In this time of COVID-19, with the closure of all non-essential services, restaurants have been permitted to remain open only if they have delivery and takeout capabilities. For many restaurants, this has meant reconfiguring operations to allow for a takeout experience that may not have existed prior to COVID-19. In essence, many restaurants are finding themselves establishing Ghost Kitchens, practically overnight.
What is a Ghost Kitchen?
Ghost Kitchens are food preparation facilities that are used for the preparation of delivery items only. There is no area for dine-in or pickup, and they allow traditionally eat-in restaurants to expand into delivery without using their existing kitchen.
Rise of Ghost Kitchens
As demand for convenient, healthier options for young, working families has grown rapidly, so has the demand for more non-traditional delivery items. As a result, third-party food delivery services such as UberEats, SkiptheDishes, Foodora, etc., have found a market within which they can flourish, and restaurants have been able to reach customers that they typically would not – certainly not during the busy work week.
As demand for delivery items continues to rise for many restaurants, their kitchens become increasingly overwhelmed with orders and foot traffic of delivery service people within the waiting area. As a result, many restaurants opt to establish offsite ghost kitchens, used solely for takeout and delivery orders. Some do this using only their own brand, while others join other food service concepts in larger shared ghost kitchen arrangements, set up like dining halls where delivery service providers can pick up multiple orders form multiple food service concepts at one time. In fact, some new and emerging restaurants concepts are choose to solely utilize ghost kitchens and never venture into the dine-in market. Finally, ghost kitchens can also be used by restaurants to test new concepts. This can help generate additional revenue streams and test whether a concept will gain traction without interrupting ongoing operations or having to expend resources expanding kitchen operations.
Things to Consider when Incorporating Delivery/Takeout into Operations
When implementing a food delivery and takeout service options within your restaurant, there are number of operational and legal considerations to keep in mind:
You will want to review the delivery service apps and ensure that all listings on those apps have been authorized, and that the content of the listing is as agreed. You should also keep an eye on customer ratings and rankings within the App. Oftentimes the stronger the customer reviews are, the more favourable the position within the app will also be.
With respect to cost; be prepared. Third party delivery services will charge service fees and/or commissions for their services. Consider what effect, if any, this may have on pricing of menu items within your location(s).
Consider whether your packaging is suitable to ensure freshness, temperature, and food safety. Again, there may be a cost associated with this. Also review the Third Party Delivery Agreement thoroughly to understand who is responsible for food quality upon delivery. Some issues with food quality can be attributed to handling during delivery, while others are attributable to preparation and packaging. Be aware of your responsibility with respect to customer complaints and, the effect that complaints will have on your reviews and rankings. If you intend to utilize an external ghost kitchen with multiple brands, ensure that adequate protections have been implemented to avoid cross contamination your food product and those of other concepts, especially if your concept is attempting to be gluten and/or allergy friendly.
Some restaurant brands are opting to provide meal preparation kits by delivery to customers as a new source of revenues and to provide customers with a new dining-at-home experience. As the ingredients are to be prepared by customers in their homes, you will want to ensure that the terms and conditions on any ordering platform expressly limits your liability with respect to food preparation. You should also ensure that clear preparation instructions including food safety instructions (ex. food cooking times, temperature requirements, etc.) are included in the package.
If you intend to hire delivery drivers, in addition to or instead of utilizing food service apps, carefully consider whether they will be independent contractors or employees. If they are employees, are you going to be able to fill a shift with delivery orders, or will there be staff members sitting around waiting while you pay them hourly? Alternatively, if they are independent contractors, how many other restaurants will they be able to service? It is important that they are available to you and your customers. Ensure that your insurance coverage is sufficient to cover employees who are delivering meals or that any independent contractors’ insurance that will be sufficient to cover them.
If you are a franchise system, there are a host of other items to consider. Franchisees will undoubtedly be interested in pursuing delivery options and alternative revenue streams during this time. Will you grant your franchisees the option to offer food delivery services, or will it be required? Will you permit delivery to continue post-COVID? Ensure that you are communicating your expectations clearly with your franchisees and continuing to deal with them in accordance with your duty of good faith and fair dealing, by taking their interests into account when making these system-wide decision and changes. What level of royalty, if any, will you collect from delivery services as costs are being incurred by franchisees at the Third Party Delivery Service level?
These are just a few of the items to consider when integrating food delivery into your restaurant concept. The food service landscape has been changing and will continue to change after the COVID-19 crisis has ended.
Feel free to contact a member of our Franchise, Retail and Distribution Group for assistance with navigating these changes. We remain with you, and will continue to support you during this ever changing and challenging time.
What is a Ghost Kitchen?
Ghost Kitchens are food preparation facilities that are used for the preparation of delivery items only. There is no area for dine-in or pickup, and they allow traditionally eat-in restaurants to expand into delivery without using their existing kitchen.
Rise of Ghost Kitchens
As demand for convenient, healthier options for young, working families has grown rapidly, so has the demand for more non-traditional delivery items. As a result, third-party food delivery services such as UberEats, SkiptheDishes, Foodora, etc., have found a market within which they can flourish, and restaurants have been able to reach customers that they typically would not – certainly not during the busy work week.
As demand for delivery items continues to rise for many restaurants, their kitchens become increasingly overwhelmed with orders and foot traffic of delivery service people within the waiting area. As a result, many restaurants opt to establish offsite ghost kitchens, used solely for takeout and delivery orders. Some do this using only their own brand, while others join other food service concepts in larger shared ghost kitchen arrangements, set up like dining halls where delivery service providers can pick up multiple orders form multiple food service concepts at one time. In fact, some new and emerging restaurants concepts are choose to solely utilize ghost kitchens and never venture into the dine-in market. Finally, ghost kitchens can also be used by restaurants to test new concepts. This can help generate additional revenue streams and test whether a concept will gain traction without interrupting ongoing operations or having to expend resources expanding kitchen operations.
Things to Consider when Incorporating Delivery/Takeout into Operations
When implementing a food delivery and takeout service options within your restaurant, there are number of operational and legal considerations to keep in mind:
- Third Party Delivery Service Agreements and Apps.
You will want to review the delivery service apps and ensure that all listings on those apps have been authorized, and that the content of the listing is as agreed. You should also keep an eye on customer ratings and rankings within the App. Oftentimes the stronger the customer reviews are, the more favourable the position within the app will also be.
With respect to cost; be prepared. Third party delivery services will charge service fees and/or commissions for their services. Consider what effect, if any, this may have on pricing of menu items within your location(s).
- Food Safety
Consider whether your packaging is suitable to ensure freshness, temperature, and food safety. Again, there may be a cost associated with this. Also review the Third Party Delivery Agreement thoroughly to understand who is responsible for food quality upon delivery. Some issues with food quality can be attributed to handling during delivery, while others are attributable to preparation and packaging. Be aware of your responsibility with respect to customer complaints and, the effect that complaints will have on your reviews and rankings. If you intend to utilize an external ghost kitchen with multiple brands, ensure that adequate protections have been implemented to avoid cross contamination your food product and those of other concepts, especially if your concept is attempting to be gluten and/or allergy friendly.
- Meal Preparation Kits.
Some restaurant brands are opting to provide meal preparation kits by delivery to customers as a new source of revenues and to provide customers with a new dining-at-home experience. As the ingredients are to be prepared by customers in their homes, you will want to ensure that the terms and conditions on any ordering platform expressly limits your liability with respect to food preparation. You should also ensure that clear preparation instructions including food safety instructions (ex. food cooking times, temperature requirements, etc.) are included in the package.
- Delivery Driver Agreements – Employees or Independent Contractors?
If you intend to hire delivery drivers, in addition to or instead of utilizing food service apps, carefully consider whether they will be independent contractors or employees. If they are employees, are you going to be able to fill a shift with delivery orders, or will there be staff members sitting around waiting while you pay them hourly? Alternatively, if they are independent contractors, how many other restaurants will they be able to service? It is important that they are available to you and your customers. Ensure that your insurance coverage is sufficient to cover employees who are delivering meals or that any independent contractors’ insurance that will be sufficient to cover them.
- Franchise Considerations
If you are a franchise system, there are a host of other items to consider. Franchisees will undoubtedly be interested in pursuing delivery options and alternative revenue streams during this time. Will you grant your franchisees the option to offer food delivery services, or will it be required? Will you permit delivery to continue post-COVID? Ensure that you are communicating your expectations clearly with your franchisees and continuing to deal with them in accordance with your duty of good faith and fair dealing, by taking their interests into account when making these system-wide decision and changes. What level of royalty, if any, will you collect from delivery services as costs are being incurred by franchisees at the Third Party Delivery Service level?
These are just a few of the items to consider when integrating food delivery into your restaurant concept. The food service landscape has been changing and will continue to change after the COVID-19 crisis has ended.
Feel free to contact a member of our Franchise, Retail and Distribution Group for assistance with navigating these changes. We remain with you, and will continue to support you during this ever changing and challenging time.
This article is provided for general information purposes and should not be considered a legal opinion. Clients are advised to obtain legal advice based on their specific situations.
