The restaurant industry is dealing with tens of thousands of locations that were built before “consumers were changing their minds” and expecting to order from restaurants whenever, wherever and however they want.
“They weren’t built to suit evolving needs,” continued Erik Herrmann, a partner at private investment fund CapitalSpring. The firm has multiple portfolio partners, invests in numerous retail and restaurant brands, and backs Sizzling Platter, a multi-unit operator of Little Caesars, Wingstop and Dunkin’ among others.
Brands are working to update their footprints to reflect changing consumer patterns but the evolution will be incremental “because you have to do it with, say, leases coming up or other drivers to repurpose existing sites,” he said. While restaurant companies and franchisees are deploying capital to address new use cases, “a big caveat that it’s going to take a long time for that to ripple through the fixed asset space.”
Herrmann, along with Luke Pipkin, a senior leader with Chick-fil-A’s innovation and new ventures team, and Nimbus Head of Strategy Romina Gupta, discussed the changing real estate environment and how ghost kitchens fit into restaurant growth plans during a session May 4 at the sixth annual Food On Demand Conference in Las Vegas.
Pipkin, who noted Chick-fil-A prefers to call them “delivery kitchens,” said while the brand plans to continue building its standalone drive-thru restaurants, to the tune of more than 100 a year, it is “leaning into delivery-centric formats” such as Little Blue Menu, the virtual brand it launched in 2021 with a trio of options. Little Blue Menu has evolved as a delivery-only concept and now features Outfox Wings and Because, Burger. Customers can also add items from Chick-fil-A’s menu.
A second Little Blue menu—the first is in Nashville—is expected to open in the third quarter, said Pipkin, in College Park, Maryland. He noted the company is looking to leverage its franchise model by equipping operators with new types of restaurants, which can include locations in ghost kitchens.
Speed to market remains an advantage with ghost kitchens, the panelists noted, as does the ability to access demand that would otherwise go unfulfilled. For Chick-fil-A, which is well-known in the industry for its emphasis on hospitality, the customer experience will remain a key consideration no matter the channel.
“My encouragement is to do it in a very human-centric way,” said Pipkin. “If I show up to your drive-thru and you’re not going to take my order because, oh you’ve gotta order through the app, that’s not a very good customer experience for me.”
At Nimbus, which operates two shared commercial kitchen and event space locations in New York City and rents kitchen space on an hourly and long-term basis, Gupta said the “relatively low cost of capital” needed is attractive.
“We’ve seen more food businesses come to us and say, hey, we can’t afford a buildout,” she said. Nimbus locations provide both production space in the kitchen and have front-of-house retail space for customers to dine and experience the brands, flexibility she said is necessary to serve changing business needs and consumer preferences.
For brands to win in this environment, they must have strong brand recognition and they must “have mastered digital marketing” to stand out in an increasingly saturated food and restaurant industry, she said.
The sixth annual Food On Demand Conference continues through Friday, May 5, at The Cosmopolitan.