Dark Kitchen Business in Tokyo
Yet small but, growing Japanese delivery-only restaurant landscape
Dark kitchen has a lot of names. Synonyms like virtual kitchen, cloud kitchen or ghost kitchen are often interchangeably used to describe a restaurant operation with no physical outlet.
The global market for ghost kitchens is projected to be a 1T$ business by 2030 capturing parts of the classical eat-in business as well as the take-out and drive-through market. 50% of drive-thru ($75 billion), 50% of takeaway ($250 billion), 35% of ready meals ($40 billion), 30% of packaged cooking ingredients ($100 billion), 25% of dine-in foodservice ($450 billion), and 15% of packaged snacks ($125 billion) are forecasted to be overtaken by the ghost kitchen and food delivery business model. Contributing significantly to this growth is the increase in delivery food orders, in the period from 2014 to 2019 the foodservice delivery sales have doubled worldwide. Over 52% of global end-users feel now comfortable to order from delivery-only restaurants.
The Rise of Ghost Kitchens Worldwide
To get an insight how big the ghost kitchen market is compared to the overall restaurant market, let’s have a look at the number of restaurant operations in the main markets. In the US currently 1,500 ghost kitchens are delivering food to the American customers. In the large markets China (7,500+) and India (3,500+) the estimated numbers are even higher. Interestingly the UK has only 750 sites registered, but showing the biggest ghost kitchen penetration with over 0.8%. This correlates to the figures of online supermarket penetration where in the UK over 12% make use of online supermarkets with “dark stores” as compared to 6% in the US. It might indicate that the British customers are more willing to grocery shop and purchase food online compared to their peers.
The number of ghost restaurants for the 160,000 restaurant market in Tokyo is unclear but could have already grown to the hundreds.
In recent time growth drivers are mainly the consumption tax amendment in September 2019 and ongoing corona pandemic in 2020. After the tax reform late last year the consumption tax in Japan increased from 8% to 10% for all eat-in food services. The tax rate for take-out and delivery schemes stayed at 8% and partially led to increased non-eat-in demand. In combination with the novel coronavirus crisis the food delivery sector was one of the biggest profiteurs. Worldwide the gross bookings for Uber Eats jumped 113% in the last quarter, while its core ride-hailing business plunged by 73%. The Japanese delivery service Demaekan could grow sales 2019/9 to 2020/5 by over 41% compared to the previous year’s performance with total sales of $64M. This rapidly growing environment will lead to new virtual kitchen operations in the short term.
Young Market in Tokyo
Taking the take-out operation out of the equation one can possibly classify three different types of virtual kitchens:
- Hybrid location: a physical location with seats and a delivery operation from the same kitchen
- Hybrid brand: pure physical (or hybrid) locations are complemented by delivery-only outlets in strategic areas
- Virtual brand: complete virtual restaurant operation in dark kitchens, often different brands are serviced from the same kitchen.
Hybrid location models might be a viable option in areas of not so dense populations where opening up a delivery only shop does not economically make sense.
Also, for restaurants which have spare kitchen space and want to optimize utilization rate, the concept provides a good opportunity in the changing food service market, mostly your around-the-corner neighborhood restaurants. Operating fully virtual kitchens in addition to their already established physical footprint, known brands seem to take this opportunity to elevate sales and also market their brand as well as food products via the online channels. The famous Japanese beef-bowl chain Yoshinoya recently opened up a dark kitchen in Tokyo’s Setagaya-ku and the curry-chain Coco’s Ichiban operates a delivery-only kitchen in another part of Tokyo. On the other hand, restauranteurs who are aiming to start and experiment with a new food concept use the virtual brand strategy to set out with marginal initial cost compared to opening up a normal restaurant operation. The virtual brands are either run out of shared kitchen spaces or dedicated dark kitchens. An example for a dedicated self-run dark kitchen operator is the Japanese startup Ghost Kitchens. Ghost Kitchens operates 9 different brands based out of one kitchen in Minato-ku, Tokyo, serving the Mita, Azabujuban and Roppongi area.
In the shared kitchen space there are a few small players.
Ghost Central Kitchen, run by Air Sapo an AirBnB service provider, has dark kitchen spaces around Mita and Shibakoen, Minato-ku, Tokyo, housing over 19 different brands. X Kitchen led by two young entrepreneurs are doing delivery for 6 different brands varying over Japanese cuisine to fast food. Their kitchen is based in Kanda, Tokyo and are backed by Skylark Ventures. The third service Kitchen Base is run by SENTOEN. The team has built two kitchens in Meguro and Shinjuku. The first kitchen in Meguro is home for 5 different brands covering Taiwanese noodles to chicken over rice bowls. Recently the company has expanded to their second location and are currently looking for new tenants for a slightly larger facility. Based on the restauranteur’s needs the Kitchen Base offers a fully equipped kitchen versus a skeleton kitchen room with only a sink table. The contracts are to be signed on a 6 month, 1 year or 2 year basis.
The Yahoo Capital backed cookpy enables anyone to open up a dark kitchen frictionlessly by registering recipes and selecting a ghost kitchen location (there seem to be more than 10+ places already). It matches restaurant and dark kitchen owners with people who want to open up a ghost restaurant. Started by LEAPBRAIN in September 2019, compared to the other services, cookpy allows short daily rentals and also matches existing kitchens with cooking staff to help out. The dark kitchen model is taken even one step further by the young Japanese startup CLOUD FRANCHISE. They match food brands with existing restaurant operations and let the kitchen owner franchise the brand for online delivery purposes in order to minimize idle time in the kitchen and generate extra revenue streams. This allows existing brands to further grow their business without having to hire extra kitchen staff. I am curious how CLOUD FRANCHISE as a platformer takes care of quality control when their business grows.
Conclusion
Compared to the numbers of ghost kitchens in other main markets, as outlined above, in the Japanese market ghost kitchens are still a minor phenomenon which is presumably ready to grow in the next few years with the increasing delivery demand further fueled by changing consumer habits amidst the novel coronavirus outbreak. The leverage of user-data may help to cater food with high demands in certain areas. From a cost standpoint, relatively low labor costs and facility costs make the concept especially intriguing for restauranteurs to kick-off their food business and test out different assumptions before going all-in in an eat-in restaurant business.
Also, it will be interesting to see whether running restaurants are willing to earn an extra buck by renting out kitchen space or sell additional delivery-only menus. In a follow-up episode I would like to go further into the delivery supply chain and the food delivery players in Japan.
