Amazon's Investment In Deliveroo Could Be Fatal For The Traditional Restaurant
With a stack of cash, an impending US expansion and a road map on how to do it, Deliveroo looks to be destined for success.
UK based food marketplace and Uber Eats competitor Deliveroo is reportedly looking for ways to expand and innovate its offering in preparation for a massive US expansion. This has all come about thanks to a massive capital injection from worldwide marketplace giant Amazon, who are also looking for a piece of the pie. And the way they are allegedly looking to fulfill these visions of grandeur is by investing in the "virtual restaurant" model.
Now, half of the readers here are going to be scratching their heads frantically and Googling "virtual restaurant" after reading that first paragraph. So allow me to save you the effort. A virtual restaurant, or known to many in hospitality as dark kitchens or ghost kitchens, is when a business or individual sets up a kitchen in almost any location and begins to serve food from that kitchen to service delivery only customers. Without the normal overheads of a highly visibly location, professional kitchen fit out and front of house staff the businesses tend to be much more profitable. So much so that many casual dining restaurants in Australia have actually opened second "virtual restaurants" in much more convenient delivery locations to service their delivery only business.
In Australia, local government have also claimed that these "virtual restaurants" have been difficult to both license and police. With extreme cases of these dark kitchens not being subject to Environmental Protection Agency inspections, not having to adhere to Worksafe policy and paying staff way below minimum wage. Of course, there are also many "virtual restaurants" who are completely compliant as well.
The disruption of the "virtual restaurant" model has also caused a rift between traditional hospitality outlet owners and the delivery services, Uber Eats and Deliveroo. With both organisations charging enormous fees to use their services. In many cases local restaurant and casual dining owners claim they struggle to break even on any Uber Eats or Deliveroo job. With both services in most cases asking, if not pressuring, traditional restaurants to make their menu and prices identical to that of their front of house restaurant before charging their delivery fee to pay their drivers (taking a percentile of that fee) and then charging an exuberant percentile fee on the total amount of the order charged to the customer.
So, that brings us back to Amazon's investment into Deliveroo and their subsequent road map for success. Deliveroo, thanks to leaked investor slides, is planning to cut food costs by almost 50% by launching their own food offerings. And, admittedly, I'm impressed. It's an interesting concept. I'm going to tell you why.
In 2004 a man named Simon Crowe launched a new healthy burger brand in Australia named Grill'd. By 2016 Grill'd had 125 restaurants Australia-wide and is looking at the potential to expand to a worldwide market. Amazingly, the offerings of Grill'd were expensive compared to the competition, with the company having a specific focus on their in restaurant offerings and not their take away business. One burger from Grill'd costed well over $10AUD in most cases and meal deals in most cases either were not offered or weren't economically viable.
So why did Grill'd succeed? Well, their produce was fresh and their product was of ridiculously high quality. That definitely contributed to their success, but it also costed them a hell of a lot of money. But Grill'd true key to success was their in restaurant system. Simon Crowe was a genius in hospitality systems, much alike to the original McDonald brothers in the US. Staff would continually rotate duties from shift to shift (with all staff being trained in all jobs in the restaurant) so that they understood exactly how the supply chain in restaurant actually worked. He also researched and developed an extremely advanced in store enterprise system and ensured that all restaurants were always completely operational.
This meant that wait times in restaurant were at a minimum, in most cases a sit down meal would be completely finished and at the table within 10 minutes. It meant that staff were happy and paid well, and it meant that he was also able to keep the produce as fresh as possible. In fact Simon Crowe managed to improve the entire quality of his restaurants simply by creating an in restaurant system that was highly efficient and allowed most if not all of his workers to become highly skilled.
From what I can see, Deliveroo are looking to do the same. With Amazon's help, Deliveroo are looking to take full control of the supply chain and with a combination of next generation technology and well researched and developed systems they plan to minimise inefficiencies the inherent inefficiencies in hospitality. Something that is a particular sore spot for many traditional restaurants today.
This industrialisation of the food development and delivery process though does pose a particular threat to those traditional restaurants, one which is far larger than dark kitchens. And it promises to further widen the rift between those hospitality organisations and food delivery services. Ironically, many local restaurants didn't want to be involved in food delivery in the first place. But when one competitor in their particular niche got involved, they had no choice.
Deliveroo are also looking into ways to further automate the food delivery process. With Amazon's investment in automation stepping in to help, including the removal of the human rider.
It'll be an interesting space to watch, in Australia there have been many reports of customers rejecting dark kitchen offerings when they find out exactly what they are and how they operate. But with a rise in quality of food and a drop in pricing thanks to a spike of innovation from both Deliveroo and Amazon, who knows? I know I'd rather have a clean sterile robot flipping my burger than the majority of employees in hospitality currently.