The Ghost Kitchen Pivot, The Blurring of FoH & BoH and why should restaurants keep an eye on Walmart.

In the latest episode of The Digital Restaurant podcast, we delve into the ever-evolving landscape of the restaurant industry, particularly focusing on the technological innovations reshaping dining experiences. Our discussion begins with the intriguing shift in the ghost kitchen segment, highlighting notable industry players like Kitchen United and Crave. We explore whether the concept of ghost kitchens was merely a pandemic phenomenon or a fundamental shift in the food service industry, examining the transition of these kitchens into more sustainable, tech-driven models.

We then transition to a captivating discussion on the blurring lines between the front of house (FoH) and back of house (BoH). Illustrating this trend, we spotlight a new fine dining restaurant in Brooklyn, which merges these traditionally separate spheres, providing diners with a more immersive and transparent experience. This segment delves into the broader implications of such innovations for casual dining and traditional restaurants, emphasizing the importance of experiential dining, transparency, and involvement in modern culinary experiences.

Another critical topic we cover is the surge in drive-thru and throughput optimization in the fast-casual sector, using Modern Market as a case study. We discuss how this trend is not only enhancing customer experience but also streamlining operational efficiency, reflecting a broader shift in consumer preferences and dining habits.

The episode also features a thought-provoking segment on Walmart's technological advancements and their potential implications for the restaurant industry. We explore how Walmart's investments in AI, robotics, and digital marketing could set new standards for the restaurant sector, particularly in improving customer experience, store advertising and operational efficiency.

Lastly, we delve into the recent anti-trust investigations within the EU concerning food delivery marketplaces. This discussion highlights the growing scrutiny over the balance of power between delivery platforms and restaurants, exploring the impact on competition, pricing, and consumer choice.

This episode of The Digital Restaurant not only offers deep insights into current trends but also forecasts the future of dining, from ghost kitchens and fine dining experiences to the integration of technology in fast-casual settings. It's a must-listen for anyone keen on understanding the dynamic interplay of technology, customer experience, and operational efficiency in today's restaurant industry.

Transcript

Speaker 1: 0:00

Ghost kitchen pivot, the blurring of front and back of house, and why should restaurants keep an eye on Walmart? That's all ahead on this week's Digital Restaurant. The Digital Restaurant works like this we're going to ask each other five questions about headlines that affect the worlds of restaurants, off-premise and technology, but in some way tie back to our book series Delivering the Digital Restaurant. Are you ready? Let's go. Good morning, Meredith. How are you?

Speaker 2: 0:40

I'm very good, Carl. How are you today?

Speaker 1: 0:43

I'm good. Are you feeling festive? Yet it's December. I mean you're wearing a dark top. I'm hoping to see at least maybe a Santa's hat or something.

Speaker 2: 0:50

It's true, I'm in mourning, so got the black on.

Speaker 1: 0:53

Oh really, oh boy, what's going on?

Speaker 2: 0:56

Well, why don't you ask me the first question? We'll find out.

Speaker 1: 0:58

Oh, OK. Well, let's get into the first question. This week A lot of people are talking about it Kitchin, United Crave. They're leaving their ghost kitchens behind. Are they pivoting? What's going on with ghost kitchens right now?

Speaker 2: 1:09

I'm in mourning for ghost kitchens. That's what's going on. So we've got Kitchin United closing down all of its Kroger locations and is saying that they are becoming a software company. Meanwhile, crave seems to have quietly disappeared off the map. Of course we've had others like the Xylev food hall and epic kitchens go away as well. And then Reef question mark, question mark. What happened to it? You put all these together and you think man, our ghost kitchens gone. Are they a thing of the past, like what happened? Were they just a pandemic fad?

Speaker 2: 1:44

It is a necessary innovation to figure out how to serve the delivery occasion the best way possible. Doing it incrementally, out of the back door, with a series of third parties, maybe not the best way to do it, but what we saw with ghost kitchens, the way that they were originally constructed, is that they added complexity upon complexity, and so we had one landlord owning the actual real estate. We had another entity doing the build out and providing the labor to run. We had other entities that were operating Maybe they would be franchisees. So on top of that you had another entity who was the brand. Then you had the whole third party delivery thing. So you had another entity who was doing the ordering and the back end deliveries and all this complexity maybe was just a bit much. And a bit much to try to find unit level economics that made sense and that might have been all fine and good when everyone was really excited about the growth potential and interest rates were really low, but once delivery growth started flapping out and interest rates started going up, unit level profitability is a must. So I think that's what's going on with all these ghost kitchens Now.

Speaker 2: 2:59

Does that mean that we will never see a delivery only version of a restaurant? No, in fact, we already have lots and lots of them that are called pizza delcos. Hi Dominoes yeah, you've probably heard of it, and I think that we will increasingly see that for other cuisine types. Most notably, wingstop, which we talk about in the first book, is a great example of a different cuisine type chicken that is largely following a pizza delco playbook, and we will start to see that with even more cuisine types. Places like Cluster Truck and Umi Kitchen are serving multiple cuisines in a situation that's optimized for delivery. But it's a very different setup from what we have come to think of as a ghost kitchen, which is capital and intense, large, lots of different operators in one space. So yeah, ghost kitchens as we knew them probably going away, but delivery kitchens probably coming.

Speaker 1: 3:58

Yeah, it's a fascinating one right now. We had an article we featured a few months back on virtual brands as well. They often have been blamed for the early nature of digital in our industry. The competence of digital marketing, for example, is something that's absolutely critical. If you are only dipping your toe in and you just like the capital like nature of a ghost kitchen, the chances are you'll fail in any of the models. I think that's probably played through. There's probably still some legs out there in this particular space, but it's going to have to be for the right restaurant that goes into it for the right purposes. Whether you need a third party or not is a big question to support with that.

Speaker 2: 4:34

Okay, Carl, for you, the blurring of the front of house and the back of house. Tell us about that.

Speaker 1: 4:41

A very interesting article in the Wall Street Journal. It highlighted a new fine dining restaurant called I think you say Illes, and it's in Brooklyn's Green Point District. The article was trying to exemplify the evolving landscape of high-end dining. It's got a $295 12-course meal. It offers quite an immersive, transparent experience. But, unlike traditional establishments, illes is eliminating the barriers between the kitchen and diners, showcasing the intricate preparation processes right before the customer's eyes.

Speaker 1: 5:13

There's a certain well-known chef, chef Mads Restland, who's the co-founder behind NOMA over in Copenhagen, which is a great restaurant. If you ever get a chance to head over there, mark, and check it out. He's been spearheading this particular initiative. It's very similar to a restaurant close to us, meredith. I'll play this video here of Playground 2.0 in Santa Ana, where you'll see Chef Justin and some of his teams alighting his two seasons a night in a very similar fashion. Why am I raising this on today's podcast?

Speaker 1: 5:42

A lot of this happens not just in fine dining. It also happens in sushi bars, it happens in tepannarchy restaurants. In many ways, more and more restaurants are thinking about having their experiences in far more of an open manner. How many restaurants were designing open-plan kitchens for 10, 15 years or so ago? That's not particularly new, but in the article and I'll play this particular representation of the flow of the restaurant in Illes it's a massive open kitchen, it's blowing the lines between the front and back of house and here the chef's double as servers, almost providing a unique interaction for diners. The payment, I think, has taken up front. The setup, while challenging, aims to really deepen the dining experience, making it certainly more personal and connected, and they emphasize in doing this about equal pay, shared responsibilities, integrated back-of-house operations and fostering a sense of unity and team spirit across the restaurant team, and that, you'd hope, is going to lead to less churn and better relationships within not only the restaurant team but also that with their customers.

Speaker 1: 6:47

So why does this matter for casual dining or traditional restaurants out there? Well, I think there are four key reasons. The first one is about enhancing the experience. Now, while off-premise dining focuses on speed and convenience, illes and those like them are emphasizing the importance of experiential dining, and this, I think, is a trend that leads to client sales seeking more than just a meal. They desire that memorable, engaging experience. We've seen all these prototypes both in QSRs and fast casuals, where they're changing their footprint to accommodate this multiple-channel business. Where is it with the other restaurant categories? We haven't certainly featured it on this podcast over the last few months. And so if off-premise isn't going to be your thing as a restaurant operator, what are you going to have to do in the design and enhancement of the experience that's going to differentiate you? That's the first piece.

Speaker 1: 7:36

The second piece is this transparency and involvement. The move towards open kitchens brings certainly more transparency, inclusive, almost fun, almost Instagrammable moments, if you will, and of course, those moments provide free advertising and it gives that opportunity much on those social sharing websites. That's where the apps are, rather, that we talked about on our podcast last time. That approach not only enhances the customer's experience, but it also bridges the gap between the diners and those preparing their meals, and I think when you get to appreciate the art of cooking and the effort behind each dish, it enriches the overall experience. Right, and we know diner out transactions are something that a lot of these restaurants are focused on today. Another one, which isn't something that was focused on illness as such, is around automation and efficiency, and we know the world of automations in front of us. So if you can integrate automation in the form of robotics in some way perhaps not necessarily happening in the front of house, but in prep automation, and perhaps remove some of those repetitive tasks in the kitchen, therefore ensuring speed and reducing errors in the prep. But the human element remains crucial in enhancing that customer experience piece, and so the engagement that I've experienced at Playground in the past is fantastic, because you can engage with the chef and hear about the sourcing of the ingredients and the preparation techniques and you can take that home with you or cook yourself.

Speaker 1: 8:54

And I think the last part of this is then about labor.

Speaker 1: 8:56

We know a big chunk of the cost for traditional restaurant formats is around the labor piece.

Speaker 1: 9:02

So if you've got this new model of chefs serving directly as we're going to see in illness, which challenges the traditional role of labor in restaurants, it's going to certainly demand more versatility, but it's going to perhaps also offer more holistic career development, which, of course, is something which a lot of folks in the industry are asking for as well, certainly going to engage them more from a multi-skill perspective.

Speaker 1: 9:22

There's an article that will put in this as well about how the CEO of Chili's was saying even with things like pay-at-table kiosks, which have been around, I think, in Chili's for over a decade or so, which now, by the way, are accounted for 94% of transactions. If you don't have to worry about taking food to the table, if you don't have to worry about paying at the table, then why do you need that front of house labor? Anyway, I think it's just an interesting one. I know I've gone on a bit than I usually do, but for me this is really important for us to look at the different evolving models that are coming in places like fine dining and ask ourselves the questions how does this help us improve the dining experience from an experiential standpoint whilst also enhancing some of the profitability and business model aspects of it as well?

Speaker 2: 10:07

What you just said is that you agree with the us from a couple of weeks ago, when we said that five years from now there won't really be an order taking position. What you said that was new, which we didn't say two weeks ago, is that it might go away in fine dining too. That's pretty remarkable. You see, in things like this, something we talk about all the time let the technology do the things that it's best at. Let the humans do the things they're best at. In this example, technology is really really good at taking orders and payments, but only humans can tell you an interesting story about the food, explain the preparation, actually do the intricate bits and pieces of plating.

Speaker 1: 10:47

Okay, so question three this week. Well, last week we had a very special conversation with Robin over at Modern Market. This week Modern Market was featured for their new drive-through and continue to focus on their throughput optimization. Tell us more about that.

Speaker 2: 11:01

Modern Market. For those who haven't yet listened to the podcast from a few weeks ago with Robin Robison. There, coo is a fast, casual, elevated cuisine, really interesting menu, fresh ingredients, better for you all those like buzzwords that we hear about. But they've put it in a fast food context, which is really interesting. Usually, fast food is known for things that can be replicated very quickly and get people through the line. Of course, when you put two things together, it seemed like they don't go together. You've got to figure out how to do it uniquely, and I think this is where Modern Market really invested a lot as we talked about with Robin in the back of house to make it easier and faster to produce such high quality food so that it could go out the door for delivery or takeout or now in the drive-through. So they're putting it to the test their first ever drive-through. I'm pretty excited to go see it, so let's take a trip.

Speaker 1: 12:01

Yeah, let's do it, looking forward to it, and thanks again to Robin for joining us. It was a great show, okay, well, look, before I let you ask the fourth question. I would love to ask our listeners if you have yet to do so, would love you to subscribe to the podcast. If you're a podcast listener, just listening on audio, go on to your podcast platform of choice and please hit subscribe so that you get notified each time Meredith and I put a new show out there. If you're on YouTube, please hit that little bell button, get notified, hit subscribe and you'll obviously hear from us, obviously, when we publish a new show every couple of weeks or so. But so thank you for those that already have subscribed and even if you don't want to subscribe, do us a favor, give us a like. That's all we can. That's Christmas, right, it's the festive season. Give us a like. All right, meredith, over to you. What's your fourth question?

Speaker 2: 12:46

My fourth question is why should restaurants care about Walmart's tech investments? Walmart, not a restaurant? What gives?

Speaker 1: 12:57

Yeah, well, the article that we'll put in the link didn't really reference much about Walmart at all until the very bottom of it, and the article talked about AI and robots and just general interest in the fact that consumers are becoming more comfortable with having tech in their restaurant experiences and certainly if it can aid in creating more personalization. But this piece at the bottom really caught my eye on Walmart because in the retail sector, a guy called Aaron Bolik, who's a managing partner at Comcap, which is a boutique investment bank, is predicting far more broad rollouts of store-based robots, shelf-edge labels and cameras, and he says Walmart in many ways is said, in the industry standards, and that's no surprise given their placement in the industry. It was described, from him at least, that in 2023, it's been more of a lab environment and they're doing all the necessary prep, but next year we're going to see far more of this starting to be deployed in the mainstream, of which also, he's saying retail media is expected to merge more with in-store advertising, replacing traditional paper circulars and coupons with more digital formats and Meredith. This brought me back to a conversation that we and I had a few months back and the big question I think we were asking each other, especially as we come from that background, is why is it that the big multinational chains, I think it's fair to say, pay millions certainly if we add them all up together each year on expensive POP to lie in the windows of the latest LTO or promotion in a very unsustainable manner, not just in terms of the materials themselves but also in terms of the logistics to get them to every location? And, I should add, when technology can only provide more efficient solutions but also adds that experience through personalization, it just really surprises me that we haven't seen it as much Now. I'm sure there's a cost factor here.

Speaker 1: 14:46

I sit on the advisory board of a company called Radium and they're working with retailers and restaurants and one of their video technologies is now enabling the screen almost to determine the right profile of ad to place in front of the guests as they walk into a store, based on the assessment of age and gender of that particular individual. I think they work with Sephora, for example, so if you're a young 16-year-old, you might see a different perfume to someone that's later on in life, for example. And of course we're seeing digital menu boards appear in earnest now, I think, in restaurants. So that's great, but we haven't necessarily seen much about how restaurants market themselves outside of the restaurants or inside of the restaurant, certainly to those walking past or driving past. And so doesn't the dynamism of that make more sense when you can have I don't know ice cream to advertise in a hot human day or late night specials after 11 pm for drive-through, or special celebrations when the local college team wins with a specific promotion?

Speaker 1: 15:42

Of course, a lot of the more established guys out there are using their apps to push notifications, but for those that aren't on the app, this is another way we've been able to reach out and use that dynamism, I think, is the right word to be able to draw people in and, of course, in-store once the purchase is complete on the other side of these devices, given the fact they're getting so thin on the inbound side, you could potentially envision the retail media that Bolig was referring to in his comments. So a lot of things are triggering for me here about how retail are leading the way, and obviously he also mentioned about these shelfage labels, and I'm sure the same things could be used in restaurants but in the back of house for smart organization and for inventory purposes, and you could also assume those cameras would be used for inventory count purposes as well, and that being able to trigger processes to enable inventory to be reordered without any human necessarily needing to get involved. So like, retail has always been ahead of restaurants. We know that. We've talked about it for a while and it's why we use our platform here to remind folks about keeping an eye on other industries and sectors as perhaps a foreshadowing of what might come first.

Speaker 1: 16:44

Okay, the last question. This is a deep one. You love talking about anti-trust. You talked about it with Amazon in the US a while back. So what's going on in Europe right now about the food delivery companies and something similar?

Speaker 2: 16:57

Thanks to those of you who've waited and stuck with us for the entire podcast. Your reward has come. We're going to talk about anti-trust in the EU. Wow, so exciting, so exciting. It is kind of exciting as governments really wrestle with these giant companies who call themselves platforms or marketplaces, who are, yes, providing service in the form of marketing and making it easier for consumers to get things, but then also are taking a piece off the top from companies that actually do, arguably, a lot of the work.

Speaker 2: 17:32

This article in TechCrunch I'm not familiar with the author, but the very first line says European Union anti-trust regulators have carried out another series of raids on two online food delivery companies headquartered inside the block. I feel like raids maybe is an extremist word, not perhaps what I've chosen, but they were unannounced visits to look at what's going on in the offices of Glovo and Deliver Hero, to understand how they're working with their restaurants and whether or not what they're doing is, you know, in the spirit of competition. So we'll see how this one turns out. They were very careful, of course, to say that doing these unannounced visits, or raids as TechCrunch calls them, is not an indication of guilt. They're just, you know, doing their research. But very fascinating that they think it's worth their time to go visit and take a look.

Speaker 1: 18:23

Yes, I'm sure More to come on that front and obviously also over here in the US in the months and years to come. It just shows, I think, the size and scale of how these companies now influence the way in which society eats and as a result the regulators are certainly taking more interest than perhaps they would have done five, ten years or so again.

Speaker 2: 18:43

I think that's true, and also just the shift in the profit pools. What maybe before had been primarily belonging to the brands, or maybe the operators or combination thereof, has really shifted toward the marketplaces and the brands fighting back, and that the only thing that they've really been able to do has been bad for consumers, because now all the prices are floating up. So it's at that point that governments start to get really interested. If things are not good for consumers, governments start to wonder should we take a look?

Speaker 1: 19:15

Absolutely. Well, that is it for our five questions Now. The next time we're on, we're obviously going to have our special podcast release with Jeff Alexander where we talk about virtual restaurants coming out next week, but the next time we're on, we're going to do a special Well, we won't tell you much about it yet, but it's not going to be the traditional format and then we'll be back in 2024 with our new year predictions and our reflection on the 2023 predictions and how many we got right or not. I'm feeling pretty confident, meredith. How about you?

Speaker 2: 19:45

Given that we cheat and just look at other industries, I feel like how wrong could we be?

Speaker 1: 19:51

Absolutely Well. Our crystal ball works pretty well, so let's keep it pretty well, all right, everyone? Thanks again for listening. Appreciate it as always, and don't forget, give us a like if you haven't done so already. See you next time.