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Virtual restaurants are taking over the F&B industry. A Blue Ocean Strategy is here to stay.

Whether you call them “ghost kitchens”, “dark kitchens”, or “cloud kitchens”, virtual restaurants have been growing expansively across the globe. Uber, Deliveroo, GrabEats are all investing heavily to set up equipped rental facilities across the globe, luring over more and more restaurateurs that are all too eager to widen their customer reach.

So what is a virtual restaurant and what is the buzz all about?

The Rise of The Virtual Restaurant

Let’s take a look at the restaurant business model from the perspective of strategists like INSEAD professors W. Chan Kim and Renée Mauborgne.

Whilst being one of the fastest growing industries, the traditional F&B business model would qualify as an old-hat Red Ocean sailor. In this case Red Ocean refers to a bloodbath that a highly competitive F&B market feels like at times. Rougthly 60% of all new restaurant concepts fail within their first 5 years of operations. Surviving in this business requires a great deal of elbowing, hard work and luck. It’s not an exaggeration to say that you really need the stars to align to sail through these rough waters and get into the league of well established restaurants.

On the other side of the scale is an industry disruptor, a Blue Ocean surfer - virtual restaurant, an F&B concept that offers food delivery and no dine-in option. These digital-only establishments create a leap in value for the business by bringing to the table new strategic advantages, eliminating typical operational hindrances and unlocking the wider customer reach. (More on the Blue Ocean Strategy here).

COVID-19 has turned thousands of restaurants “virtual” literally overnight. Whether we like it or not, this model proved itself a viable solution aiding the survival of F&B businesses through the months of quarantine.

However, will virtual become the “new normal” and replace restaurant dining as we know it? We decided to take a closer look at this market “challenger” together with the industry experts.

“Virtual restaurants are not new and we have considered this model in the past,” shared with us Jean-Christophe Cadoret, director of Napoleon and Gaston restaurants. “Today we need to adapt our lunch offer and we see a potential in developing a special lunch menu for online ordering, keeping it simple and offering delivery friendly dishes that are easy to reheat and plate.”

A novel “Low Overhead” Approach

With this alternative operation model, three key advantages really stand out and make it attractive to both new and well seasoned F&B owners:

Low overhead

Think about all the elements required to create a successful F&B concept: branding and interior design, interior fit-out, rent, waiting staff, tables turn-over just to name a few. Eliminating dine-in space makes it possible to set up a dream kitchen with equipment that would not be achievable in a traditional restaurant.

Avoid the need to own a space in a high footfall area, and instead find a strategic location targeting dense residential areas to make sure you are close enough to your customers. Recent months of quarantine really put to the test the rationale behind the investment heavy traditional in-dining.

“The biggest challenge for us so far (and I believe many other F&Bs as well) is revenue and how we can compensate for the loss of in-diners,” says Fiona Manini, co-founder of Casa Manini. “Rental has to come down or be based on a fixed percentage of the business’ monthly revenues. If rental calculations don’t change, we will see many more businesses folding.”

“During the months of quarantine we definitely questioned our CBD location. Being near to where people work was important when we first opened, however today we might need to be where people live,” adds Jean-Christophe.

Tech is power

“We've been able to maintain a good relation with our customers through online engagements of our social media and the personalised ordering system on whatsapp. This way, we have maintained service without there being a physical presence since the circuit breaker,” shared Chef Houssein Hafian Rodriguez, owner of Next Door Spanish Cafe.

Unlike brick and mortar counterparts, virtual restaurants can tap into the opportunity of data driven marketing, delivering relevant and fully customizable food options based on customers’ order preferences and history. Virtual outlets come with invaluable tools for multimedia customer engagement, data collection and evaluation, helping businesses hone their strategy, something that traditional restaurants seem to struggle with.

“We are in the era of digital, in the coming years work travel and business lunches will definitely become less and less present, whereas we should maintain our dinner crowd as destination restaurants. Virtual restaurants come to fill the market gap of casual dining,” mentions Jean-Christophe.

Experimentation ground

Relatively low operational costs make virtual restaurants an ideal opportunity to try out different food concepts, or even run multiple restaurants out of the same kitchen. Being a web-based restaurant, there is an opportunity to change the menu depending on the availability of ingredients, market prices and most importantly preferences of your client base. This offers a much wider customer reach, plus bad ideas can be scrapped swiftly if they are not working.

“Going "virtual" it is important to make a decision which business you want to be in. Virtual restaurant models are best suited for "fast & easy" concepts and target the mass market,” Jean-Christophe tells us.

“Treacherous Waters” of the Blue Ocean

Taking all these advantages into consideration, it begs the question why haven’t more F&B outlets ventured out with virtual concepts?

Personal touch

"Our regulars, they can’t wait to come back to dine with us and some have pre-booked their tables for the very first day that we are able to open again. Takeaways and deliveries cannot be compared to being in the restaurant,” shares Fiona.

In a restaurant industry personal interactions are the key to success. Paying attention to your customers, a simple “please and thank you”, can make a big difference between a good or a bad experience. If a consumer views a restaurant as an interchangeable convenience or a delivery app, there is very little room for a meaningful interaction. Restaurants lose control over customer experience and the personal touch that may lead to a repeat customer.

“Nothing will replace human interaction. There is a danger of not caring enough about the customer’s experience when operations rely heavily on tech whilst tending to their needs. Restaurants miss out on an opportunity to engage with the customers which makes a big difference,” shared Jean-Christophe.

“When people go to a restaurant, it is not only to consume food and drinks. They go to a restaurant to socialise with friends and the people around them. Especially since they haven't been able to do so during circuit breaker, people might crave for social interactions even more,” believes Chef Houssein.

Big disconnect

"Online and mobile pre-order systems are very common these days, however with that you are missing out on a chance to build relationships with you crowd and at the end an opportunity to upsell,” reflects Jean-Christophe.

Undeniably virtual restaurants offer a lot of flexibility, numerous analytical tools enabling operators to deliver highly personalized food based on customers' order history. However, by going “virtual” restaurants inevitably miss out on the opportunity to engage with the customers and upsell the dining experience. Moreover, relying on third-party platforms for discovery, ordering and delivery restaurants willingly hand over heaps of valuable consumer data which could be used to build relationships with their hard-won customers.

“When guests dine in and especially in groups, there’s also a tendency to order more as they are enjoying the moment and dining experience. More food, more alcoholic drinks. With takeaways, it’s not always the case that there will be alcohol included in their orders as they would buy from suppliers who are able to give a better deal,” confides Fiona.

“We don't know many virtual restaurants that are highly comfortable with their venture. On our end, we are not as confident in the sustainability of virtual connections,” added Chef Houssein.

Quality matters

"An important question thus far: how do we keep customers happy at their preferred delivery timings without compromising the food and drinks quality? We can have 60 people dining in, but we cannot deliver to 60 households at the same time,” candidly shared Chef Houssein.

Quality is the biggest challenge and a lot depends on the type of cuisine you are serving. This may be a hard truth to stomach (pun intended), but customers’ opinion of the restaurant will always be as good as the last meal they were served, whether that was in-house dining or a delivery. Whilst restaurants are striving to maintain high standards, it is a tough challenge to deliver home-dining experience that is equally good since food is prone to quality lapses. Regardless of how well it was packaged or how fast it was delivered, there is a high probability of dishes arriving cold, spilled or soggy. The bottom line is - dining experience in a box will never compare to the standards of the food delivered on tables.

“With emergence of social media, when dining people are increasingly becoming "visual." Whilst trying to recreate restaurant experience at home - plating has been one of the biggest challenges,” explains Jean-Christophe.

Dining is an always will be an experience

The future of the food delivery industry is definitely looking bright and there are many reasons to join this virtual revolution. Reduced financial risks and increased order volume make it an appealing ground to diversify existing brands and test out the new concept.

In the coming years we may see more and more casual dining outlets transitioning online with highly customizable menus, whereas specialty restaurants will continue to raise the game of in-house dining experiences.

“It’s inevitable now that we would need to have a virtual restaurant to keep up with the competition, but that would not be the core business for us. The priority would still be our brick and mortar. There is nothing like human interaction,” revealed Fiona.

“With COVID we had to innovate ways to bring the same level of satisfaction to the customers regardless of the situation. Since the lockdown, our menu is available for viewing online and we will look at continuing making it available even after we open,” concluded Chef Houssein Hafian Rodriguez, owner of Next Door Spanish Cafe.

“The golden age of traditional dining has passed, however I don’t think the industry is in any danger. People still need to meet physically to build relationships and the social aspects of F&B will not lose its value. However, virtual restaurants will create a wider and more distinct divide between take away mass market and restaurants that focus on the conviviality of in-house dining. Upping quality and focusing on experience is our strategy to stay competitive,” reckoned Jean-Christophe Cadoret, director of Napoleon and Gaston restaurants.

Dining out is a vital activity for establishing social connections and is essential to satisfy our need for human interaction. With countless delivery food options at our fingertips, in the coming years brick-and-mortar restaurants will gain an even higher importance in the process of community spirit recovery post-pandemic.

“Virtual restaurants are a means of convenience, nothing more. Dining is and always will be an experience,” shared in her final note Fiona Manini, co-founder of Casa Manini.

Special thanks to Fiona, Jean-Christophe and Chef Houssein for taking time to share their experiences. To bring a bit more variety to your quarantine life, check out the dining outlets run by these frontliners in the links below and enjoy!


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