Cloud 🌥
Ghost 👻
Dark 🌃
Virtual 💬
Regardless of which buzzword you choose, food establishments that exist primarily for delivery are gaining national prominence.
The ingredients for disruption are all here:
- increased access to hourly rentable commercial kitchen space
- tech-enabled ordering platforms
- gig economy workers
- consumers’ growing appetite for convenient, delicious, on-demand food
Because of these larger market opportunities, a food entrepreneur looking to start a delivery-only food business can focus on the elements needed to delight a burgeoning category of eaters with significantly fewer capital resources or overhead costs.
Delivery-only concepts are democratizing access for food entrepreneurs looking to test markets without needing an existing customer base or to be physically located in a high foot traffic location to ensure visibility. What we do know is that this concept has the potential to create a whole new segment of food service providers lying somewhere on a continuum between food trucks and restaurants. In addition, we predict the next few years will become a testing ground for venture-backed concepts looking to grab their piece of this new market share.
For operators looking for the lowest barrier to entry into a highly competitive industry, the virtual restaurant is essentially the new food truck (without the truck).
And while the barriers to entry for starting a cloud-based food service have never been lower, the steps for getting up and running and the strategies for success are significantly different than a brick-and-mortar restaurant or food truck. If you are considering creating a virtual restaurant there is plenty of green space in the market. Here is a list of the seven key steps that can help you get started.
STEP 1: Plan your concept to optimize for delivery.
The biggest limitations for food trucks are the high costs of outfitting and maintaining the truck, legal restrictions in regards to operating and parking the vehicle, inconsistent sales volumes because of bad weather or failed events, difficulty shuffling food and supplies on and off the truck, and back office challenges and fees associated with payments. On the other hand, brick-and-mortar restaurant kitchens are optimized for in-person dining and service, which face their own challenges, especially low margins. In response, restaurants are realizing that delivery has become a necessary burden in a physical space and their menu is not designed with delivery in mind.
In essence, planning your concept requires optimizing for delivery. Time and temperature are huge impediments for food quality and are the biggest considerations when developing a delivery-only concept. If your food arrives cold, soggy, or messy, you run the risk of killing your repeat customer business, which is the critical component to a local operation.
Like a brick-and-mortar restaurant, you will need to perfect your offerings with a focus on time, temperature, quality, and taste. Unlike a brick and mortar, you will need to focus more on simplicity, versatility of ingredients, and consistency. Keep your ingredient costs low by offering a few standard menu items that use similar ingredients and preparation methods.
Starting with delivery in mind from the get-go is key.
STEP 2. Identify your niche.
When starting any business you need to do your research and find a unique gap in your current market. Is there a specific audience that is best suited for delivery-only that you can cater to? Students? Busy professionals? Special diets? Mobility-limited seniors? Office complexes?
Survey your target demographics. Talk to people on the streets and in your neighborhood. If you find there are already a bunch of 5-star-rated curry restaurants delivering in your area, it may not be a wise move to try to compete. But if you know there is a lack of ethnic food or no clear winner for Late Night Burrito King, you may soon be wearing the crown.
Andrew Chen, General Partner at a16z recently tweeted survey research from NPD Group showing that pizza still controls 61% of the delivery market share across cuisines.
“The past does not predict the future though. The reason why pizza is so big is (imho) [sic] that it was the easiest/fastest/all-hours food you can order via delivery. In other words, I predict: Peak Pizza,” tweeted Chen.
STEP 3. Build your brand.
Because your whole brand will exist primarily online, you’ll want to put resources into developing a logo, menu, and other brand-related assets. Use Wix or WooCommerce to build a webpage and use it to tell your story: describe who you are and what makes your food unique. Include your contact information for your business and link to your social media sites. Facebook, Snapchat, and Instagram are the most common platforms for food companies to connect directly with customers.
STEP 4. Find a commercial kitchen.
In order to legally sell food to consumers, you must produce your food in a licensed commercial kitchen. The last five years have seen a boom in the number of shared-use kitchens or commercial kitchens that rent by the hour, day or month to multiple tenants. (Think a coworking space for chefs, caterers, food trucks and other food producers.) To find a commercial kitchen for rent in your area visit The Kitchen Door where you can search for rentable kitchens by city or zip code. Be prepared to answer some questions that all commercial kitchens will ask:
1. Is your business registered? Contact your city or county office to apply for a business license. You will be required to complete an application and pay licensing fees. Average LLC set up costs are between $50-$500. Save time and use LegalZoom for these filings.
2. Do you have your ServSafe Food Handler Certification? This nationally recognized food safety course is provided by the National Restaurant Association and can be taken online or in person with an instructor or proctor. As the primary operator of your business, you may be required to have a ServSafe Manager Certification. The single-day course will run you $195.00 and is typically recognized as valid for three years.
After you complete an application and fulfill the requirements of the kitchen there are a few additional steps.
3. Select a plan. Your kitchen will often require a deposit to access their services (similar to a gym). While many provide hourly booking and “pay as you go” models, you can also commit to monthly plans that may come with a discounted hourly rate. Choose your plan based on the days and times you expect to be operational and always account for prep time, set up, cleaning, and receiving hours. Ask your kitchen manager if there are off-peak and on-peak rates available. Working the night shift may have its perks, but make sure your menu plays well to the night owls.
4. Liability insurance. Most shared kitchens will require you to have a $1 million general liability policy that designates the kitchen you work out of as co-insured. Such insurance policies generally run between $300-$500 per year and will also be required by many service providers, vendors, and businesses you work with. We recommend the Food Liability Insurance Program because of their low costs and comprehensive coverage. In fact, we have a discount offering here.
5. Apply for inspection. Many health departments will want to visit you in your new space before you become operational. They want to see your production methods, food storage areas, and general flows that take into account standard operating procedures and critical control points for making your food. You will need to have these written out for your final inspection and licensing.
Keep in mind that regulators at your local health department may have no idea how to regulate your business. All they know is that you fall somewhere between a food truck and a restaurant. But also know that your local regulator is one of your most important allies for accessing accurate information and remaining a legal operation. What they need to know is that you are producing food safely and legally. Walk them through your menu, your production process, how you plan to hold time and temperature, and what third-party service providers you plan to use. You want them on your side.
STEP 5. Choose your service provider(s).
You will want to research and secure a food distributor and supplier to deliver to your kitchen. While there are national brands, there may be some great local providers to consider, especially if you want to incorporate specialty or locally raised or grown food as a value add. Here is a quick list of the national providers.
Your most important provider will be your online food delivery service.
These companies charge a commission in exchange for providing one of the most critical aspects of your business’s success. You are leveraging a technology platform that someone else built in order to connect with customers, receive online orders, and provide reliable delivery fulfillment.
How it works:
- A customer finds your menu and places an order
- You accept the order
- You fulfill the order and hand it off to a delivery partner
- The delivery partner delivers your order to the customer
Remember that included in the service is the money you save finding customers and marketing your concept. Instead, hungry people are coming to a digital marketplace and are able to find you. Many service providers will allow you to pay for additional visibility via banner ads and showing up at the top of the search rankings. When choosing a provider, you should find out who services your area and evaluate the average delivery times, reliability, and customer service.
Many still balk at the commission fees which are sometimes up to a painful 30%, but think about it in the larger context of your operation: time and money saved for a larger customer reach. In the end, you’ll still likely come out on top. People have already compared several providers, so check out these articles from FoodDeliveryGuru, Modern Restaurant Management, Mel Magazine, and Fast Casual to decide for yourself. Note that these delivery companies are competing with each other, so pricing may have changed. Check out their websites for the latest information:
STEP 6. Launch and iterate.
The best advice for starting out is to keep it simple. Choose ingredients you can use in multiple items to decrease food costs and food waste. You should also do major testing before delivering anything to a paying client. Focus on quality food that travels well, holds temperature, and arrives as intended. To do this, test your food “in situ” or in the actual delivery take-out containers you will be using. Webstraunt has plenty of take-out container options to choose from. Ask your suppliers to send you samples so you can test them out with your food. (Someone needs to write a blog on the innovation in delivery packaging and compare the best ones.) My favorite company to watch in this area is Soggy Food Sucks, but I’m sure there are others.
Practice packing up your food and delivering it. Have a quality control person act as a liaison between the cook and the delivery service. Make sure to double and triple check the orders to include the right supplies (napkins, utensils, sauces, sides, drinks, and desserts, etc.) There is nothing like getting delivery, only to find that your son’s pad thai is missing. Another piece of advice to save money and waste is to make sauces, plasticware, napkins, and condiments available by request only at check out. Everyone has a messy drawer full of plastic spoons, salt and pepper packets, and ketchup packets that go unused. You might as well save yourself and your customers by letting folks opt-in.
And do something memorable. Mints and fortune cookies are so overdone. What could you do to create a special experience that your customer will remember the next time they order food? Handwritten note? Fun collectible? Delight your customers and build your brand.
STEP 7. Prioritize marketing.
Likely the most difficult part of starting a delivery-only restaurant will be building your clientele. Because there are no signs or locations to drive by and see accidentally, you will need to connect with customers in creative ways, including flyers, ads, word of mouth, events, etc.
Post your menu offerings on a website. Have consistent and reliable hours so customers know when they can expect you to be available and can order the items they have grown to love. Be consistent and creative with how you use social media to build a following. And make sure you ask for reviews of your food. Be responsive to your community and customers. Build rapport and build an audience. The best marketing you can get is still word of mouth. Listen to the feedback from your community and respond to their needs with a differentiation. Fill a gap. This is how you will find product-market fit.
Ready…set…go.
We hope this post has provided you resources and new ideas for launching your own (Cloud 🌥Ghost 👻Dark 🌃Virtual 💬) delivery-only food venture. Are you ready to get started? In the coming months, we will be showcasing some companies that can help optimize your delivery only food concept.
In the meantime keep us posted on your progress. We are eager to hear about your learnings, challenges, and successes.
This blog is intended to provide information to readers. The author is not offering it as legal, business or other professional services advice, and makes no representations that the contents are complete or accurate. The author shall not be held liable or responsible to any person or entity with respect to any loss or incidental or consequential damages alleged to have been caused, directly or indirectly, by the information provided herein.
