Ghost kitchens can help convenience stores defend and expand their market share.
Tim Tang, Hughes Network Systems
“What happens when all of Walmart’s inventory is available at your doorstep within an hour?” That question, posed by Gray Taylor, executive director of Conexxus, in a recent interview succinctly summarizes the daunting competition convenience stores face as both the retail and restaurant landscapes continue to evolve.
With a number of trends creating potential challenges for the long-term health of the c-store industry, operators should plan now for the future — and that means leaning into ghost kitchens to defend and expand market share.
Key trends impacting the future viability of c-stores include the continuing escalation of customer expectations, the long-tail decline of fuel and tobacco sales (primary revenue drivers), and the rise of food as a dominant source of profit. Simultaneously, third-party delivery service across verticals (from providers like DoorDash, Uber Eats and Instacart) continues to expand, and ghost kitchens are dramatically strengthening those third-party delivery options. This locks c-stores into competition with restaurants for meeting the consumer need for accessible, high-quality food items.
Restaurants continue to pursue an edge by delivering the best food experience. Going head-to-head with them, some notable c-store brands have created outstanding signature food products (e.g., Casey’s pizza, Royal Farms’ fried chicken, High’s crab cake, etc.). Most, though, have not.
There is, however, a more direct path for c-stores to compete with restaurants. They can leverage their clear advantage: convenience. After all, convenience is the only way an industry can survive when it is comprised of retailers that carry 90 percent of the same products — at a premium price.
Restaurants have adopted ghost kitchens — locations dedicated to making food designed for delivery by third parties — in the name of convenience. But the restaurant-driven ghost kitchen model has flaws.
First, third-party delivery companies currently rely on high delivery fees and are struggling with profitability. A societal shift to the suburbs exacerbates that problem, since a profitable delivery model relies on delivering a large volume of orders in a short period of time; a feat most feasible in densely populated urban areas. Further, inconsistent quality of service is a routine problem. Cold food or incorrect orders, for instance, create a conflict of accountability between restaurants and the delivery service. Finally, in a time of pandemic, consumers are concerned about who is handling their food.
Where the third-party delivery model for ghost kitchens struggles, c-stores can succeed.
The strength of the c-store industry is its 150,000 distribution points across North America where consumers have direct and convenient access. Positioning c-stores as the endpoint of ghost kitchen delivery eliminates the third-party delivery service model's cost and logistical complications, and easily solves common customer-experience concerns.
Aggregate deliveries of ghost kitchen orders to c-stores creates easy access for customers and provides a way for c-stores to compete reliably on food quality.
Expect that this new marriage between ghost kitchens and c-stores will play out in the following phases:
Phase 1: Initiation of Ghost Kitchen Food Offerings
Through one-on-one collaboration between c-stores and ghost kitchens, c-stores will begin to offer the most broadly popular food to a large audience. At this stage, fuel still will be the primary driver of customer traffic to c-stores.
Phase 2: Introduction of AI/ML-Enabled Localized Menus
C-stores will tailor curated multi-branded/multi-cuisine menus to match local market needs. As collaboration between c-stores and ghost kitchens flourishes, fuel and food may become equal drivers of customer traffic.
Phase 3: C-stores as Pickup Points for Custom Orders
Consumers will custom-order meals, which will be stored in hot/cold lockers for pickup at their convenience. At this stage, food may surpass fuel as the primary driver of c-store traffic.
Phase 4: Engagement With Third-Party Delivery Services
Third-party delivery providers will take advantage of c-stores as micro-warehouse distribution nodes to generate a higher volume of business in smaller delivery regions, effectively addressing profitability concerns.
There are a few ways for c-stores to take advantage of ghost kitchens as a profit driver. One of the first issues to address is technology infrastructure. Legacy tech stacks at many c-stores can pose a barrier to entry to the ghost kitchen revolution. C-stores need the ability to coordinate orders between consumers, ghost kitchen and, eventually, third-party delivery.
Success in the modern c-store industry, along with the rest of the enterprise ecosystem, may rest on the ability to support necessary APIs. A managed network services provider can plan a technology roadmap and the necessary expertise to ensure c-stores are prepared for new demands on the network as a result of ghost kitchen integration.
In a time of enormous transition in customer preferences and expectations, c-stores looking to stay competitive and get in on the ghost kitchen trend would be wise to play to their greatest strength — convenience — and create a model that beats others at their own game.
Tim Tang is director of enterprise solutions for Hughes Network Systems. With more than 25 years of professional experience in developing enterprise solutions, Tang is keenly interested in the intersection of technology and humanity. As a director at Hughes, he studies the market and technology trends across various industries, including restaurant, retail, banking and finance.
Editor’s note: The opinions expressed in this column are the author’s and do not necessarily reflect the views of Convenience Store News.