The rise of the virtual kitchen
Online catering looks set to take over from struggling restaurants
● The rise in virtual kitchens in the country is a sign of the pressure the restaurant and takeaway sector is under and the increasing demand from consumers for convenience.
The incentive for running food operations in ghost kitchens where restaurant owners focus their energy solely on preparing food while delivery services such as Uber Eats take care of the logistics end of things is the affordability that comes with it, says John Loos, property strategist at FNB Commercial Property Finance.
“Retail property space has got a lot more expensive in real terms — operating costs, rentals, buying retail space — the value of retail space is a lot more expensive in real terms than it was 24 years ago. It’s an affordability thing that incentivises people to look for cheaper alternatives,” Loos says.
Jasper Meyer’s ghost kitchen, SmartkitchenCo, morphed out of the catering company he initially ran out of his stepmother’s kitchen.
“We’re leveraging the internet to build online food brands, we’re using delivery apps such as Uber Eats, OrderIn and Mr D to sell all our food, which means we don’t need a front of house,” Meyer says.
An advantage for SmartkitchenCo is that real estate costs are lower, “which means we look at a different type of property instead of a normal restaurant and it also allows us to run multiple restaurants from a single kitchen”, he says. “We’ve learnt to create revenue by creating more restaurants and not needing more resources.”
The company has three kitchens operating six of its brands, Jazzy’s Gourmet Pizza, Good Burger, Quick Convenience, King Chicken, Jiro Poké and the Salsa Co.
“We’re located in light industrial buildings as close to residential as we can. The closer to residential, the more customers you have access to, which brings down our rent considerably and sometimes the landlords struggle to rent the properties that we take.”
SmartkitchenCo also leases out its kitchens to smaller food players that want to get into the quick-service restaurant space, such as Cape Town-based bespoke sushi maker Salushi Express.
Dave Kitley, general manager for Uber Eats SA, said SA is the perfect playground for virtual kitchens and that Uber Eats’ growth was the result of rising demand for convenience by customers.
“Our focus is on offering consumers quick and reliable food delivery, restaurant access to new customers, and couriers flexible economic opportunities,” Kitley says.
Another cost reduction comes in the form of staff count as there is no need to hire frontline
We’re using delivery apps to sell all our food, which means we don’t need a front of house
Jasper Meyer
Owner of SmartkitchenCo
employees in the case of businesses that are exclusively virtual restaurants, while for traditional restaurants that add a delivery option, the same chefs, preparation assistants and kitchen maintenance staff are already employed, so there is no need for additional staff, Kitley says.
Uber Eats, which made its entry into SA three years ago, has seen a dramatic surge in virtual kitchen partners. In April last year it had just 20; this year it has more than 140 virtual restaurants signed on its app.
Euromonitor International senior research analyst Christele Chokossa says slow economic performance is affecting overall demand for fast food, with a low return on investments spurring a halt in restaurant owners’ expansion plans.
“Hence, some players opted for divestments, while low-end takeaway providers closed down underperforming stores,” Chokossa says.
While the digitisation of food is becoming more of a reality it won’t happen overnight given the low online saturation in the South African market, says Loos.
Speaking of the impact of e-commerce in the restaurant property sector, Loos says: “In the grander scheme of things, if you take the number of restaurants in SA, it’s still relatively small.
“It’ll grow significantly but it’s not going to take 20%, 30% or 40% out of restaurant retail just right away.”
According to Loos, weaker retail sales have been exacerbated by a further rise in the average retail centre vacancy rate, which, “according to MSCI half-yearly data has already risen from 2.9% in the first half of 2016 to 4.7% by the first half of 2019”, he says.
“This, in turn, places pressure on rental and income growth.”