Dark kitchens take centre stage in UAE's food services market

A new RedSeer Consulting report explains how the UAE’s ‘dark kitchens’ mark a singular bright spot in a restaurant industry that has been hit hard by Covid-19.

Dark kitchens – alternatively termed ‘cloud kitchens’ ‘ghost kitchens’ or ‘virtual kitchens’ among others – refer to standalone kitchens that prepare meals on a business-to-business (B2B) basis. Cooking for restaurants without in-house kitchens, for instance, or preparing meal orders for food aggregator platforms such as Grubhub are all dark kitchen services.

Many corporates also use dark kitchens to supply food for employees, while some kitchens allow individuals to sign up for meals on a contractual basis. In short, this billion-dollar plus global industry – by Statista estimates – prepares thousands of meals a day, without actually serving a customer. That is, until this year.

Most dark kitchen clients are stakeholders in the food industry such as restaurants and catering services – among the worst hit segments from the Covid-19 crisis. Across the world – including in the UAE – restaurants, bars and public events were the first to close during lockdown, and have been the last to open, if at all.

In the UAE, the food services industry was expected to grow from $15 billion last year to $16 billion this year according to RedSeer estimates. Instead, the researchers estimate that it will lose 40% of its value in 2020, shrinking to $9 billion. For dark kitchens, this means a large chunk of their clientele has gone out of business.

Yet, the UAE’s dark kitchens appear to be going stronger than ever when it comes to demand and revenues. Their secret: a quick pivot in line with the circumstances. A central response to the pandemic among consumers was to go online for everything, from general shopping to shopping for food and groceries.

In response, dark kitchens expanded their service offerings in several ways. For one, they began leveraging their wholesale and supply mechanisms to meet the ballooning online grocery demand. In fact, with restaurants out of the picture, RedSeer reports that many actually went directly to consumers – not only delivering groceries but also cooked and semi-cooked meals.

For those restaurants that have remained operational, dark kitchens have been instrumental for survival. “Dark kitchens, with the promise of low-cost structures and faster turnaround, came for the rescue of various independent and chain restaurants that were unable to afford their dine-in operations,” noted RedSeer partner Sandeep Ganediwalla.

“Multiple dark kitchen models offered the restaurant owners varying degrees of asset ownership, making it easier for them to pivot to online food delivery,” he explained. Outside of this, some of the segment’s clients have actually been quite stable through the crisis. Food aggregators, for instance, have kept up their demand in light of online food sales.

The same is true of dark kitchens’ corporate clients. Many businesses have returned to office working arrangements, albeit to a limited extent. Food still needs to be arranged for these employees, keeping dark kitchens in a sunny spot. “We expect kitchens will expand focus on this sector,” said Ganediwalla.

All these factors combined, dark kitchens have been the quickest segment of the food services sector to recover from the thick of Covid-19. On the back of this momentum, RedSeer estimates that the segment could more than double – 110% growth – by the end of this year, compared to the 2019 figure.