Virtual restaurants nibble at eating-out
Kitchens that cater only to delivery and collections are growing in number as SA catches up to a global trend
Virtual restaurants, or kitchens that are geared entirely towards takeaways, are cropping up across SA on the back of the burgeoning online food delivery industry.
There are now about 20 virtual restaurants on the Uber Eats app in SA, and that number is increasing monthly, says Nic Robertson, the company’s GM for the Middle East & Africa.
One of those is Lele’s, which specialises in African cuisine and is also available on delivery platforms Mr D Food, Zulzi and OrderIn.
Eliminating the sit-down aspect of restaurants is already a well-established trend in the US and other markets.
Last year, San Francisco-based food delivery company DoorDash opened a service in the US where it rents out actual kitchens to virtual restaurant owners.
"It’s a pretty big trend we’re seeing around the world," Robertson tells the Financial Mail.
"Traditionally, to drive foot traffic [as a restaurant] you either had to be in a mall or on a high street, but that’s really expensive in terms of rentals." Restaurants must also pay salaries to service staff and they incur other overhead costs.
To cut down on costs, a virtual restaurant targeting deliveries in Sandton could set up a small kitchen on the outskirts of the district and access the same customers that it would if it were in Sandton City shopping centre.
These restaurants have an advantage in that they can change their menus daily, without having to redo their physical menus, while they can also specialise in just one dish. Some sit-down restaurants are introducing virtual kitchens as side projects, using unutilised space in their kitchens to focus on a single dish for deliveries.
"We’re seeing this around the world. In Chicago, for example, we’ve seen people move into fried chicken ... we’ve seen a move to virtual restaurants that do one specific dish very well," Robertson says.
Delivery app companies can use their data to tell their restaurant partners what type of cuisine is in high demand or is underrepresented in an area, and where they should open new stores.
Robertson says while SA’s virtual restaurant industry remains small, "it’s definitely the direction that we’re seeing things moving".
"We’re seeing more and more quality restaurants popping up," he says, adding that entrepreneurs are increasingly using food delivery apps "to create viable businesses".
For some established restaurateurs, the idea of entering the virtual kitchen arena is not enticing.
Mike Cathie, CEO of Nando’s for SA, says the fast-food chain, which has about 300 stores in the country, is "not interested".
"It would remove an enormous chunk of our soul because we’re a people business that thrives on engagements with customers and being in areas where there’s bustle and trade.
"If you’re only focused on delivery you’re not building a restaurant, you’re building a kitchen.
"You’re probably going to build in an area where the rent’s lower, so probably in an industrial park, and the whole employee experience is going to be very different, and I’m not sure we would ever want to do that," Cathie says.
Nando’s believes the broader food delivery segment is becoming "increasingly important", though it is approaching delivery services with caution, as they add incremental costs to the business.
Using external delivery apps also comes with risks, he says, as Nando’s will ultimately be blamed if a customer is unhappy with a delivery.
But while some chains are still hesitant about deliveries, the online food delivery market is exploding, thanks in large part to the convenience afforded to customers, the ability to pay without using cash, and the variety of restaurants and meals available on each app.
Naspers CEO Bob van Dijk tells the Financial Mail the Internet holding company wants to put more money into its subsidiary, Mr D Food.
"That business has been doing really well over the past year, growing at well over 100%, and we think there is still so much more upside. The business model works really well, and we’re also seeing that now in SA, so we need to bring it to all parts of the country and make it better.
"We love the food delivery space, and Mr D Food has made a great transition to a fully online business model and we’ve agreed to speed up our investments there," Van Dijk says.
Delivery apps are competing for a bigger share of people’s weekly food budgets — largely on the premise that ordering in is more convenient than cooking — and are also competing with the growing number of "experiential restaurants", which offer experiences that cannot be replicated by delivery services.
Robertson expects the online food delivery market to grow faster than the online retail business, because of the convenience of delivery apps, including the ability to track orders.
Online sales as a proportion of the overall retail market recently crossed the 1% mark in SA.