Part 3/3: The Future of Food Service: Navigating the Shift to Digital Restaurants
The Parallel Paradigm Between Digital Restaurants and E-Commerce Trends
Following the exploration of the digital restaurant industry's evolution through discoverability, orderability, and scalability, we arrive at an intriguing parallel: the dropshipping model that revolutionized online retail. This analogy offers a unique lens through which to view the restaurant industry's ongoing transformation. Just as dropshipping allowed for an explosion of retail brands on platforms like Amazon, ghost kitchens are enabling a similar proliferation of restaurant brands. This part examines the dynamics of this comparison, focusing on the potential for a food marketplace analogous to AliExpress that could further democratize the creation and distribution of culinary experiences. Such a model could streamline the process for individuals to launch and scale restaurant brands, the implications for market saturation, and the ongoing efforts to maintain quality and diversity in the face of rapid digital brand proliferation.
Though evolving more rapidly, the space is following a similar trajectory to Amazon’s dropshipping phase. Dropshipping took off on the back of a mature fulfillment offering from Amazon and the growth of consumer trust in online shopping. A standard process emerged: select a niche product, find an overseas supplier on Aliexpress (or similar), slap a brand on the whitelabeled product, and get fulfilled by Amazon’s warehousing and delivery chain. Over five thousand results spit back on a search for “iPhone charger” - that's the outcome of dropshipping. Most of these results come from the same factory in maybe a different color with a different brand. Like Doordash, or more accurately the other way around, Amazon’s cracked down on the practice. Addition of new products is limited by strict regulations that emphasize uniqueness and tangibility.
Bloat isn’t limited to phone chargers. Thousands of burger brands serve effectively the same sandwich under a different name. Brand is the strategy. To mirror the dropshipping chain: Doordash is Amazon - the search platform; ghost kitchens are Chinese factories that produce the generic products for consumer branding; and dropshippers are the virtual brands posting menus under their logo. NextBite serves as a case and point. The virtual brand partner of iHop and Noah Schnapp creates simple, generic food fertile for a logo sticker to be slapped on. Five of the same chicken sandwiches with five different storefronts. Each of which are pushed out on Doordash for distribution. This is more or less dropshipping.
Missing from the comparison is an AliExpress analogue. What does the AliExpress of food look like then? The site functions as a marketplace connecting consumers directly to wholesalers and manufacturers with global distribution. Cutting out the middleman, AliExpress enables customers to create their own “brands” on top of an existing product base. In the food market, however, brands are vertically integrated - controlling production and marketing. Even for ghost kitchens, NextBite runs both the kitchen and the brands. In the AliExpress model they would do one or the other. Not both.
Functionally, this platform would connect customers with an existing food base ready for production. A food base of finished items; that means burgers rather than buns and chicken tenders rather than raw chicken breast. Unlike AliExpress, however, products aren’t fabricated at once and shipped to an Amazon fulfillment warehouse. Rather, this model would work more like a contract.
Take an example of someone who wants to start a restaurant brand with no existing cooking knowledge. Their first step is to find the type of food for their brand. They scroll TikTok, examine trends, and decide on some niche items. Next, they need to find a producer since they don’t have any knowledge of recipe creation or how to create any scale around a food item. They go to the food version of AliExpress. This site lists tens of thousands of food items, ready for “whitelabeling” and distribution to customers. Each item is a generic version of some distinct food item offered in house for production by ghost kitchens.
Another piece is that each Ghost Kitchen has a unique delivery network, due to the locations of the physical kitchens and delivery radiuses to get food to consumers’ doors within thirty minutes. The brand “founder” has the decision of which geographies to distribute to and to what capacity. This allows fine grained control over the market. For example, maybe there’s a food trend in five specific zip codes. In each of these zip codes, then, the founder could select the available ghost kitchens and none of the others in the network.
Since orders are serviced from a single kitchen, the founder will have to find a match for their products all from one kitchen. Kitchens are reaching a capacity of thousands of unique items, so this is more feasible than it might sound. Perhaps networks will specialize around certain types of cuisines - for example a Chinese food network - or workflows such as “bowl style” restaurants. Realistically, such specializaiton is only immediately possible in urban centers where there’s enough order flow to support different cuisines. In suburban geographies it’s less feasible, but perhaps a ghost kitchen network from China for example will have locations in demographics with higher Chinese cuisine preference.
Continuing along, this founder hones in on five or so items they’d like to produce. For each, they tweak a few elements - subbing sauces in for those they think fit better and the like. Next they select the production volume to detmermine pricing and order management for ingredients. For example, they might buy five hundred burgers per week. They will have to pay for all these burgers (or at least a fraction of them) upfront regardless of if they are actually produced. The kitchen needs the cash to order ingredients as well as to account for the employee time spent. It’s the same with AliExpress - you have to pay for all five hundred lava lamps even if you don’t sell them.
One notable step is that the founder will have to find packaging in line with their brand that’s sent to the fulfillment kitchen. Once purchased, the founder puts their restaurant up on Doordash and its in service. Customer’s orders will be forwarded to the fulfillment kitchen, prepared, and handed off to the driver. A full service restaurant is created and it's possible these burgers are being delivered in Ohio while the founder is in Beijing or even the other way around.
In this system it's important to recognize the value provided at each step. The ghost kitchens supply the product. They develop the recipes, train the staff on production, and operate the cooking facilities. AliExpress, or in this case a food analogue, provides access to a global marketplace of consumers looking to purchase. It connects them with customers who will do the marketing. Kitchens don’t have to worry about running brands or interacting with end customers - they just do the food fulfillment. NextBite picks whichever element they do best - kitchen production or brand operation.
The restaurant industry's digital transformation, marked by phases of discoverability and orderability facilitated by the internet and delivery platforms like DoorDash and UberEats, has now entered a new era with ghost kitchens. This "scalability act" redefines the essence of being a restaurant in the digital age by separating the creation of recipes from their replication. Similar to Content Delivery Networks (CDN) for web content, ghost kitchens allow restaurants to upload their "recipes" to a network, where orders are cooked and delivered by the nearest kitchen. This model offers unprecedented scalability and significantly lowers the barrier to entry for launching new restaurant brands.
Digital restaurant brands on platforms like UberEats have seen rapid growth indicating a burgeoning market. Initially dominated by corporate entities, the evolving landscape now invites a wider array of participants, echoing the early internet's "dot-com" boom. However, this ease of entry also presents challenges, such as market saturation and potential quality dilution. Platforms and ghost kitchen networks may need to enforce stringent criteria for new entries to maintain quality and diversity.
In effect, ghost kitchens are reshaping the culinary world by enabling rapid scalability and innovation, much like the internet did for information. As the industry navigates this transformation, it will need to balance the proliferation of new brands with the maintenance of culinary standards to enrich rather than dilute dining culture.