Paytronix CEO: Why Restaurants Want To Operate Their Own Ghost Kitchens

To say that last week was an active week of news in the restaurant world would be an understatement. First the much-anticipated Uber-Grubhub deal went up in smoke under the threat of antitrust pushback (and, their CEO said, a better deal from a rival), then European food-delivery service Just Eat Takeaway.com struck a $7.3 billion deal hours later to merge Grubhub into its growing global brand. Then Uber announced that it was jumping out of the ghost-kitchen business to focus on its role as a delivery partner to restaurants, instead of building up a role as their potential competitor.

That made for a robust discussion between CEO Andrew Robbins of Paytronix, which powers ordering, payments and loyalty programs for restaurants, and Karen Webster on the state of restaurants in a post-pandemic world.

A view that Robbins said shows a pent-up demand on the part of consumers to go out to eat, even though some of their digital habits will likely stick.

“To some extent, not being able to go to restaurants is like taking a big camping trip,” he said. “When you go camping, you want to come back and take a shower and go to a nice restaurant. But [the pandemic] has also changed people and given them a chance to change their lifestyles in a very dramatic way. I think people have made a lot of different decisions with their lifestyles, and some portion of that will stay.”

Aggregators And The Restaurant Profitability Gap

Robbins said Paytronix has studied the profitability gap that restaurants face when using delivery aggregators like Grubhub or Uber Eats and found that eateries typically lose about $2.75 per order on such deals. How to close that gap has been an ongoing issue that’s led to friction between eateries and delivery platforms.

In some cases, restaurants can pass on the cost to consumers who’ll pay for the convenience. But Robbins added that ghost kitchens were an early solution for closing the gap because of their lower operational costs. After all, they didn’t require paying franchise fees, and they typically required smaller spaces in less expensive rental locations.

In fact, ghost kitchens initially looked like they’d serve as a rising source of aggregator-backed competition for traditional restaurants. But then something interesting happened along the way.

“I think what you’ve seen is what some restaurant chains are saying:  We can do that [ourselves],’” Robbins said. “So, Starbucks is closing locations [but is] going to have some delivery-only.”

He said Panera also has some delivery-only sites, while even Chuck E. Cheese has created its own ghost-kitchen brand, known as Pasqually’s Pizza. Robbins said that came about because Chuck E Cheese wanted to sell pizza for delivery during the pandemic, but had a small problem – the pizza served in its restaurants was hard pressed to compete with other popular brands.

So, the chain came out with the new Pasqually’s Pizza brand even though the food is still made at Chuck E. Cheese restaurants. The chain didn’t work hard to disguise the connection. In fact, Pasqually P. Pieplate is the name of a fictional chef at the chain.

So, the ghost kitchen’s name came across as an inside joke intended to be playful instead of secretive or misleading. Overall, Robbins said the idea demonstrated that restaurants can rationalize their costs related to delivery platforms and “be in control of it.”

He said that desire for control is what pushed Uber Eats out of the ghost-kitchen business. Ultimately, Uber Eats is sticking to what it does best — delivery logistics — and staying away from something it doesn’t really know (operating ghost kitchens).

And Uber Eats can be the restaurants’ ally as they create and ramp up takeout-only brands operating out of their own ghost kitchens.

“There’s no confusion now — Uber is not your competitor,” Robbins said. “That is saying [that] restaurants no longer have to worry if they are a friend or foe. And at the end of the day, running a restaurant is hard, and at this point, everybody should do what their core competency is.”

Well-Regarded Brands With A Reputation For Safety Will Win

Robbins also told Webster that the pandemic hit restaurants hard and fast, with total volumes slashed by as much as 60 percent. By contrast, the walk-back has been a slow but steady gain of about 0.5 percent per day, Robbins said.

But, it’s coming back.

During that time, eateries have invested tremendously in upgrading their technological infrastructure to offer customers safer-feeling services. For instance, Paytronix has been working on enabling customers to use their smart phones to peruse menus, order food and finalize payments on a single digital hub that minimizes physical interactions with restaurant staffers.

Brands that had already started down the digital path a few years ago have generally been able to respond more quickly and effectively to the global pandemic. But Robbins said all of the technological innovations in the world can’t do the whole job.

“I think technology can help restaurants be more efficient, and machine learning and AI can help do a better job in creating exciting and convenient things for their guests,” he said. “But it’s not going to replace the restaurant. You can’t engineer the restaurant out of it in the way we’ve seen in some parts of the retail industry, where using data, places could engineer out the retailers. I don’t think that’s true in restaurants.”

In fact, Robbins believes that will be less true than ever as the world comes out of the COVID-19 crisis. Robbins said that as consumers step back out into the world again, feeling safe will be everyone’s top priority — which means customers will prefer brands they know and trust.

The bottom line: Brands will matter and authenticity will matter more than ever in these uncertain times. Robbins believes that good tech can help restaurants serve both up better — but never replace the hospitality that drives restaurant operators to start them, and consumers to want to dine in them.