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Food for thought: the global rise of dark kitchens and stores

Behind the door of a nondescript warehouse unit in Wynberg, north of Johannesburg, lies a microcosm of how we are going to buy food for the foreseeable future. Here, food is being prepared exclusively for delivery. There is no restaurant space - not even a few plastic chairs to sit on while enjoying a quick bite to eat.

Food for thought: the global rise of dark kitchens and stores

Instead, a company called Collective Kitchens is managing a fully-equipped venue that can cater to more than one restaurant brand simultaneously, from exactly the same space. This delivery-only restaurant, with no customer interaction, is known as a “dark” or “ghost” kitchen, and it’s a real estate trend that is gaining traction around the world.

Out of the dark - a global trend

The restaurant and grocery sector has been forced to adapt, or die, as a result of the coronavirus outbreak. In many parts of the world, pubs, cafés and restaurants closed in line with government lockdowns and delivery instantly became the go-to essential way in which operators could maintain an income stream.

While businesses are now slowly reopening in many countries, the fear of contagion prevails, and operators are generally not in a financial position to immediately return to business as usual. Considering that the cost of setting up and running a dark kitchen is 30% to 50% less than for a traditional restaurant, it’s obvious why it’s an attractive option for struggling or emerging businesses.

Dark kitchens enable restaurant brands to fulfill orders without operating from traditional restaurant premises, with no front-end or retail presence required.

Could ghost kitchens and deliveries be the Covid-19 cure for SA's fast food industry?
Could ghost kitchens and deliveries be the Covid-19 cure for SA's fast food industry?

Insight Survey's latest SA Fast Food/QSR Landscape Report 2020 carefully unfolds the global and local fast food markets based on the latest information and research, including the impact of Covid-19...

Issued by Insight Survey 11 Aug 2020

Groceries as an essential service

The need for delivery is not just limited to meals from restaurants or take-away operators. With many people still self-isolating, the delivery of groceries has become an essential service. A shift that might have taken years to unfold has been significantly accelerated, and the long-term impact of online delivery of groceries can be expected to have a considerable impact on commercial real estate.

UberEats saw a 10% increase in sales in the United States at the beginning of March, for example, when the hard lockdown was enforced, while takeaway orders in the UK increased by 18%, according to payment provider Barclaycard.

In South Africa, online groceries were permitted in terms of the lockdown regulations, but food delivery was not. However, in the weeks preceding the lockdown, there was already a spike in food delivery, and companies such as OrderIn, based at Inospace’s Island Works in Paarden Eiland, saw a significant increase in demand. Now this company is delivering groceries for major retailers such as Pick n Pay.

Curry Connect, a grocery delivery service specialising in Indian food and ingredients, based at Inospace’s Wynberg Works business park, reported a similar surge in demand. The owners have been reaching out to restaurants in Sandton to invite the staff they had laid off to work at their 500 square metre warehouse facility.

Checkers Sixty60 creates 800 new jobs during lockdown
Checkers Sixty60 creates 800 new jobs during lockdown

Since the start of lockdown, Checkers Sixty60 has created 800 new jobs to meet the increased demand for the grocery delivery service...

16 Sep 2020

Dark stores as an emerging property trend

Before the pandemic, a small but growing percentage of South Africans bought their groceries online. This number has since escalated, with grocery delivery services around the world seeing a dramatic spike in demand - so much so that operators, both large and small, have been scrambling to keep up.

In the United States, Walmart has trained more than 30,000 workers to fulfill customers’ online grocery orders, but this has resulted in congested aisles as they must work during peak shopping periods if they are to meet the call.

The cost of delivering groceries from central warehouses is estimated to be double the cost of delivery from smaller micro-fulfillment warehouses. Grocers around the world are therefore seeing the financial benefits of these so-called dark stores. Some dark stores have automation, while others are still manned by employees who do the selection of the goods purchased online.

Darth Kitchens aims to build SA's largest 'virtual kitchen' network
Darth Kitchens aims to build SA's largest 'virtual kitchen' network

Darth Kitchens, a new dark kitchen operation by some of the brightest minds in SA's food space, has launched its first 400sqm purpose-built, state-of-the-art facility in Cape Town...

3 Dec 2019

Walmart recently opened Walmart Pickup Point, a 4,000 square metre prototype outside Chicago. Customers drive to designated parking spots at the site, where a staffer loads their order into the boot of their car. Walmart can also make deliveries from this location, which from the inside resembles a Walmart with groceries and everyday items. However, unlike a traditional Walmart supercentre, it’s not open to customers.

Large South African retailers whose centralised distribution centres are unable to handle end-user customer deliveries are also opting for smaller dark stores in industrial locations near suburban areas. Delivery companies are expanding their service offering too. Uber, for example, is now delivering a range of items, not only food takeaways.

Spike in SA e-commerce could trigger major warehouse space investment
Spike in SA e-commerce could trigger major warehouse space investment

The Covid-19 crisis has resulted in a massive spike in online sales which could fuel unparalleled growth in e-commerce operations in South Africa, according to Paragon Group director Estelle Meiring...

2 Sep 2020

A habit that will be hard to break

Even as lockdown restrictions are relaxed, restaurants and food retailers will undoubtedly continue changing their business models. Many behavioural scientists believe that the current crisis will lead to permanently different ways of doing things, and that the delivery of food, both from restaurants and grocery retailers, will become the norm.

Once people become used to getting food deliveries at home, it will become a habit that will be difficult to break.

About Rael Levitt

Rael Levitt is CEO of Inospace. Levitt is a double Master's degree graduate from the National University of Singapore and the UCLA Anderson School of Business with over 25 years of experience in all facets of the real estate sector, including founding several leading businesses.
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