For The Absolute Brands, determining cloud kitchen pricing model took trial and error. Menu prices need to reflect the cost of third-party delivery commissions and other operating costs, like paper and packaging, which increase with a delivery operation, Vener said. Packaging is an important marketing tool, but operators shouldn’t spend a lot on this until they know consumers are responding well to the brand, Vener said. Initial packaging can be as simple as a stamp with the brand name on a container, but once a brand gains traction the parent company should develop more sophisticated materials that can improve food quality during travel, he added.
Customers that want food delivered versus picking it up themselves should be charged for the extra costs associated with that service, he said.
“I just see so many people with these virtual kitchens … moving in and people moving out [of shared kitchens] all the time, and I guarantee it’s because of food costs,” Vener said.
Dog Haus analyzed data from various systems to understand demand and ensure pricing would attract sales and still cover expenses, Vener said. He added that operators need to judge pricing based on their own data points and avoid price gouging based on competitor menus because there is no way to know if that competitor is selling one burger a day or 100, for example.
Restaurants don’t have to develop pricing alone, either. Restaurant supplier US Foods, for instance, offers insights into pricing and profitability through its Menu Profit Pro tool, which can provide tips on simple and complex menu items, Adam Stinn, director of business solutions at US Foods, said. The company also provides strategy suggestions based on current food purchases and what could be the easiest item to set up as part of the off-premise-only kitchen, Stinn said. For example, one of its clients in St. Louis used US Foods’ ghost kitchen platform to identify what was around them, how to create a successful brand and what profitability mechanisms look like, which led to the creation of a wing concept, Stinn said.
US Foods has a lot of interest from clients considering both on-premise and off-premise virtual kitchens because of the impact the winter months will have on patio dining, Stinn said.
“This could be a really viable option for them,” Stinn said. “Seventy-five percent of operators consider off-premise dining their best growth opportunity. I don’t see it going away.”
It’s also important for restaurants to ensure virtual concept offerings don’t undercut the sales of their main company, experts said.
“You don’t need to create something entirely new and different, but rather complementary to your existing operation,” Joy Lai, chief operating officer at Kitchen United, said.
When Dog Haus expanded into delivery with the launch of its app in 2018, something didn’t add up. The majority of the restaurant’s off-premise orders were for hot dogs, when the menu item only made up 25% of in-house sales, co-founder André Vener said. The company’s sausages, burgers, chicken and plant-based items were largely going unnoticed on delivery apps.
The problem? Third-party platforms only allow restaurants to choose three searchable terms to represent their business. Dog Haus had selected search terms like “Americana,” “hot dogs” and “burgers.” So when a diners searched for “chicken” on a delivery app, for example, Dog Haus wouldn’t appear, Vener said.
To solve this problem and bolster digital sales, Vener and co-founders Hagop Giragossian and Quasim Riaz began the process of creating virtual kitchens a little over two years ago, developing concepts representing its existing menu offerings. Bad Mutha Clucka offers Dog Haus’ chicken sandwiches, Freiburger highlights the restaurant’s burgers and Plant B sells its plant-based foods. The company also created Bad Ass Breakfast Burritos to create a breakfast option. Each menu includes a few LTOs that Dog Haus has offered in the past, bulking up the offerings while also avoiding the need to buy new ingredients, Vener said. The online-only brands would be housed under Dog Haus’ virtual banner company, The Absolute Brands.