Dive Brief:
- Encore Restaurants LLC, the largest Five Guys franchisee in the U.S., opened a digital-only Five Guys location in Garland, Texas on May 1. The delivery-only restaurant, located inside a Revolving Kitchen facility, was developed by the franchisee and will bring its total U.S. store count to 109.
- According to a press release emailed to Restaurant Dive, this marks Five Guys' first North American ghost kitchen. Its unclear if the chain has ghost kitchens in international markets.
- Encore opened 28 new stores during COVID-19. In the press release, Matt Reid, divisional vice president of operations for Encore, said that growth has been possible because of the company's ability to adapt stores to a delivery-only approach.
Dive Insight:
Although Five Guys' delivery channel growth throughout the past year is unknown since it is a private company, we can assume that growth was on par with industry trends. Delivery now accounts for about 9% of all restaurant orders, which is a 154% increase year-over-year, according to the NPD Group.
Five Guys might find an additional lift in delivery sales through this test. The chain currently doesn't have a heavy drive-thru presence, so delivery may a good off-premise alternative to complement its curbside pickup service.
The fast casual chain also joins several brands that have jumped into delivery-only locations to support this channel's growth. Saladworks partnered with Ghost Kitchen Brands in late March to open 90 ghost kitchen locations in North America, for example, while Nathan's Famous just opened its 100th ghost kitchen and Wow Bao expects to reach 1,000 such locations by the end of this year through its host kitchen program.
Encore isn't the only franchisee dipping its toes into the ghost kitchen space ahead of its franchisor. A Famous Dave's franchisee called PDX Partners did the same early on in the pandemic using two of its Johnny Carino's restaurants, while another franchisee opened a ghost restaurant inside a Cloud Kitchen space in April. Results have been positive, and the company is planning for growth. These models not only provide an added revenue channel with low barriers to entry for brands, but also they help fulfill the staggering growth in off-premise orders without tripping up traditional operations.
Even major, well-capitalized brands are diving in to the space. Chipotle opened its first digital-only restaurant in November, for example, although the chain has a second makeline dedicated specifically to digital orders at its traditional restaurants. In this instance, the digital kitchen enables the brand to enter urban markets that wouldn't otherwise support a full-size restaurant, illustrating another benefit of the model.
Because of the staggering growth in off-premise in general, other franchisors have allowed their operators to experiment with new models as well. Fat Brands has also given its franchisees the ability to offer virtual brands, for example, if they co-mingle with the brick-and-mortar location. One Applebee's franchisee in Texas has added a drive-thru pickup window and will gauge feedback to inform future store design.
That's not to say new models like ghost kitchens are an automatic fit for any restaurant. Modern Restaurant Concepts tested delivery-only formats but will not pursue the format further. CEO Rob McColgan said the company ran into more challenges than it expected, particularly with staffing, operations and driving consumer awareness.
