Deliveroo plans ‘dark kitchens’: Is it an opportunity for small players?

In an age where consumers demand sophisticated food be delivered to their door, food delivery platform Deliveroo has created a new tool for businesses to churn out more orders each week: the ‘dark kitchen’.

The concept of ‘dark’ shopfronts is not new, with the big supermarkets creating spaces devoted solely to picking and packing online orders and sending these direct to consumers.

As online food delivery demand explodes, this trend is expanding into the hospitality sector. Over the past few months, UK diners have been tracking the expansion of Deliveroo Editions, a format of commercial kitchens operated by the delivery startup through which pizza places and restaurant chains can produce orders without having to run a traditional shopfront.

The format will also launch in Australia, Deliveroo chief executive Levi Aron told Fairfax last week.

Deliveroo told SmartCompany commercial kitchen site would allow between eight and ten restaurants on the platform to provide their own staff and ingredients, with Aron saying restaurants “don’t pay anything” for the use of the kitchens, but will pay a higher commission fee for using the Deliveroo platform.

Deliveroo says the format is not actually a traditional ‘dark kitchen’ because the format will not belong to one retailer in particular, but instead provides several brands with the opportunity to use the facilities and test new ideas.

“Deliveroo knows that the foodies of Australia want more access to restaurants that may not currently exist in their area or city. We also know that there are budding new food concepts that want a way to enter the market, but may not be ready for full investment in their own locations. Deliveroo Editions would provide a completely new avenue for the hospitality industry to grow,” a Deliveroo spokesperson told SmartCompany.

Brand new retailers will have the opportunity to partner with the kitchens, allowing new talent, brands or markets to be tested before founders actually invest in food shopfronts.

Last week Deliveroo told SmartCompany restaurants pay a fee based on a “performance model” in order to partner with the platform, though declined to give an exact figure for this. Restaurant owners have reported to Fairfax the fee is between 25 and 35% of the value of orders through the platform.

While customer demand for food delivery has changed the way Australian hospitality businesses operate over the past year, businesses have raised concerns that the food delivery model creates problems due to high fees and the need for bricks-and-mortar restaurants to deal with customer complaints.

Last week Melbourne business Pizza Religion told SmartCompany it was stepping off the UberEATS platform because it wasn’t worth the concerns it was causing.

However, another small business operator said he would continue to use food delivery networks, because the model gave him the best chance of offering customers delivery instead of undertaking the expensive task of hiring delivery drivers.

Against this backdrop, options like Deliveroo’s own kitchens provide businesses with the opportunity to produce food for delivery as an alternative to running all these orders out of a physical shopfront.

This option also arrives at a time when founders of hospitality businesses report negotiating rents is a difficult task, with little room to move particularly when it comes to food sites within big shopping centres.

However, retail expert and associate professor at Queensland University of Technology’s Business School, Gary Mortimer, says despite the enthusiasm for “dark” store formats, food retailers will have to crunch the numbers on whether signing up to a dark kitchen would suit them.

In a world where diners are “swayed by brands”, Mortimer says businesses will have to consider whether the volume of orders made through a dark kitchen will be enough to justify using one.

“It’s a novel approach, but I think what the existing offers currently are are sufficient for the market,” he says. 

Number of orders is key

Mortimer says despite the affection for food delivery, customers do still tend to find new food brands based on their in-store experiences.

The appeal of a platform like Deliveroo has always been “that it enables your favorite Thai restaurant to deliver to you the same way as Domino’s,” he says. 

Given many customers of food platforms already seek out brands they know, Mortimer says this presents a challenge for new businesses using a ‘dark’ delivery format of any kind.

“It’s like, if you’re ordering off a [takeaway] menu, you often want to have eaten from the place first,” he says.

However, crunching the numbers for an individual business will reveal whether it’s worth it on a case-by-case basis.

“It may work for say, a catering company that has in the past catered big events. This is probably just another channel into the consumer market.”

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