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Ghost Kitchens: Fulfilling Demand and Perfecting the Art of Delivery

Michael Liu, Executive VP at leading ghost kitchen operator JustKitchen, discusses tips for operators looking to build delivery businesses with third-party delivery platforms, understanding customer behaviors, and the biggest technology trends for operators on the horizon.

Key Takeaways

  1. Forming relationships with operators and third-party platforms helps you learn what your business needs.

  2. A hub-and-spoke model creates a variety of menu options to satisfy customer demands.

  3. Understanding the latest delivery and technology trends shows you what your customers want.

Transcript

Michael Liu: Instead of creating demand, we should be looking at what is the demand itself and give people what they want.

Matt Levin: Inspirational stories, actionable business tips, and real-world strategies. Join us as today's guest shares how you can make your business more resilient in an unpredictable world.

Hi everyone. I'm Matt Levin and you're listening to The Resilient Restaurant Podcast.

Today I'm joined by Michael Liu, Executive VP at leading ghost kitchen operator JustKitchen. We discuss tips for operators looking to build delivery businesses with third-party delivery platforms, understanding customer behaviors, and the biggest technology trends for operators on the horizon.

Journey from Starbucks to JustKitchen

Matt Levin: Michael. Thank you so much for joining us today.

Michael Liu: Hey, thank you, Matt, it's a pleasure.

Matt Levin: To kick us off a bit, can you tell us a little bit about your background and what you're doing now? You don't come from a traditional restaurant operator background, right?

Michael Liu: No, not exactly. I was born in Taiwan and moved to Vancouver when I was 12. And then growing up in an engineering family, I think F&B was not really an option, because Asian families all are trying to be engineers or lawyers and stuff. So I started my first job, actually, with Starbucks and that's where it all started. And then I fell in love with it because it was the same year when Howard Schultz came back as CEO.

It actually changed my perspective on the food industry, because it really brought passion and love into the experience. So eventually worked my way through in the industry and actually started my own business, exited in about three years with 65 locations.

And then after that, took a pivot in my journey and joined Deliveroo. And I was part of the Deliveroo Taiwan and launching the market in Taiwan. And we became one of the fastest growing countries throughout the world. And then unfortunately we exited about two years ago, and that's when I joined JustKitchen as a senior vice president in looking after operations.

Moving beyond Operator-Marketplace Rivalries

Matt Levin: You have two really interesting sets of experience, obviously you've been an entrepreneur, you've got a long experience in the food and beverage, the large corporate side. And then at these two big parts of the evolving food ecosystem, the third-party delivery platforms and the ghost kitchen business.

So I want to definitely explore both of those, but one of the things I wanted to start off with here, with Deliveroo and your experience on the third-party marketplaces. So definitely in the United States and a lot of the Western world, there's this belief that the relationship between restaurant operators and the platforms is almost inherently adversarial, where there's a high take rate from the marketplaces and operators struggle to do delivery profitably and to develop a type of first-party relationship. You've been on the inside, right?

Michael Liu: Exactly.

Matt Levin: What's your point of view? Is it inherently adversarial? How should restaurant operators be thinking about their relationship with the third-party platforms?

Michael Liu: I mean, part of the delivery platform we're looking for is really selections and services, and how we can actually keep our customers happy on the platform. So we try our best, as hard as we can, to take care of all the restaurant operators. Some, eventually, they're willing to stick out their hand and then walk the journey together. And some decided to part ways or start hating each other.

But after it all, we're definitely trying to work along with the operators and there's a lot of resources that have been underutilized by our restaurant partners that could be actually beneficial. We could share data insights, we could share different strategies, all you have to do is ask. So I think that part of the business has not been very active, but it's definitely an opportunity that a lot of restaurant partners can take.

Three Tips for Third-Party Partnership

Matt Levin: If you're giving advice to someone who is saying, all right, you're a restaurant operator in this post-pandemic world. You're continuing to have third-party delivery be a key part of your strategy. What are your top three tips to successfully build that delivery business with the third-party platforms?

Michael Liu: To be honest, as a platform, we actually put out a lot of information online and there's a lot of resources, information that you can search. But I think one of the most important things is to have the restaurant partners really understand the rules of the game. And by saying the rules of the game is to really understand how a delivery platform works, to really understand how the ranking mechanism works. How we can add funds to increase many of these placements or premium placements. And I think a lot of the operators that we've worked with are trying to overcome the rules of the game. But instead, a lot of times we've actually seen them fail.

Michael Liu quote from The Resilient Restaurant saying, "One of the most important things is to have the restaurant partners really understand the rules of the game."
But for those who are willing to talk about it, who are willing to understand it, or who are willing to work together with the rules of the game, they will be able to generate profits and not just by a thin margin, but really leveraging the delivery platforms, and to be able to increase their sales substantially over time.

So I think that's the first thing. And definitely the second thing is really about supply and demand. As part of restaurant partners or entrepreneur myself, we're always trying to push our product to the customers, and sometimes you could be oversupplying the market. So people have too many choices or people don't necessarily want your product.

On the other hand, why don't we look at what is demanded in the marketplace? So sometimes we can swipe the apps in our regions, look at what's been missing or what's been doing well. And then we can actually ride on the demand that already existed through a virtual brand offering, or it could be a new product line or new menu items that we can actually offer. Instead of creating demand or supplying the demand, we should be looking at what is the demand itself and give people what they want.

Michael Liu quote from The Resilient Restaurant quote that says, "Instead of creating demand, we should be looking at what is the demand itself and give people what they want."
And I think the third thing is looking at maximization versus optimization, right? So we're always trying to be like the mom-and-pop shop, to offer everything. Our menu was from burgers, sandwiches to Southern fried chicken and stuff. But sometimes maximizing your menu doesn't really mean that it works, instead how we can optimize the menu? So instead of a super giga menu, we can actually separate those into three different menus. And by operating three different menus, we're able to hit the targeted customers through different segmentations.

So maximization and optimization, that's the key. So that's the three rules that I've been teaching the restaurant operators that we've been working with and it has been successful in the past.

Matt Levin: You talked about this market segmentation. So when you say developing three separate menus, are you saying you should do that and essentially enlist stuff under three separate brands on the marketplace, or are you saying that you should have different menus for different locations or different times of day or something? What are you are you getting at there?

Michael Liu: Well, a really important part of actually adopting into the delivery platforms is really understanding customer behaviors, right?

I mean, part of the customer behavior is that if I put myself in the shoes of the customer, how would I actually search for what I want to eat? And you'll see that it becomes, most of the time, instead of actually swiping hundreds of different restaurants or options, I would just basically go into a search optimization. I would actually search for the keywords, right? So often, under the ranking mechanism, the keyword usually will relate the most to the name of the restaurant or the product dish.

So if I wanted to eat fried chicken, for instance, then I will actually go for fried chicken brand, but instead of ABC restaurants, that's offering country-fried steak breakfast or fried chicken. Sometimes we have to be specialized in what we do, in terms of virtual licensing, virtual brand, or in terms of menu product offerings. So we have to show the customer digitally how we are excelling in just that one area of industry. So that, that is a little bit different than the normal mentality of the restaurant operators.

The Ghost Kitchen Revolution

Matt Levin: Have you found that in your conversations with restaurant operators — particularly maybe smaller ones and single location or a handful of locations, versus the large 25-plus location chains — has there been a strong adoption of these new techniques? Is there a willingness to learn? Are you finding that people are developing their thinking about this at a good rate?

Michael Liu: To be honest, I think there's definitely a lot of room to improve. And it's just because I think, given the pandemic that hit so badly throughout the world, a lot of the restaurant operators are only relying on this kind of delivery platforms as a means, as an add-on, like a new revenue stream.

And that mentality actually will block because they will pretty much try to offer what they can have on their menu or through their own existing equipment without any CapEx investments. But I think overall, the successful operators are like JustKitchen ourselves. We treat it as a new business model. So we do see ghost kitchens or virtual brands as a new type of way that F&B is revolutionized while it's going on right now, it's completely different.

So we understand the rules of the game and then we treat it as a new business model. So we actually do everything that is different from the normal F&B point of view.

JustKitchen’s Hub-and-Spoke Model

Matt Levin: That's a good segue. So let's talk about JustKitchen. So there are a lot of ghost kitchen, virtual brand related startups and companies out there, and I think they're often all lumped together, although many of them have very different business models and unique angles. I'd love to hear, in your own words, tell us what JustKitchen is and the unique aspects of your business model.

Michael Liu: For JustKitchen, we actually run a pretty unique model. So we are a self-operated, multibrand kitchen, ghost kitchen, and then we actually run it on something we called a hub-and-spoke model.

So what's the difference between a hub-and-spoke model and the typical ghost kitchen restaurants is that we actually have a hub who plays a role as a commissary kitchen, sort of speaking, a small-size commissary kitchen who will manufacture a lot of the ingredients or half-made meals for our spokes.

And our spokes are pretty much what we call a satellite kitchen. So they will intake the food that was made from the hub and do the final-mile delivery, which is, just heat it up, sous vide it, or just grill the chicken, fry the chicken, but just do the last two steps to preparing the food.

So the hub-and-spoke model that is really giving us the extra edge is that one hub actually supplies for seven different spokes, and we can actually offer different types of menu offerings throughout different hubs. And in that sense, we can offer different types of menus for our spokes.

So our Spoke One could offer a completely different menu from our Spoke Two, but we're still centralizing the production from the hub site. So that will give us the extra edge of agility and flexibility in terms of the offering that we can offer in a simple spoke. And for that simple spoke, we're also able to shift in or shift out any brands that we want at any given time of the day or any given time with the month, just by changing how the hub production is. So that spoke can offer from five different menus to a different five menus the next week. So that is pretty much what we call the hub-and-spoke model.

Matt Levin: It's very much taking an advanced commissary kitchen model and making it very dynamic, based on market need or market feedback and adapting, it sounds like. Is that a fair assessment?

Michael Liu: Yes, definitely. So like I mentioned earlier, we're looking to fill the demand rather than just supplying it, right? So, the hub gives us that extra agility to come up with a new menu this week and to be able to roll out in our spokes the very next week. So definitely, the hub and spoke gives us the flexibility for doing that.

Matt Levin: It's a challenge for a lot of people to build something that doesn't physically exist out in the real world, only exists digitally. And sometimes, if it's marketed well, in the digital era and social media and with the right influencers and things, it can blow up very quickly. And I think we've seen that happen.

Michael Liu: Oh, definitely.

Balancing Licensed and Original Brands

Matt Levin: So what is your model in terms of the brands? Are you developing them all in house? Are you doing licensing? How do you think about that approach?

Michael Liu: Yeah, so basically we do about an 80-20 split with the licensed brand and the original content, what we call the original licensed brand. So basically we will use 20% as the licensed brand. Why we want to leverage these licensed brands is because these brands are very familiar in the markets, right? So we can actually lose the marketing investments that we needed to really knock on the doors of the customers, people actually recognize right away, "That's a brand I like, and it's coming out from JustKitchen. So with that, we get the good quality food. We get excellent services. Oh, why don't we try other brands that are offered by JustKitchen?"

So that's when our original brand comes out. So our original brand, we actually create a brand based upon what's demanded in the area. For example, if there's a cuisine gap, something that's missing in the area, let's say a Mexican brand, we can come up with a Mexican brand, we can come up with the menu and be able to fill in that cuisine gap right there.

For every spoke, we have a mix of about 20-80. So with licensed brand and our original brand. Right now, we carry about 13 licensed brands throughout, anywhere from TGI Friday's, Smith & Wollensky, all the way to our original content. It could be burgers, hotdogs, or fried chickens, or salads, or bento boxes.

Leveling the Digital Playing Field

Matt Levin: How should I think about this as a restaurant operator? I mean, there's two schools of thought I have, right? One would be like, "Oh man. Delivery has been hard to build up. I've had to struggle. I've built this operation and then all of a sudden these ghost kitchen operators are now coming in and they're building these really advanced hub-and-spoke models, they're able to switch their menu around and read the market and do a bunch of analysis. And man, I don't know if I should be competing in the delivery world." That might be one way to think about it.

Another way to think about it might be like, "More brands that deliver well is good as consumers start to trust more, and I can take some learnings and maybe I can even license my brand, and more demand is a good thing," in acceptance of this.

That would be like two schools of thought on different ends of the spectrum. If I'm your average restaurant operator with a handful of locations in a regional area, and maybe delivery works more or less for me. Not perfect, but it somewhat works. How should I be thinking about these models like JustKitchen coming in?

Michael Liu: I mean, first of all, when we go back to talk about delivery platforms, it really eliminates "the big players versus the small players," because pretty much everybody, they have their hero photos, they have their menu items. So the playing field is evened out. It's a really great time right now to leverage the even playing field, to be able to leverage scalability out of it.

Michael Liu quote from The Resilient Restaurant saying, "It's a really great time right now to leverage the even playing field, to be able to leverage scalability out of it."
So for instance, if you think you have great food, you have a great license, you have great content, you could be doing something right now that's called virtual licensing, right? So you could be talking to other people or exchanging in brands. For example, we're talking to two different cloud kitchen models and we will supplying five brands. They will supply back with five brands, right? So each of us can get a cut from the licensing deal, but at the same time, we will enrich our portfolios in our areas, to be able to offer more menu items or more product to our customers. And that's something called partnership and we're actually leveraging a lot of that.

Another thing is about, if I have 10 locations and if I have a great sense of food, I know what's in, what's out, and what the customer wants, then why don't I just create another brand, right? Another brand that can be easily listed on 10 different locations at once. And then if I do that with three or four different brands, I will have 40 internet restaurants as we speak. Scalability for that is just massive. The sky's the limit. If people with the multiunits are not leveraging that, they're missing out a lot at the moment.

Leveraging Delivery Trends

Matt Levin: You think that if you're a multiunit operator, that most people should have as part of their portfolio either a deliver-only brand or should be building portfolio delivery-only type of operations. So it could either be whole new brands that they're developing, or at least at a minimum, be taking an existing concept and slimming it down, like you talked about earlier in terms of the menu and making sure it's really optimized for delivery. But I think on that first point, do you see a world in the future where most operators are developing their own internet-only or delivery-only brands?

Michael Liu: I actually do not just see that in the future, but I know for a fact there's a lot of people that are actually doing it right now. Given the pandemic shifted our purchasing behavior for food, I find that people are utilizing more on delivery platforms or eating out or curbsides. I've seen research where they say the ghost kitchen industry in 2030, we're looking at $1 trillion industry.

Michael Liu quote from The Resilient Restaurant saying, "People are utilizing more on delivery platforms or eating out or curbsides."
So definitely all of this is not going anywhere, it is here to stay. So in order for us to be able to leverage in on this and to get a head start among the other people, we should be actually blasting our way through this right now, and reconsidering everything that we have planned out in the next couple of years. And it's really about revolutionizing the ways of eating and looking at customers. Our customers are actually demanding convenience and selections, and we should give them those. So give customers what they want.

Matt Levin: What do you see as the biggest technology trends for operators on the horizon? And I'm thinking like maybe in a practical sense, like if I'm either a small, single-unit operator looking to grow, or I'm a smaller multiunit operator, are there things that I should be aware of in terms of potential technology investments or changes to how technology works that I should be thinking about? Things that I need to be thinking about, or be aware of, or invest in down the road to be able to stay on top of things and stay competitive?

Michael Liu: I think, currently there's a lot of technologies out there offering a lot more and better clarity of the business to people. And through technology, not just hardware, but also software can improve efficiency, right? Through technology. So I think automation and robotics is probably, I think there's still a longer time period to be adopted.

But other than that, we can look at something called integration platforms. So instead of leveraging the delivery platforms with 10 different tablets, with 10 different brands, right now, there's a lot of different technologies out there offering integration to the POS systems or integration to platforms where they can actually combine all the tablets into one platform.

And through that, we can collect a lot of data and we can actually improve the efficiencies through this kind of technology. There's a lot of insight of understanding the different customer behaviors. It tells you a lot about your menu engineering. It talks to you about data growth and then also visual analytics tools that they can use. And through the data that's been leveraging over time, you'll be able to come up with different patterns or behaviors that your customer is facing, and to be able, again, to supply what is demanded from your customer.

So I think that part of the technology is out there and it's within reach. And some of this actually doesn't cost a lot, some of this is on a subscription basis, or some of it you can just purchase it, but definitely utilizing technology right now is a must do for operators that are looking into virtual brands or ghost kitchen platforms.

Platform Recommendations

Matt Levin: Are there some specific platforms or software companies in this space that you think that operators should check out?

Michael Liu: Well, we at JustKitchen, we actually have developed our own platform. We call it JKOS. But out there that could be a white label or proprietary technology such as Hubsters or Ordermark, that's actually out there, or Deliverect, and to get into those technologies is actually not that expensive.

So it's subscription-based, with a tablet you can actually be up and running in no time.

Matt Levin: Michael, thank you so much for your perspective and joining us today. I think it's rare to get someone who has both been a food entrepreneur and on the operation side of the large technology players. You have a lot of really unique insight into where the market's going. So thank you for sharing that with us today.

Michael Liu: Hey, no worries. We at JustKitchen, we see all the food operators as partners. We're all in this together. We're always trying to offer help or offer tips to grow the industry together. So thank you.

Matt Levin: Okay, wonderful. And then if people wanted to check out JustKitchen, they can go to JustKitchen.com, correct?

Michael Liu: Yes, exactly, and JustKitchen.com has all of our operating models as well as our brands portfolios as well.

Matt Levin: Wonderful. Thanks again.

Michael Liu: All right. Thank you so much, Matt.

Thanks for listening to The Resilient Restaurant. Sign up for our podcast newsletter at marketman.com/podcast to receive bonus content and exclusive podcast announcements. You can also find articles on marketman.com/blog for more content related to the restaurant industry and restaurant management.

This podcast was produced and edited by MarketMan. Music by Joseph McDade.

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