Both real estate and technology experts agree that the food delivery boom has propelled the emergence of dark kitchens, which represent a major shift in the commercial real estate sector; there is even talk about the birth of a new player in real estate.
Online food delivery has dramatically expanded worldwide. The Covid-19 Pandemic marked the start of the golden era of delivery and potentiated the growth of dark kitchens, a new player in commercial real estate.
According to Digital Market Outlook, online delivery started approximately 10 years ago. It is estimated that more than 1,200 million people ordered food online in 2020, which meant a turnover of over USD $135,000 million.
Statista predicts that in 2024 users of online food purchase and delivery services from different platforms could reach turnover of around USD $100,000 million.
Through the different apps, delivery platforms connect restaurants, cooks and chefs with hungry customers, while they optimize ordering, sales and delivery, and find suitable locations to reach new markets. All of these, according to investor Dominic Wilson, could become a challenge for the current real estate market.
Dark kitchens, also known as virtual or ghost kitchens, are a business model that started in London. Dark kitchens are a food service that only offers pick-up and delivery for telephone and online orders.
Dominic Wilson indicates that it was the former Uber Executive Director, Travis Kalanick, the one to first envision dark kitchens as his company City Storage Systems acquired the FoodStars startup in 2018.
On the other hand, Antonio Rivero, Commercial Director for Napse, a tech company, mentions that approximately seven years ago, food companies in the United States started with the idea of building kitchens away from commercial locations. “First-class restaurants, for example French restaurants, started to build semi-industrial kitchens in areas close to urban centers with the idea of reducing production costs. They also started joining efforts with other restaurants in a sort of cooperative model and sought locations in semi-industrial areas to install their kitchens.”
Mr. Rivero reveals that all over the world, even in New York City, dark kitchens are opening up in office areas to deliver food to the employees in those work spaces. “They receive exceptionally good food because the source is close, even in the same building in Manhattan. San Francisco is also following the same trend, installing dark kitchens in office areas.”
According to Mr.Rivero, the most important thing is for kitchens to be located within a maximum five kilometer radius from population centers with six-storey plus buildings and big urbanizations to guarantee a captive market. “The key to success is service, you must deliver in less than 30 minutes so food is still hot when it reaches the customer.”
He adds that Mexico was one of the first countries to embrace dark kitchens. “Companies like Alsea closed down locations and opened up ghost kitchens from where they deliver burgers and pizzas. Delivery is much better now, food is hotter and fries are crispier. In terms of delivery, it is much more profitable to have a dark kitchen than a restaurant. Mexico and Brazil are the countries that have been faster to adopt this model.”
“Dark kitchens are spaces that offer lower costs and proximity to densely populated areas. A building can perfectly host a dark kitchen center.” Antonio Rivero, Commercial Director for Napse.
Dark kitchens: attractive for investors and developers
Ms Georgia Pirbhai, Associate Director for Industrial and Logistics at Colliers International, points out that one of the biggest shifts in recent times in commercial real estate is the boom of dark kitchens. “Dark kitchens are industrial units that serve solely for food delivery to either private homes or hotels and restaurants, they work as an extension of their kitchens.”
From a development perspective, dark kitchens can offer a much higher site density than traditional urban logistics models, therefore maximizing the value for investors and developers. Sizes vary depending on the operation, from 1,000 to 5,000 square feet for independent businesses up to 50,000 square feet for bigger companies in certain locations, mentions Ms. Pirbhai.
She adds that when the dark kitchens model first started, there was a lot of skepticism as there were those who thought consumers would never pay the cost of this service. “However, the industry boom represents a fundamental change in consumer behavior.”
Juan David Jaramillo, CEO and Co-founder of Muncher, considers that both foodtech and dark kitchens are part of the food industry revolution. “Foodtech includes a huge array of companies dedicated to supporting everything related to food and technology, from dark kitchens, which are infrastructure, to restaurants and information systems.”
It is important to mention that Muncher, a Colombian foodtech company, received USD $22 million from Femsa Ventures in 2021. The investment round included European and Latin American funds such as TMT Investment, Copernion, MGM Innova, Amador Holdings and Network VC Syndicate.
“We operate in Colombia, Mexico, Peru and Brazil. We currently own 400 dark kitchens and wish to bring that number up to 800 by the end of the year. We have approximately 150 dark kitchens in Mexico at the moment and the plan is to get to at least 400 by the end of the year. Our focus is to increase coverage. We are based in Mexico City now, but have just launched a new project in Guadalajara and wish to expand to cities like Monterrey and Puebla, these are the objectives for this year,” says Mr. Jaramillo.
Muncher started out as a real estate business that built kitchen spaces from second hand marine storage containers which they transformed into operative kitchens that met the restaurant normativity criteria in each country. “We install them in locations that are suitable for restaurants to rent out and set up their delivery operation. We have now evolved and offer restaurants tools to help them make the most of these spaces. We help them develop their own ecommerce channel and we offer a system that integrates sale channels and a dynamic, intelligent number so customers have a personalized experience at the restaurants,” explains the CEO of Muncher.
Muncher also created five proprietary brands that operate as dark kitchens. These brands are Franco Cocina Honesta, which has been incredibly successful in Mexico City because of its healthy options; Nimi's Shawarma & Falafel, Middle Eastern cuisine; Hungry Mob Burgers and Fries, Oh My Sandwich and Mooi Heladería. “We manage the real estate business plus the technology so restaurants can set up their operation,” mentions Juan David Jaramillo.
He reveals that Muncher always seeks to set up in cities with a population over one and a half million, simply because it makes sense for their business model. “We are analyzing all kinds of cities. We have had proposals for Cancún and Mérida, but for the time being we want to focus on Mexico City, Guadalaja and Monterrey.”
In terms of the spaces that can potentially turn into dark kitchens, Mr. Rivero, Napse Commercial Director, points out that office buildings are a possibility. The Pandemic intensified home office and many companies are considering reducing their office spaces.
“Dark kitchens are spaces that offer lower costs and proximity to densely populated areas. A building can perfectly host a dark kitchen center, although it is important to consider the logistical aspect, for example, regular elevators must be converted into loading elevators for food and delivery personnel. Certain parts of the infrastructure must be transformed to accommodate delivery services, perhaps adapt the parking lot. I picture a central area where all orders (phone and WhatsApp) are received, a sort of call center to manage all the orders. I think of it as an intelligent dark kitchen,” points out Antonio Rivero.
“Food delivery is the speciality of dark kitchens and they are definitely helping food services cope with the demand that has increased over the years.” Juan David Jaramillo, CEO of Muncher.
The advantages of opening a dark kitchen
The Co-founder of Muncher explains that food delivery is the speciality of dark kitchens and they are definitely helping food services cope with the demand that has increased over the years. “One of the advantages of dark kitchens is that they offer restaurants the ability to grow faster in the city they are located and even expand to other cities or countries. Similarly, dark kitchens offer the possibility to maximize on delivery services, consumer habits are changing and food delivery offers the chance to have a variety of dishes, tastes and prices that go directly to their home, office, park etc. It is all about convenience.”
Delivery apps started in Latin America almost six years ago, before the only restaurants that could set up their own delivery operation were big chains. “When delivery apps started, delivery became accessible to smaller restaurants, because the apps helped them set up last mile logistics that they could not do so independently. All these changes, including the emergence of dark kitchens, made the service more accessible for consumers as well, because it is now possible to have more options,” adds Mr. Jaramillo.
Antonio Rivero points out that the Pandemic forced restaurant owners to adopt the dark kitchen model and to view it as a mechanism to potentiate delivery, because it made the product exit a lot easier. The creation of semi-industrial sites close to densely populated areas meant cheaper leasing costs per square meter and faster access to customers.
“The use of dark kitchens offsets delivery costs because rental costs are lower. If a restaurant uses Uber Eats for example, the price listed on the digital menu is usually higher than the price listed on the restaurant menu and the reason for that is delivery, it is very expensive to deliver. Dark kitchens offset that because rental costs are lower and the technology allows them to deliver those products to more customers without having to increase menu prices. The challenge for brands in the digital era is to open up dark kitchens so they can grow, be cost-efficient and stay close to their customers,” explains Mr. Rivero.
Napse is a company with 30 years of experience that offers restaurants Delivery App, which helps them manage orders in their ecommerce website, through Marketplace, WhatsApp, social media and telephone.
