 2020 survey. Getting takeout usually meant pizza and Chinese food.
But that changed when the pandemic hit. As businesses shut down and people were stuck at home, restaurants had to adapt to stay afloat. They leaned into delivery and pickup operations, constructed outdoor dining structures, and sold merch.
Now that restaurants have created all this new infrastructure, what comes next? What’s clear is technology has helped pull restaurants into the future. If you’re going to start a restaurant, you can’t go back to doing the old ways of things.
Ghost kitchen or dining room?
Restaurants are a notoriously risky investment—60% of restaurants in the US go under in the first year. But the pandemic has opened up new ways—potentially safer ways—for restaurants to operate.
The rise of takeout during the pandemic was a boon for ghost kitchens, essentially restaurants without a storefront or sit-in dining. In fact, ghost kitchens are on the rise; they are expected to account for 21% of the $66 billion US restaurant industry by 2025, according to a May report from CBRE, a real estate firm.
But ghost kitchens can’t totally replace restaurants. “You can’t replace dining. You can replace grocery shopping, aspects of the work, but man, how much do you look forward to that dinner meeting your friend and having a margarita?,” said Peter Newlin, CEO of Birdcall, a chicken sandwich restaurant chain with locations in Colorado and Arizona. “You can’t replace it.” That said, continued changes for restrictions around Covid-19 could suppress interest in dining in again.
So which is a safer investment: a traditional restaurant or a ghost kitchen? Let’s walk through the pros and cons of both.
Ghost kitchen
Pros:
- Plain and simple, ghost kitchens cost less up front.
- Restaurants can expand their facilities without costly real estate and labor required of customer-facing operations.
- The arrangement also allows restaurants to test out a new location.
- In the future, a restaurant could ask a ghost kitchen to launch its take-out operations in any region, as Ruth Isenstadt, the director of DoorDash Kitchens, told Quartz.
Cons:
- Since their actual kitchen space is often smaller than that of a typical restaurant, ghost kitchens work better for less complicated foods such as wings or burgers.
- Finding real estate can be challenging, as the further you get away from dense city centers, the more expensive it gets to bring diners the food.
- The kitchens are competing with traditional kitchens as well as industrial uses for space.
IRL dining
Pros:
- The restaurant is not going away—eating out is convenient, and for many, it’s about the experience of eating with others. Recovery, though slow, is happening. The industry is nothing if not resilient.
- The margins are better than ghost kitchens, as revenue is not being shared with third-party companies.
- It’s easier to market a physical restaurant rather than a virtual brand, particularly when a restaurant is new.
Cons:
- Restaurants are faced with rising costs due in part to the heightened pressure of wage gains, whether from states and cities mandating higher minimum wages or businesses that have to up their pay in response to the labor shortage.
- In the short term, another potential challenge is the constantly changing policies around Covid-19 protective measures, such as mask and vaccine mandates. “I wake up wondering which protocol measures I have to change for that day,” said June Chow, managing partner at Hello Dumpling, a Chinese restaurant in Dallas, Texas.
The restaurant gets techy
Shortly after moving to Chelsea, New York City this spring, I set out to find my new go-to boba place. After a few weeks of placing my order with the person at the cash register, something shifted: The worker instead directed me to a standing kiosk to place my order. I perused the menu on the screen, placed my order, and paid via Apple Pay. I received a text that I paid, and then a second message letting me know when the drink will be done. I stood there, watching the robot shake the boba and, a little after two minutes, the drink was ready as promised. I didn’t need to talk to a human at all.
Restaurants are increasingly turning to technology in part to help navigate the shortage of workers and to save costs. They are automating aspects of front-of-house operations like the diner check-in-process, managing the wait list, and taking reservations, as well as replacing paper menus with QR codes.
But technology is not the solution for everything—instead, it allows restaurant operators to be more thoughtful about other parts of the business.
“I think nobody should ever say, ‘Do you want fries with that?’ That’s something that can be solved so easily with tech, but what you can’t replace is like, ‘How are you doing?’ ‘Thank you for coming in,’ and ‘How can I make your dining more special?’” said Newlin. “So I think you’re using technology to solve operational problems, not to drive customer demand.”
There’s still an open question of whether all this automation helps or hurts workers. Restaurant sales are already back to pre-Covid levels, but employment is not, which suggests that restaurants are doing more with less and could be putting extra strain on workers. That said, as more processes become automated that could boost wages to help reduce turnover and improve workplace conditions.
🔮 Prediction
The restaurant industry is entrepreneurial at heart. Technology will create a more seamless eating experience when it comes to ordering and paying, for instance, but customers are going to have higher expectations of what they get out of dining out. Here’s what to expect when dining out once the pandemic is no longer top of mind:
📱 A more seamless experience
Expect to start engaging with a restaurant before even getting there. More of the ordering process is happening directly from your phone, whether that’s opening the menu or checking how long it will take to be seated.
Diners can now comfortably wait at home, in their car, or a nearby bar and be notified when their table is ready, noted Anthony Cross, Yelp’s VP of restaurant product. That allows a better customer experience, and technology will help streamline the ordering process and result in less misunderstandings at the table.
🤔 Higher diner expectations
Diners don’t just expect good food—they want to feel like they belong to something bigger or mission-driven, said Newlin.
🌯 More options to get your food
The demand for delivery is expected to level out, as people do not like paying delivery fees. Instead, restaurants will give diners more options for how they want to get their food, such as delivery, pick-up, and drive-thrus. Already, restaurants with drive-thrus are creating special lanes for delivery workers. “Speed is everything when it comes to the drive-thru, and we don’t see that need going away anytime soon,” said Mike Grams, Taco Bell’s president and global COO.
🤑 Higher prices
Rising prices for food and labor mean the cost of going out to eat is only going up. That, combined with renewed focus on tipping generously, might limit how often people go out to eat. That said, higher prices could make fast-food restaurants, which make up an increasingly large share of all restaurants, a more attractive option for diners in the future.
🐕 More loyalty programs
In an effort to retain customers and stave off competition, more big chains such as Taco Bell and McDonald’s have been launching loyalty programs. For restaurants, these programs have another purpose: to collect data and to learn more about their customers’ ordering preferences in order to better recommend them dishes or marketing offers.
🥡 A different physical layout of restaurants
Restaurant owners should be prepared to create more capacity in the back of the house and in front for expediting delivery and pick-up. They should also ensure the items on the menu that transport well, said David Portalatin, an analyst who focuses on the food industry at market research firm NPD. Owners will also need to think about how to allocate resources for executing traditional on-premises dining versus off-premise options, he adds.
Sound off
How are you dining out these days?
I’ll go out, but I’m sitting outside
I’m sticking to takeout for now
In last week’s poll about how Covid ends, 32% and 35% of respondents said they think we’ll be done with Covid in one and two years respectively. Who’s betting it’s somewhere in between?
Have a great week,
—Michelle Cheng, reporter (has too many unfilled loyalty cards)
One 🥗 thing
US chain restaurant locations tend to be located in the South and Midwest. As a growing number of companies allow employees to work from anywhere and more move to the suburbs, fast casual salad chains are starting to follow.