Photo: Getty Images/ablokhin
Would grocers benefit from ghost kitchens?
Bob Anderson, retired VP/GMM at Walmart
Through a special arrangement, presented here for discussion is an excerpt of a current article from Frozen & Refrigerated Buyer magazine.
Can you imagine a grocer with a large cluster of stores in a major metro like Los Angeles, Dallas or Chicago building their own ghost kitchen to service their own stores?
A ghost kitchen could centrally serve all stores, saving on cost, labor and time, while putting the hurt on fast-food chains.
Let’s be honest. The only in-store foods-to-go that ever did well were pizza, fried chicken and Chinese. Having food that sits in a steamer for hours and turns to mush on the hour-long ride home doesn’t cut it.
In one option, the ghost kitchen takes online orders and creates meal kits — just like you would be ordering at a restaurant. But in this case, what if those meals were then flash frozen to be used later?
They could be ordered, made and delivered to stores with a 24-hour advance window that would marry up with the customer’s normal weekly grocery shopping.
Option two would see orders placed between 6 a.m. and noon. These fresh, ready to heat-and-eat items would only need to be put in a microwave or in the oven for 30 minutes or less.
Both options could offer quality better than anything in the frozen or grab-and-go section.
The ghost kitchen could be staffed by the retailer’s own employees, or contracted out to companies that, say, make meals for restaurants or airlines.
These kitchens could also make single items in various sizes, from entrees to side dishes. Items could be displayed by type and serving size. To make the meal complete, you could add appetizers and desserts, as well as fresh items, such as salads, soups, fresh breads and rolls.
All of this sounds like a lot, and it is. But not if you can make it all in one place and ship it to many in a timely manner.
So, let’s take one more big step. Why not invite local restaurants and chains to join you in the ghost kitchen? Let them offer not only their menus, but help in preparing yours. Win-win?
Discussion Questions
DISCUSSION QUESTIONS: How would you weigh the pros and cons in grocers building or utilizing outside ghost kitchens to support to-go offerings? Do you see a better path to elevate the quality of grocer’s prepared food offerings?
Poll
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BrainTrust
I believe ghost kitchens are a natural progression for grocers. Most grocers have a commissary that already produces prepared foods. This is just a variation on an existing theme. It’s a hub and spoke setup where the commissary is the hub and the customer the spoke. The process changes but the people and most of the technology can be repurposed. Grocers need every square foot they can get for their stores.
Since the trend is to automate deliveries and BOPIS, I can also see drive-thrus for ready-to-eat meals from ghost kitchens, where they’re not constrained by shared parking lots and loading docks in the back.
Grocers should be looking to move more heavily into meal solutions and ready made products as there has been big growth across these categories during the pandemic and this looks to continue into 2022. Ghost kitchens are a solution for retailers that have many stores to service within a relatively small area and would help them improve both range selection and quality. However good quality, fresh ready meals don’t always need to be made on a niche scale. Grocers in the U.S. should look at the king of ready-made food – Marks & Spencer – for a masterclass in how to roll out great dine-at-home food ranges.
This makes total sense. The square-footage cost for stores is presumably higher than that for a ghost kitchen. Stores could convert that area into dining space or boutique product space. I’ll be interested to see what others say.
Grocery stores were one of the first beneficiaries of the pandemic, with people cooking at home much more frequently. This still feels like “make at home” when it comes from the grocery store, so why not capitalize on the momentum to continue and sustain it?
Years ago on this site I suggested that a specific grocer going through some very hard times close every fifth store and turn it into a commissary and delivery hub for the remaining four. That company is long gone but the idea has been bolstered by several current trends, including dramatically increased online purchasing and retail foodservice demand. The ghost kitchen would pair well with an automated hub and spoke fulfillment center, taking advantage of both real estate and supply efficiencies. It will happen.
Ghost kitchens can protect grocers from aggressive rivals and convenient, prepared substitutes. That’s why Walmart Canada tested ghost kitchens to strengthen its grocery leadership. While ghost kitchens add to grocery’s complexity, they also increase competitiveness.
I think ghost kitchens were already in use for a long while now through commissaries that serviced many stores. This would definitely be a great use of space in-store to provide ready-to-go meals that have seen an uptick during the COVID-19 pandemic.
It makes sense and these kitchens can offer ready-to-eat meals that would be complimentary to existing meal solutions. Consumers are always looking for high quality, quick to prepare meals that are affordable and variety rich. No doubt, I’d be a regular customer.
This is a no-brainer given the success of in-store Starbucks. Few grocers except for Whole Foods have been able to leverage prepared foods in a way that attracts foot traffic. Why wouldn’t grocers leverage ghost kitchens if they can bring in brands that can bring more foot traffic and keep more customers in the store while they’re shopping? A great way to support local restaurants, too.
This is a concept which is long overdue. Attempts to prepare meals in stores are rife with problems since restaurants are so operationally complex and expensive to run, they often struggle to turn a profit for retailers. On the other hand, delicious, fresh prepared meals can be a massive point of differentiation as well as as an offset to the commodity pricing affecting many grocery items.
New COVID-19 variants will continue to negatively affect traditional restaurants. However consumer demand for restaurant quality meals will continue. Therefore, a real potential opportunity for grocery retailers.
The idea of having a kitchen prepare “fresh” meals, only to freeze them leaves me … well, cold. And I’m even less fond of meal kits, as is practically everyone else, it seems (except those who keep pushing the idea). So that leaves us with ready-serve meals: is there the demand? Enough to justify moving operation from the (smallish) kitchen in the store to a central location? I don’t know. I’ll await some grocer actually doing it to see.
At first glance, ghost kitchens may sound like a natural brand extension in markets where the grocer may not have penetration. But it’s not quite that simple.
Grocers profit by turning product; ghost kitchens add costs and slow down the process. A price advantage doesn’t guarantee a slam dunk.
Furthermore, it’s not clear from whom a ghost kitchen is taking share.
Most grocers already built with kitchens for prepared foods, ghost kitchen cobranding with local restaurants is a logical next step. Some supermarkets like Whole Foods in my area have built space to handle online ordering and delivery shopper service. I think it is a matter of finding the right fit for the local area market in terms of supporting meal solutions for delivery and pickup.
This has so many possible options and permutations. Large kitchens that serve multiple stores as well as enabling home delivery option is one extreme. Another might be many small kitchens closer to population centres focused primarily on that home-delivery market. Both options offer the opportunity to not encroach on retailing space.
I really like the idea as a way of competing with fast food options — perhaps providing differentiated offerings that align with the brand of the grocer. Anecdotally there are signs that some people wish to eat out less due to events of the last 2 years — so this offers a potentially huge opportunity. Conversely the set-up cost could be significant. Equally there are some places where grocers may wish to reduce retail space — in these circumstances locating kitchens within stores may make more financial sense.