February 7, 2019 |
Honest Food, a Berlin based company made millions in revenue last year with restaurants that do not actually exist. How does that work you ask? The startup operates so called ghost restaurants, where customers can order their food on all the well-known delivery platforms but the brands are purely virtual and do not have any brick and mortar venues.
At the moment, Honest Food delivers food for five brands. The company produces the dishes in large production kitchens and sends the products frozen to partner restaurants. When an order comes in for one of the brands, they thaw the ready made parts of the meal, cook them adding with additional fresh ingredients and send them out for delivery.
The partner restaurants act as franchisees of Honest Food. They retain the complete revenue of each order, but also have to pay a fee per delivery and they buy the ingredients and packaging from Honest Food. So the business model of the startup is to monetize through the franchise fee and the goods sold to the restaurants. This way, the company was able to reach a sales figure in the mid seven-digit range in 2018. The founders Robin Steps and Sebastian Klein see the clear advantage of their licensing model in being able to supply also rural areas, which are currently under served.
Honest Food started in Austria with pilot projects in the cities of Vienna, Linz and Graz. Currently, the delivery business is more attractive in the Austrian capital than in Berlin, since the competition there is much smaller. After the successful launch in Austria, the company started the expansion into Germany where they currently supply ten more cities, from a total of 50 restaurants which are currently on board. Soon, the European expansion will start where further regions and cities will be added.
The founders Steps and Klein met while studying at the University of Mannheim. Robin Steps had gained industry experience by founding various food startups before Honest Food, including the wine shop Vino24.de. Following the founding of Honest Food in April 2017, the entrepreneurs have raised a mid-seven-figure amount from the investment company Good Brands and one of the Vapiano founders Gregor Gerlach.
Major competition for Honest Food comes from the UK where Deliveroo launched its own delivery-only kitchens called Deliveroo Editions. By analysing the data from all their transactions with existing restaurants, Deliveroo identifies the areas in which certain cuisines are underrepresented. Then the company sets up delivery kitchens at these locations, which prepare tailor-made menus for the customers. Deliveroo Editions enables restaurants to expand their customer base and test new brands and kitchen types without having to put up with high upfront costs or rents. To fuel their expansion plans, Deliveroo has just received additional US$ 98 million of funding in a Series F round, from investors including T. Rowe Price and Fidelity Investments which brings the total value of the funding round to roughly US$ 482 million.
Although there is still a long way to go, it is expected that the market for ghost restaurants will become highly competitive in a short time span. Especially for first time restaurateurs who are looking to dive into the industry but who are unsure about investing in a brick and mortar shop, opening a ghost restaurant could be a great option. These virtual restaurants, which cater to busy, young customers who like customization and instant gratification, provide both owners and customers with the flexibility that isn’t generally found in traditional venues.
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