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I have seen restaurants on the street experience their fair share of disruptions.

Consider the following scenario.

A consumer uses one of the many food delivery services, such as Uber Eats, Door Dash or GrubHub, to order a meal from a website on their computer or, more commonly, from an app on their mobile device. The restaurant is chosen, the meal is selected and paid for and the food is delivered.

Making this typical situation somewhat atypical is what now often happens behind the scenes. In a growing trend on the “street”, restaurants that make food for delivery don’t always exist in the traditional sense. There is no signage. There is no dining room. Sometimes there isn’t even a storefront, unless you count a nondescript door with signage that directs the food delivery services. Essentially, a typical store front in this scenario is a virtual homestead on an app or a website.

This is known as a virtual restaurant, and everyone from chefs to restaurant groups are in the game. Tyler Pitman, vice president of portfolio development and brand partnerships for HMSHost, cites noted chef Eric Greenspan and Chicago-based Lettuce Entertain You Enterprises, as examples of those riding the trend.

Listen to Tyler Pitman of HMSHost speak about the impacts of delivery services and ghost kitchens.

The business model of a virtual restaurant is predicated on having real estate that is dedicated only to a kitchen. Sometimes, several different concepts are operated out of a single kitchen, or several restaurateurs lease kitchen spaces to prepare and cook meals. The use of what are referred to as “ghost kitchens” has become prevalent, embodied in the form of companies such as Google-invested Kitchen United and Cloud Kitchens, which is operated by former Uber founder Travis Kalanick.

But can a virtual restaurant work in a space-constrained and rigidly secure environment such as an airport? Pitman’s opinion is that the industry needs to be ready to begin thinking, if they are not already, of viewing food programs differently. Elizabeth Grzechowiak, assistant director of concessions and business development for Minneapolis-St. Paul International Airport, sees opportunity.

Listen to Liz Grzechowiak of MSP address any concerns she may have of virtual restaurants and ghost kitchens operating in an airport.

Suzanne Merrell, senior manager of retail operations and performance for Toronto Pearson International Airport, is intrigued.

“This is an interesting concept in a time of true disruption in the world of food,” she says. “As operators are looking at multi-levels of service and delivery with ever expanding demands from a multi-demographic audience, it will be interesting to see how this plays out.”

To begin with, I have identified three ingredients necessary for a virtual restaurant: real estate, delivery services and demand. Many if not all airports currently possess some combination of the three.

Real Estate

As we know, concession space can often be in short supply, especially in older facilities that haven’t been right-sized for the current traveler demand.

“Where space is at a premium, the ability to build offsite kitchens and deliver to a pick-up site has many attractive options,” says Merrell.

As for the spaces that are available, it is no secret that some are far superior to others in terms of exposure to a steady stream of passenger traffic.

“If you’re building a ghost kitchen or virtual restaurant that is going to be exclusive for delivery or managed through a smaller grab-and-go footprint, you wouldn’t have to have that prime real estate,” says Grzechowiak. “Same concept as street-side where you’re trying to capture the margins, you could do that in an airport environment where you could you have more aggressive fronts captured from these ghost kitchen concepts using sub-prime real estate.”

As a result, demand for these currently less-desirable spaces would change should businesses become more dependent on the awareness of an app and the reach of delivery, as opposed to relying on the occupancy and usage of adjacent gates.

“Utilizing space in flexible ways will be the future,” says Jeff Livney, chief experience officer for Grab. “The current structure for the allocation and contracting of physical real estate with long-term leases needs to evolve to support the concept. A few innovative airports will push the envelope and then others will follow, but it will be a slow adoption curve.”

John Reeb, former senior principal property manager for San Francisco International Airport and now the owner of Reeb Consulting, suggests more economical, underutilized real estate options such as vacant storage and office spaces which, in the end, may be the only options.

Listen to John Reeb of Reeb Consulting address an obstacle to virtual restaurants in airports.

Additionally, the lack of a front-of-house would result in the kitchen being the primary focus for build-out costs, where, according to Pitman, 70 percent of the capital expenditure will be found. So, for a very elementary example, the cost to build a 2,000 square-foot casual dining restaurant at $1,000 per square foot would be $2,000,000. By eliminating the front of house, such as a counter and seating areas, the cost would be reduced by roughly 30 percent to $1,400,000.

Another factor is usage. Currently, some kitchens are underutilized due simply to the ebbs and flows of flights. Pitman notes an opportunity to maximize usage with the addition, perhaps, of another concept. He points to the existence of commissary kitchens as another opportunity to host multiple virtual restaurants.

“You’re going to see partnerships with restaurant groups or chefs that may operate a variety of concepts where you can leverage some of that infrastructure or scale where you’ll find it easier to execute the kitchen spaces,” Pitman says.

Despite the virtual nature, Merrell feels that a physical “pick-up zone” and a dining area is still necessary, the latter especially in seating-starved YYZ.

“While some people will take their food with them to the gate, without a true dining seating area, it is not the option for all,” she explains.

Delivery

Some virtual restaurants on the street offer customers the choice to forego delivery and pick up the food themselves, while others rely solely on delivery. In airports, delivery or order ahead services, such as Grab, At Your Gate and Airport Sherpa have already made in-roads, while Uber Eats was in a pilot program at Toronto Pearson International Airport. The test ended in September.

“Due to the multi-sector nature of our airport—domestic, U.S., and international—we have had to launch in a phased approach,” notes Merrell of the Uber Eats implementation, which was done in conjunction with HMSHost. “Now that Uber Eats has launched their mobile order pickup program, we will be working on a multi-service program for both delivery and pickup, as well as offering expansion to other partners within the airport.”

The current challenge is not just the relatively few delivery services as compared to the street, but passenger awareness and adoption.

Grab has the deepest market penetration, currently serving 39 airports as a result of partnerships with companies such as Areas, Paradies Lagardére and Delaware North, in addition to American Airlines. Regardless, Grab is simply an order-ahead service with a platform that offers physical touchpoints, such as self-ordering kiosks, in addition to its app. Grab is reliant on third party delivery services. For example, the recent partnership with Airport Sherpa in Dallas/Fort Worth International Airport features a Grab-branded self-service kiosk where customers can navigate through the list of participating restaurants in the terminal. Airport Sherpa is then tasked with delivering the food.

At Your Gate offers a more integrated approach, incorporating both elements of order and delivery that consumers are accustomed to due to their experiences outside of the airport. At Your Gate currently serves nine airports, with several more to be announced soon, per co-founder and chief experience officer Chris Hartman.

Hartman says that the virtual restaurant and ghost kitchen trend is on the company radar, but he notes the airport industry is typically reluctant to sudden changes.

Listen to Chris Hartman of At Your Gate talk about how the use of delivery services can change the airport environment.

At MSP, both Grab and At Your Gate are offered to travelers. According to a recent article, the services are gaining in popularity.

“We have to look at how these ghost kitchens are doing things street-side, and how we can leverage those marketing ideas into the airport environment,” says Grzechowiak. “The ways in which we promote concessions in the airport are so different from the way that you would market a street side restaurant.”

Grzechowiak agrees with Merrell in insisting on a physical access point, at least initially, in order to build awareness that such a service is available.

“The introduction of technology like ours brings with it new opportunities to innovate,” adds Hartman. “Using things like ghost kitchens and virtual shops ultimately provides more choice to customers.”

Demand

Where delivery services are reliant on awareness and adoption, the demand aspect is dependent on normalizing the order and delivery behavior. Recent research suggests these behaviors are becoming a larger part of everyday life. Per a Steritech commissioned study, nearly 37.2 percent surveyed answered that they used food delivery services at home or at work four to 10 times within the six months that the survey was conducted. Additionally, 60 percent of respondents ordered delivery at least once a week.

Reeb suggests demand for such services in airports is possible, but only under the proper circumstances. He cites the need to identify the airport’s passenger demographic, be they leisure or business. He suggests that leisure travelers might not be inclined to use the service, whereas business travelers would be amenable to paying for the convenience.

“When I travel for leisure, my vacation starts at the airport where I’m looking for an enjoyable experience,” Reeb states. “I want to sit down somewhere with my family to enjoy a meal before boarding our flight. When I travel on business, I am looking for convenience and expediency, and would be more inclined to consider this service.”

Livney sees that there will be an opportunity to satisfy traveler demands for greater variety.

Listen to Jeff Livney of Grab explain how technologies paired with virtual restaurants will grow in demand and satisfy the desires of travelers. 

“I think, like most concepts involving delivery, there are the long-term unknowns around the environment with regards to packaging, transport, delivery reliability as wage rates are debated and in a potential recession, how does the millennial/gen Z cohort change decision making when delivered meals become potentially unaffordable,” adds Merrell.

New Opportunities

I asked myself if the flexibility of virtual restaurants would provide other opportunities.

Already noted is the ability to offer various types of cuisines as tastes and traveler demographics change. Pitman adds that there is even an opportunity to test new menu items and service styles.

Grzechowiak offers MSP as an example. Though the program is well-received, there are still comments from travelers looking for options where healthy, fresh and convenient converge.

“We have over 100,000 people in the building each day,” she states. “Not everyone wants the gourmet experience. As we build out things that are accessible and convenient and healthy, I think that these ghost kitchen concepts are a great opportunity to continue to add to the portfolio at all airports.”

Another opportunity could also be to provide small businesses or brands a lower cost entry point to test the airport market. Short-term leases in a given space without the huge overhead could give interested parties an opportunity to familiarize themselves with airports before pursuing longer-range opportunities.

An aspect of this, according to Grzechowiak, is currently being done in Portland International Airport.

“You have the food truck concepts in Portland pre-security that they often change out,” she explains. “That, in essence, is the same idea here. You would create a template with commercial kitchen space that could accommodate most menus and cuisine types and be able to give people the opportunity to come in and test their product and or see if they have a viable concept that would be successful in the airport.”

If the virtual restaurant approach is meant as an entry point for a new operator, Reeb is hesitant.

“I’m not sure this is the business model to use as a start-up at an airport, primarily because operating at the airport already comes with more complexities than operating on the street,” Reeb explains. “To add a new business model to the mix, there would be a steep learning curve.” Instead, Reeb believes that this could actually be an opportunity for experienced small airport businesses with existing airport locations to continue to grow their real estate to other airports.

Merrell, however, is skeptical that a ghost kitchen approach would be lower in cost than in-line buildouts.

“As the kitchen infrastructure buildout tends to be the most capital-intensive part of many builds, the cost of engineering designs and permitting will not go away,” she shares. “I don’t know that the cost of buildout would be that much lower, understanding the processes and regulations that any operator would face. It would be interesting to explore.”

Final Thoughts

The ultimate question is whether or not travelers will take advantage of these virtual restaurants. Before answering that question, I’d like to share a few key pieces of research to consider:

  • Online data resource Statista predicts that online food delivery revenues in the United States will exceed $19 billion in 2019.
  • Research by global consulting form LEK notes that, “Between 2018 and 2023, restaurant delivery is projected to grow at more than three times the rate of on-premise sales”.
  • In 2018, Switzerland-based UBS predicted that the online food delivery market will grow globally from $35 billion to $365 billion by the year 2030.
  • A study on delivery services commissioned by Steritech found that 18-27 year-olds ordered food at a much higher rate than any other age group. Pair this finding with a recent study published by global air transport IT company SITA which noted that millennials and Gen Z will comprise more than two-thirds of all air travel.

Though not addressing virtual restaurants directly, the sum of the above findings points to a trend that convenience, specifically delivery, is expected to become an even greater part of our everyday lives. Airports will be expected to participate in that trend, with services such as Grab and At Your Gate continuing to expand and new competitors entering the fray. Once the obstacles of awareness and adoption are overcome, the learned behavior of travelers using these services creates a fertile ground from which virtual restaurants could spring.

Finally, I find that there are three intriguing aspects to the virtual restaurant, if and when the first opens in an airport.

The first aspect is the potential avenues for new brands to explore the airport environment. I imagine having the ability to pivot from one concept to another with relative ease, relatively minimal capital expenditure and, hopefully, minimal disruption to a food program. Whether it is re-concepting or re-introducing, virtual restaurants could allow programs to remain even more current with trends by introducing or testing new cuisines, if not entirely new concepts altogether.

The second aspect is the creation of another means of entry for operators completely foreign to airports. Pop-up and kiosk programs led the way with lower entry barriers, and ghost kitchens could expand the opportunities for new players.  These storefront-less facilities could also be an opportunity for veteran small operators to expand their business. Perhaps a worthwhile thought: could this be a means for ACDBE-certified companies to grow their portfolios beyond the traditional methods set in place?

The third aspect of why I find virtual restaurants in airports intriguing is the opportunity for all restaurateurs to be even more creative. Various advancements in restaurants are inevitable and such advancements are challenging brand developers to re-think the industry. Consider the potential of new equipment to decrease prep times, alternative means of cooking, advanced package materials to maintain the integrity of the meal and more.

As an observer of the airport experience industry, I am excited to see how restaurateurs and chefs will embrace the virtual restaurant approach and how it will elevate their creativity to an even higher level. As a consumer, I am anxious to utilize the service and, literally, hungry to experience what they will serve.

Agree? Disagree? Another perspective? Let me know your thoughts and I’d like to share them! Email me at [email protected].

Thinking Out Loud is written by Ramon Lo and aims to start a conversation, think differently and call attention to trends and issues that can, will or should impact the rapidly evolving airport experience industry. The column, its writer and his thoughts live at the intersection of What Is and What Can Be.