Apps Feed Virtual Restaurants

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If you have ever ordered a burrito or a Hawaiian poke bowl through a food-delivery app, you may have been the patron of a virtual restaurant.
 No, you don't need to put on a VR headset to experience one, and the food is quite real. What makes these new restaurants virtual is that you only find them online. Tucked inside industrial parks, commissary kitchens and refitted basements in cities like New York, Chicago and San Jose, Calif., these restaurants have no dining room, no wait staff, no takeout window and no signage.
 (They still have to pass inspections from health boards, though.) Many don't take orders over the phone and are accessible only through online services like Grubhub, DoorDash or Postmates.
 Virtual restaurants, with their low overhead, are allowing restaurateurs to shift away from the capital-intensive model that kills 60% of new restaurants in their first five years toward something decidedly more techy. By adopting a “launch, experiment and iterate” approach, these virtual restaurants resemble scrappy internet startups (only, when they say “apps,” they often mean appetizers).
 By far the biggest company in the app-driven food-on-demand space is Grubhub. It is so invested in virtual restaurants that two years ago it lent one of its own customers, Green Summit Group, $1 million to expand. Green Summit, which launched in 2013, has kitchens throughout New York City, Todd Millman, its co-founder, says. There might be up to 10 different “restaurants” In a single kitchen.
 Though they appear on Grubhub as separate establishments, each with a distinct cuisine, all the food might be prepared in the same kitchen by the same staff.
 Consolidated kitchens increase efficiency. “Most of our employees don't move very much,” Mr. Millman says, explaining that each person is devoted to a specific set of tasks. At the end of the preparation process, runners assemble and bag the meals.
 In San Jose, Grubhub competitor DoorDash has built out its own kitchen space. There is one tenant so far, a pizzeria called the Star. (More are on the way, Door- Dash says.) To save on rent, DoorDash built the facility in a disused portion of the Santa Clara County Fairgrounds.
 One month in, the Star's savings have been notable, says Ben Seabury, chief operating officer of the 1100 Group, which owns the virtual restaurant. Typically, 30 cents of every dollar that comes into one of his restaurants goes to labor, says Mr. Seabury. But without waiters, bartenders and dishwashers, that cost is just 10 cents on the dollar— and even less when demand is high.
 Postmates, another popular on-demand delivery startup, is pursuing a similar strategy, a company spokeswoman says. In September, it opened a commissary kitchen in Los Angeles where, in exchange for paying a higher commission, Postmates' virtual-restaurant partners can operate without having to secure their own kitchen space.
 Virtual restaurants tap into a larger trend: Americans' increasing aversion to cooking for themselves. For the first time ever in 2016, Americans spent more at eating and drinking establishments than on groceries, according to U.S. Census data.
 The food-delivery market is a small slice of that sector: It is only $30 billion in 2017, but Morgan Stanley estimates it could balloon to $220 billion within a few years.
 A nationwide oversupply of restaurants and the subsequent shakeout has kitchen space in some locations going for below-market rates. Both kitchen space startup Foodworks and Green Summit Group specialize in snapping up kitchens on the cheap. The same trend is driving surviving establishments trying to figure out how to increase their business through delivery.
 A Chicago restaurant group, Lettuce Entertain You Enterprises, launched a virtual restaurant after three of its chefs realized they had unused kitchen space at one of their sushi restaurants. The group had leads on high quality tuna, and the result was the ASAP Poke virtual restaurant, which delivers poke bowls.  

The Star prepares pizza for delivery by DoorDash in San Jose, Calif.


Takeout Nation

U.S. retail sales at restaurants have surpassed sales at grocery stores

Source: Census Bureau




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