Third party delivery and online ordering - the rise of dark kitchens

22 October, 2019
Alex Demetriou

The food delivery market is growing exponentially in the UK with the MCA forecasting it to be worth £9.8 billion by 2021 – up from £8.1 billion in 2018, so we decided to take a look at some of the implications for the sector and ask the big question... can your business afford to miss out?

Consumer demand is rapidly increasing

Consumer demand for online food delivery using companies such as Deliveroo, Uber Eats and Just Eat is growing rapidly. Whether you’re producing sushi, burgers, pizza or fish and chips for the takeaway market, there’s an online delivery service that will – via an app – take customer orders and deliver straight to their door, often within minutes.

According to the MCA Foodservice Delivery Report 2018, food delivery was worth £8.1 billion in 2018, up +13.4% year on year. With 60% of adults ordering food delivery twice a month, with an average spend of £9.47 per head per order, the MCA predicts that the market will be worth £9.8 billion by 2021.

But online food delivery may not work for everyone

As procurement specialists, we know that whilst online food delivery is an important and growing part of the market, which will appeal to many growing and established food brands looking to expand their business, it may not work for everyone.

The charges for partnering with online food delivery companies are usually high and therefore most of the margin is stripped out.

Some brands are so conscious of not being left behind in this highly competitive market, that they are using the food delivery service knowing that they will only break even, but they have factored into their plans the distribution of marketing materials with the food deliveries to try to get customers to physically come into their outlets. However, recent studies show that the addition of third-party deliveries doesn’t necessarily impact on the revenue from in-store dining.

Consumers make the decision to either go out or get a takeaway in and then decide on the restaurant or the type of food they would like delivered. Third party delivery gives access to a totally different customer, and therefore the data show it rarely impacts the revenue from in-store dining.

The alternative 'dark kitchen' business model

An alternative business model focuses on not needing to have restaurant premises or even a takeaway shop-front, and using a shared kitchen with other like-minded brands.

The rapid rise of so-called ‘dark kitchens’ – a cluster of professional workspaces which are rented out fully stocked with cooking and preparation equipment, specifically for the takeaway market - has paved the way for food start-ups to realise their potential, without the high costs of renting their own premises.

Food businesses that can really take advantage of online delivery are those operating from a dark kitchen - also known as a ‘ghost’ or ‘cloud’ kitchen - because they don’t have the same operational costs.

Dark kitchens don’t have to be located on a high street or in premium areas, so they can benefit substantially from lower business rates and rents, as well as reduced labour costs as they aren’t paying for front of house staff. Sharing premises, and therefore costs – or in some cases having the space provided free and paying a commission on each sale – is a great way for start-ups and established brands alike to build their business quickly.

A need to invest in technology

Delivery-only food businesses rely heavily on technology and a significant online presence to be effective. Investing in an easy to use, user experience focused website and making sure your social media activity is performing well is critical to customer engagement and driving sales.

Here are some of our top tips

  • Go into third delivery and online ordering with your eyes wide open – you’ll need to carefully understand all the opportunities and challenges
  • Make sure your online presence is spot on – it’s your shop front
  • Focus your advertising activity online and through your social media channels. Think mouth-watering pictures on Instagram, fun and engaging content on Facebook, Twitter and YouTube
  • Take your reviews seriously – take time to read them and reply, especially to the negative ones
  • Think about loyalty rewards for your customers or discounts on future online delivery purchases
  • If you’re considering a business venture in the restaurant or takeaway market, look at dark kitchens as an alternative business model or to see if they can complement your existing business model
  • Think carefully about the best product/s to make and sell - usually the online delivery business model will work best with high margin product and those products that travel well. For example, pizza is a great one for this, as well as Chinese and Indian food, but fish and chips has a tendency to go soggy in paper and lose heat quickly with card boxes.
  • Understand your market and your competitors, could online ordering and delivery or operating from a dark kitchen open up a new market for you?

Final word

We see that many companies are looking for advice and support on how to best to capitalise on technology to help grow their businesses. More people are engaged with the concept of buying groups and understand that their customers want more than just a good price on an item. They want more support, which in turn will help them run their business better, delivering an improved experience for their customers.

Providing advice to our members around utilising technology is an important part of that. This demand for advice in all aspects of business growth – alongside the growth in our membership - has led to the recruitment of even more dedicated procurement managers nationwide, helping us to deliver that service.

Regency Purchasing Group works with more than 3,000 leisure businesses throughout the UK, including some of Britain’s biggest and best-known attractions, hundreds of golf clubs, plus pubs, hotels, zoos, farm attractions and many others.

Share this article:

Stay connected

    Enter your email address to be kept up to date with latest news, company developments and market insights. You can unsubscribe at any time.
    View our Privacy Policy.