#10 | dark kitchens, delivery, and digital platforms
the press confuses operational model with delivery method; the rising of dark kitchens and delivery in Brazil is pushed by apps, that exempt themselves from the public debate
translated by Luciane Maesp 📧 luciane.maesp@gmail.com
clique aqui para ler em português
🤝 this edition is a partnership with the tech site Manual do Usuário [Portuguese only] 🤝
All large-scale production requires simplification – optimizing processes, cutting down costs, reducing variables, testing flows, and speeding it all. Between the artisanal and the industrial extremes of the production model, there are as many configurations of productive capacity as there are cellphone models on sale – they seem to be the same thing just because they have the same goal. As with everything, there are gains and losses when scaling the production: it gains speed but loses the customization potential.
Since the publication of an excellent issue by the G1 portal about the kitchen condos' impacts in residential neighborhoods of São Paulo, there have been a series of reports in other vehicles that ended up giving a tabloid approach to dark kitchens. Dark kitchens (also called cloud kitchens, ghost kitchens, or virtual restaurants) are restaurants without a dining area, nor in-house customers attending, with a delivery-focused production. Many of these journalistic essays show confusion when describing what would be a dark kitchen. The most common mistake is to use it as a synonym for kitchen condo1.
It is not a brand new model. Previous to the delivery app era, production kitchens used to operate with their own deliverers' team, sometimes with a take-out counter. Auxiliary kitchens are also common for big bakeries, for example, where the centralized production gets distributed to their shops. "China in Box2 is 30 years old and it was born in a concept of pick-up or delivery only," exemplifies Célio Salles, ABRASEL's (Brazilian Association of Bars and Restaurants) administration board member. "Dark kitchen is a new word to describe something that already existed and had a strong expansion during the pandemic," he says.
A dark kitchen is not synonymous with factory-scale production, nor even with gastronomic operations densification. Most of the dark kitchen menus will feature dishes that can be serially prepared, to be able to attend to simultaneous orders fastly with minimal staff. Short menus work on keeping the stocks lean and avoiding expiration date losses. Upon the very tight profit margins of the gastronomy sector (often due to the lack of financial and management control), it's comprehensible the choice of the model of the dark kitchen in a fragile economy like Brazil's 2022: it cuts off the fixed costs as front-of-the-house staff, the expensive rent in a buzzy address, furniture, crockery, etc., and directs the energy into cooking, packing and handing it over to the delivery person.
In this optimization logic, large business people and conglomerate partners adopt big data management to guide their investments and interests diversification; very different from the entrepreneurs, who use their savings to start a business. While the former manages to invest in different restaurant brands to guarantee several market slices on their plates, the latter usually count each sandwich bread slice for the month-end closing – a reality for half of the micro and small business in Brazil.
Among the decisive factors to implement dark kitchens, there is the demographic density of the region; the possibility of testing products to define what will remain on the menu; new brands launching (which may be discontinued in a matter of weeks if the expected results are not reached), and of course heavy investments in paid traffic on platforms like Instagram and Facebook.
Those who don't have the financial capital to rent a good address (or can't frequently test new products' acceptance) get orientated by market trends and free information published by research institutes and by delivery platforms themselves. As dedicated as the small business owner can be, he won't leverage its sales with a new hot dog or donut recipe. In this race, who has more money starts ahead – same for the apps competition. "The first restaurant hubs started because they wanted to start a marketplace, like Porto Alegre's Delivery Center, which no longer exists. Setting up a delivery app is easy now, with R$ 10,000 (about US$ 2,000) you can have one. Today's market's leader is the leader by expertise, not luck. The market concentration is another history," opines Salles.
In March 2021, the Ministry of Justice's Administrative Council for Economic Defense (CADE) prohibited Ifood from closing new exclusive contracts with restaurants after complaints of Rappi and ABRASEL made in the previous year3. At the very beginning, the delivery giant held a financial investment strategy: Between 2011 and 2018, Ifood raised US$ 591 million in seven funding rounds. With a hefty cashier, it's possible to buy minor competitors and start an artificial demand through discount coupons – similar to Kwai/Kuaishou’s temporary practice of paying users to stay on the platform – enough to drive a company the size of Uber Eats out of business in Brazil. At some point, the bonuses end, and restaurant owners have to handle the burden.
In Brazil, Ifood owns over 80% of the delivery app market, a sector that has moved R$ 60 billion in the intern market in 2021 (almost US$ 12 billion). Even though there are other online sales channels for entrepreneurs, such as WhatsApp and the good old phone call, the truth is that it's hard to escape from digital platforms at this point.
To be able to have their services and products featured in the marketplace showcase, restaurant owners undergo the algorithm's logic, making frequent promotions, changing the menu, and zeroing the delivery taxes. The race for customers has always been a topic in the sector, but the competing conditions gap has become wider with the digital platforms, where all showcases would supposedly be side by side and infinite, without the physical limits of the real world.
The apps ensure the convenience of gathering the orders registers and delivery logistic services for the restaurants; while customers benefit from shortening the time to make an order plus the variety of options available for delivery at home. This time-space flattening of the virtual world, though, has consequences on the offline physical world, such as poor working conditions.
The delivery sector had an annual growth of around 20% until 2020. At the pandemic's beginning, Ifood registered 39 million orders in a month, a number 32% higher than the entire amount registered in 2019.
In journalistic reports, many press colleagues ended up using the delivery sector data as if they were from dark kitchens, confusing the delivery method with the operating model. The correspondence between delivery and dark kitchen does not proceed, because the delivery of a non-presential-attendance-establishment could be, for example, a domestic kitchen one.
According to Ifood, 86% of the restaurants that use its platform are medium or small size. Salles estimates that almost 90% of food and beverage operations earn less than R$ 20,000 (around US$ 4,000) a month, which would classify them in the tax framework of microenterprises or MEI (initials for "self-employed individual micro-entrepreneurs" in Portuguese).
Around 30% of 1 million restaurants in Brazil closed their doors during the pandemic period, and 20% of the workforce got unemployed. Beyond the indebted entrepreneurs, and laid-off employees, the awful economic situation in Brazil put a lot of them into investing in creating initiatives to make and sell food as MEI. ABRASEL estimates that 335 thousand food and beverage companies shut down due to the pandemic, but the sector recorded almost 600 thousand new MEIs in 2020 and 2021 (a total between the categories of food supply for home consumption; restaurants and alike; snack bars, tea houses, juice houses and alike; and beverage retailing). "Entrepreneurship saved a lot of people in this pandemic. Many former employees applied their knowledge in the food and beverage sector to launch their brand," explains Salles. The main sales channel? Delivery apps.
There are no data on how many restaurants and food establishments operate from dark kitchens in Brazil. As there is no such distinction in the National Classification of Economic Activities (CNAE) code, many of these production kitchens may be registered as "Food supplying predominantly for enterprises" or "Food supplying predominantly for domiciliar consumption" as their main activities, which is subject of tax inspection. The in-house attendance establishments, in their turn, are classified as "Restaurants and other establishments of food and beverage service", and they may also feature the previous CNAE as secondaries.
Depending on the registered CNAE code, the company business may be monitored by the Ministry of Health, through ANVISA (Brazilian Health Regulatory Agency), or by the Ministry of Agriculture, Livestock and Food Supply (MAPA). MAPA's legislation is the most demanding, and falls on manufacturing and production activities, especially on animal origin products. Thus, many eating-out food operations select codes that describe only the food marketing activity, so they don't fall under MAPA's jurisdiction. "[It's this way] or entrepreneurs have to go back and give up on producing the dulce de leche in the pastry shop, for example. Those who work with charcuterie need to have a legal register on MAPA, but there are difficulties with the framing. The inspector will treat it as if it was a big cold store, demanding the same stipulations of a cold store," explains Ana Paula Barddal, nutritionist and consultant specializing in food quality.
The lack of norms and guidelines for smaller-scale food-producing activity regulation opens a series of gaps in the gray area between the artisanal and the industrial. It wouldn't even be the case of having specific legislation for dark kitchens, but to regulate it according to its environmental impacts, such as the volume of solid and liquid waste, smoke, and other substance emissions, as well as the concentration activities with high flammable potential and cross-contamination, which can occur either if it is a kitchen condo complex or a shared kitchen subleased in the idle time. "There's no determination on how many kitchens can operate in the same property, on the production volume of that building, whether there are one or thirty kitchens," says Barddal.
"[The real estate businessman,] He is an entrepreneur that doesn't know how to measure the waste that will be generated, volume of smoke emissions, among others. He wants to lease that space and profit. The construction permit will be requested considering a basic impact, and that's how problems arise," analyzes Rogério Guimarães, a bookkeeper in São Paulo. That's what happened in the Panamby neighborhood, south of São Paulo: Kitchen Central would build 30 kitchens, but requested with the City Hall a construction permit stating that it would be just one kitchen. The construction has been halted.
Considering the concentration of food establishments, urban centers have plenty of examples: food courts in shopping malls, food halls, gastronomic avenues and neighborhoods, and downtown streets with restaurants for weekday lunches. "In regions like Rua Augusta [downtown São Paulo], where there is food business built-in small old locations, such as snack bars, already has a history of impact problems. New buildings, such as the kitchen condo construction in residential neighborhoods, could make deeper research to avoid known problems of other regions," analyzes Guimarães.
A city with fewer in-person restaurants has other side effects. Fewer tables on the sidewalk and in the lounge mean fewer people walking on the street, and less space for depressurization, socialization, and meetings.
"This is where the role of public management comes in. What are the incentives about advantages and taxation offered for large enterprises, and what are those offered to promote and stimulate local commerce? The sights [of the public management] are always on the taxing rules, and not on inducement and planning. It gazes straightforwardly at the number of job openings that an investor group's new shopping mall can create, but doesn't look for how much income can be generated by supporting small entrepreneurs," questions Guilherme Macedo, architect, and partner at Lona Group.
No other Brazilian city can be compared to São Paulo's capital, both in proportion and in the speed and dimension of the urban problems' escalation. Within this perspective, Barddal evaluates that the model of municipal regulation and inspection can be improved through collegiate action. "There should be a meeting of all the actors in this market to draw up regulations for the dark kitchen and kitchen condos reality in each city, with ANVISA, Secretariat of Natural Environment, Secretariat of Urbanism, ABRASEL, workers unions, and competent agency's technicians. The city halls are the ones able to promote it, even to decide which body will be responsible for these models,” she says.
For Macedo, the negative impacts provoked by the kitchen condos in São Paulo will accelerate the regulation discussion across the country with decrees, revisions, new master plans, and legislation. The model, however, won't prevail in the food and beverage sector. "Bars and restaurants are vital for the public space. A restaurant that opens to the city adds a connection point with it. Neighborhoods and regions need a mix of services in their streets so they don't have sectors limited to specific activities, for example with exclusively daytime commerce, which makes the city more unsafe at night," analyzes the architect.
People that have lower initial investment will continue to bet on dark kitchens, but dark kitchens won't be the ones responsible for closing street restaurants from 2022 onwards. The recovery of "normal life" after the Covid-19 vaccination is changing the scenario and has encouraged many restaurant owners to take the opposite path: leaving the delivery-only operation to open a physical establishment.
That's the case of engineer Felipe Petri, who started Petrisserie in 2019. He prepared frozen meals for home delivery in a production kitchen in the Bacacheri neighborhood, in Curitiba. At the beginning of 2022, he closed the dark kitchen, and in May, he opened his first food operation with in-house service, five miles away from the first address. In three years of branding, Petri never used Ifood delivery services. "Between giving discounts on a delivery app and investing in paid traffic, I rather the second. The orders were made via WhatsApp, and I organized the delivery route to deliverers partners of Ball's Log or O Pão Que o Viado Amassou4," he explains. With the same partners, the brand promoted reverse logistics for collecting back the containers at the customer's houses.
The change reflects what he believes a restaurant represents. "A restaurant is a meeting point. The dark kitchen helped me to start my food operation in 2019 with the lowest possible investment and attract customers. But having a physical space to host people makes them get in touch with the values and principles of the restaurant. The brand impact is different because everything is right in the face," reflects Petri. With the customers sitting a few feet from his kitchen, he can finally roll out the menu as he always wanted. "Now I can serve french fries without the fear of them arriving limp," he jokes.
The delivery should continue to stake high in the country, through dark kitchens, home kitchens, or in-house service restaurants. It is hard to know if the concentration of several professional kitchens in the same building will continue to multiply. "This movement has already reached its peak. The renting costs of these shared spaces are not low, because it's not only a lease, there's the management software interconnected between the restaurant's management system and all the delivery platforms. So, it ends up with an expensive administration fee," foresees Salles.
As the Ifood itself presents on its website, the dark kitchen is a kind of operation that only grows along with delivery apps. There is a strong campaign by Ifood to advertise social and environmental responsibility in its activities, however, delivery apps evade the direct and indirect consequences of their activities, such as the rise of dark kitchen condos. While digital platforms monopolize their markets – as in the case of Ifood and Meta (WhatsApp, Facebook, and Instagram) – these companies concentrate an enormous bargaining power with the public authorities and define the rules that dictate the functioning of the sector. They take advantage of the ambiguity of being between the virtual and the real, between being the main sales channel and the main intermittent working platform, at the same time they are "only" mediators of the restaurant-deliverer-client relationship.
Yet, there's no human activity free from materiality. A company always exists in a territory, operates from people's work, and is located in a historical period with a series of social conventions and consensus in force. Regulations, for example.
Kitchen Central decided to return the contact via press office, which did not occur until this edition's closing on April 29th. There was another contact attempt with the company via consultants to reach the communication team, without success. Ifood's press office returned our contact saying that the company doesn't have dark kitchens (a question that wasn't asked), ignoring the questions sent by email. Goomer did not return the email until this edition's closing, on April 29th. Aiqfome declined to contribute to the topic with the following message: "Unfortunately, Aiqfome won't be able to help with this agenda. The dark kitchens model is largely applied in São Paulo, Rio de Janeiro, and other capitals of Brazil, where we do not operate. Our focus is on the interior cities, so we chose not to take a position about the dark kitchen theme at this moment, because we truly have no know-how to talk about this subject."
Big thanks to Ana Paula Barddal, Célio Salles, Erick Masteck, Felipe Petri, Guilherme Macedo, Luiz Breda, and Rogério Guimarães for your time and attention spent in the interviews.
This text was edited by Rodrigo Ghedin, from Manual do Usuário. Thanks, Ghedin!
SUPPORT LOW HEAT
This newsletter is an initiative of journalist Flávia Schiochet and financed by her readers. All the essays, interviews, and extra editions are always going to be available for free, and you can read (or read again) on the newsletter archive. If you liked this content, please share:
If this link came to you by a friend, consider subscribing! Every month, two pieces are published: an interview and a slow-cooked essay on food, cooking, and gastronomy.
Consider becoming a paid subscriber: support my work for US$ 2 a month or US$ 20 a year (at the current conversion).
NT: Condominiums of kitchen facilities, usually leased, aimed to centralize dark kitchens to reduce costs and facilitate daily operations such as delivery pickups, supplier loads, grease trap cleaning, pest control, staff refectory, and bathroom areas.
NT: A pioneer Brazilian franchise of Chinese food delivery.
NT: Ifood is a Brazilian marketplace for delivery and food ordering company that leads the delivery app market in the country, currently expanding its operation to other Latin American countries. Rappi is the largest Colombian on-demand delivery company with a wide operation in Brazil, also proceeding with a food ordering and delivery platform.
NT: "The Bread the Fag Kneaded" is a pun between Diabo (devil) and Viado (fag, gay).
Every one of your posts teach me something as urgent as it is facinating!