Rise of ‘dark stores’ and ‘ghost kitchens’ offers a lifeline for small businesses, says professor

OPINION

Dr Kamran Mahroof is an assistant professor and programme leader in the University of Bradford’s MSc in the Applied Artificial Intelligence and Data Analytics programme, delivered by the School of Management. He is also an expert on supply chains and logistics. Here he explains why the rise of so-called ‘dark stores’ and ‘ghost kitchens’ has created a new hybrid business model for small firms.

We’ve all heard the stories about restaurants suffering a loss of footfall and bookings cancellations during the pandemic. For those in the hospitality industry, it must seem like driving through fog without any lights. Continued uncertainty means they are unable to plan effectively in terms of what produce they stock, or how many staff they employ, and because of this many businesses remain on a knife edge. But there is hope.

If you have not heard of ‘dark stores’ and ‘ghost kitchens’, chances are you will have already experienced them, albeit unwittingly. The concept was already in existence before covid but the pandemic has made them a much more viable prospect, especially for small businesses.

Dark stores are literally warehouses which serve as micro-fulfilment hubs, allowing for a click-and-collect service or enable distribution to take place at a more local level. The surge in online activity during the pandemic has seen many organisations reassess how they utilise their retail space. Ghost kitchens are similar in that they enable a restaurant to establish a base in a rented location, with minimal overheads.

If you have ordered a takeaway recently, it may have come from one of these ghost kitchens. It is the same food they cook in the restaurant you know, it uses the same ingredients, the same processes, it is just cooked off-site. The important point to make is: that site can be anywhere.

Aside from their ability to monetise, we simply cannot deny that delivery apps like Deliveroo and UberEats have changed the ecosystem. In many ways, they have enabled restaurants to embrace this new business model, one which does not necessarily rely on footfall alone. Customer perception has also shifted, thanks to online reviews. If you have decent online ratings, customers will respond to that, so there’s a demand. In this digital age, it is factors like these that are driving change and making things like ghost kitchens viable.

Go back 15 years and a small business would have no way of justifying a decision to open a new branch of a restaurant in, say, Glasgow, or Shoreditch, or wherever it might be. Today, almost everything is review-based, and we have a new delivery infrastructure in place, so it becomes something worth considering.

This means small players can rub shoulders with the big boys, simply because they can compete and expand, without bearing the brunt of all the overheads. Similarly, it’s good for niche businesses because again, you are basing any expansion on a low-risk model. You know your product is liked, because of the reviews, you know there might be customers in other areas, so it’s worth testing the water. There’s also no front of house operation, no downtown rents. You’re just paying for a chef (probably even to relocate some) and a place with some electricity.

This is not to say the restaurant experience per se will disappear - there will always be a need for that - just that there is now an alternative source of income for hard-pressed small businesses in that sector. But in this age of convenience, where we will continue to see a surge in customers ordering through such delivery apps, one cannot help but speculate who the customer base really belongs to, the delivery firms, or the restaurants themselves? And whether restaurants can even fathom operating without considering such hybrid business models.

Likewise, I think retail is going to take a very similar approach. Online has shown that large markets such as Europe and the US have doubled their delivery capacity and they are still unable to keep up with demand. Dark stores are another way to mitigate some of the challenges facing the delivery sector today. 

Ultimately, it all comes back to convenience, and about bringing businesses closer to their customers, and this hybrid model, which frees businesses up from being tethered to one postcode, may be the light they need to see the road through the fog.