You could see Paxman asking the question on University Challenge: “’Dark’, ‘cloud’, ‘virtual’, ‘delivery only’ are all terms to describe what?”
“Kitchens” is the answer, and so-called dark kitchens have emerged from nowhere a few years ago to become almost commonplace in the food and beverage industry now. These kitchens are separate from any restaurant premises and exist solely for the preparation of dishes ordered online which will then be delivered to the customer.
Much of the discussion around these facilities has focused on health and safety compliance and on whether “change of use” planning permission for such facilities is needed. We also occasionally hear of angry residents whose neighbourhood streets have become unexpectedly clogged with moped riders servicing the dark kitchen that has popped up around the corner.
I want to talk about a different side of this relatively new phenomenon and to chew over some of the data and intellectual property (IP) issues associated with dark kitchens.
Restaurant business’ “intangible” assets are highly valuable, and as such subject to a range of legal protections. Recipes and food preparation methodologies are usually protected through the law of confidential information and as trade secrets. Other key assets include a business’ customer database. Again, this is likely to be protected as confidential information and the database is a powerful asset that of course plays a key role in digital marketing. Restaurants’ name and branding are often protected using trademarks as well as, in the UK at least, the law of passing off, and potentially other IP rights as well. It’s not only the name that can be protected, but also the look and feel, logos and other branding elements.
But just as dark kitchens are shaking up the traditional restaurant landscape, they also create a whole raft of new considerations when it comes to these intangible assets.
While the law plays a role in recognising and protecting confidential information, businesses also protect it through common sense and practical measures. In simple terms, they can do their best actually to keep that information secret.
For example, it is reported that KFC’s special mix of 11 herbs and spices are mixed in two different places and then combined at a third location. There are stories, very likely apocryphal, about the recipe for Coca-Cola being held in two separate incomplete parts by only two executives so as to preserve its secrecy.
While the reality for the vast majority of restaurants and other F&B businesses is much more mundane, recipes and preparation methodologies are of material value and so a degree of secrecy is required in order to protect them.
Some dark kitchens are dedicated to a single restaurant. Maintaining secrecy and confidential information is easier in such a facility. For example, McDonald’s was reported in July this year as opening its first UK-based kitchen dedicated solely to providing meals for “McDelivery”, in conjunction with Uber Eats. Because it is the sole occupant of the kitchen it can much more easily control who is on site and what information they have access to.
However, some dark kitchens will be used to produce meals for a number of different restaurant brands. In some of those cases, the same chefs might be preparing food for different brands. In this situation, keeping these secrets simply becomes harder. This might not be an issue for a lot of brands, but there will be those who will want to be cautious in order to ensure they are protecting their valuable intangibles.
In such cases, it will be important to ensure that confidentiality clauses are in place with the chefs and other staff. Practical measures can also be effective. For example, proprietary rubs, sauces, burger patties and so on could be prepared elsewhere. This means that the staff creating the final dish for delivery in the dark kitchen will have limited access to secret ingredients or preparation techniques.
While this is not the article to go into concerns in relation to the quality and consistency of food preparation, as well as allergens and other food regulatory issues, it is worth making the point that these will also be more significant where food is prepared for multiple businesses in one facility.
None of this is to say that dark kitchens are a bad thing. Like any kind of facility, many are extremely professional and well-run. The point instead is that restaurants need to be on their toes and alive to these myriad issues.
The rise in the usage of dark kitchens goes hand in hand with the increase in the prevalence of delivery companies and aggregators, like Uber Eats and Just Eat. Deliveroo has its own dark kitchens service: Deliveroo Editions.
Of course, these businesses charge commissions as well as in most cases imposing delivery fees on the customer. Restaurants make their own decisions about whether to work with delivery companies or aggregators and, if so, which ones. One of the less obvious factors they might want to consider is that of customer data.
With the coronavirus having accelerated the pre-existing trend towards delivery and away from dining-in, delivery is more important than ever and restaurants are finding more and more that there is a third person in bed with, and indeed between, them and their customer.
Yes, delivery businesses and other players can help significantly with marketing and yes, they can in some cases provide bespoke, fully kitted-out dark kitchen facilities. But restaurants need to think about their relationships with their customers. Where an intermediary business, like Deliveroo, is involved, who is it that holds the relationship with the customer? What opportunities do the restaurants have to market directly to the consumer that has just ordered their food through an intermediary’s app or website? Usually it will be the intermediary that really has access to the customer, and the customer data will be their confidential information, not the restaurant’s.
Restaurants must work to understand the implications of this relatively new dynamic and be strategic in how they bounce back from the coronavirus, and grow from there. Of course, delivery companies and aggregators can provide substantial benefits and a valuable service but a restaurant cannot easily market to a customer whose details it does not have. Food for thought.
As delivery and dark kitchens continue to grow in significance, in many cases the importance of restaurant businesses’ real estate – the physical restaurants themselves – may as a consequence decline.
Many restaurant businesses rightly place great pride and value on their properties and, even more importantly, on the staff that run them. Of course, companies will continue to invest in their people and customers will as part of their dining experience continue to treasure their interactions with well-trained and personable staff. There is, however, no escaping the fact that restaurants’ brands and “digital real estate” will grow in importance, as delivery grows.
This means that, more than ever, businesses who want to be and remain competitive and differentiated need to invest in their IP. They need to protect their key brands as trademarks where possible and they need to shut down third parties who want to free ride off their brands or want to rip off their look and feel.
Exactly the same considerations apply to those who have no dine-in establishments and who run what are sometimes therefore referred to as virtual restaurant businesses. They will often not have any customer-facing physical presence at all and must invest heavily in their digital real estate and in the IP that underpins it.
As delivery operations become a more and more important revenue stream for restaurants in the post-corona world, dark kitchens are here to stay. For those restaurant businesses that get it right, they can be a cost-effective way to broaden their reach into the valuable delivery market, which, according to Deloitte, will be worth £19bn in Europe by 2023. Businesses entering this world must be alive to the implications for their data and intellectual property and use smart approaches in these areas to give them an edge over their competitors.
Nick White is a Partner at Charles Russell Speechlys
Dark kitchens: shining a light on data issues
You could see Paxman asking the question on University Challenge: “’Dark’, ‘cloud’, ‘virtual’, ‘delivery only’ are all terms to describe what?” “Kitchens” is the answer, and so-called dark kitchens have emerged from nowhere a few years ago to become almost commonplace in the food and beverage industry now. These kitchens are separate from any restaurant premises and exist solely for the preparation of dishes ordered online which will then be delivered to the customer.