Applebee’s franchisee Doherty Enterprises is trying something different to reach new customers in Miami. Retail rent prices hit historic highs during the first quarter in south Florida, making traditional brick-and-mortar development too costly for the company. Instead, Doherty opened a 200-square-foot ghost kitchen — significantly smaller than a standard 3,800- to 4,700-square-foot Applebee’s restaurant — with CloudKitchens last month. The unit is located in the Wynwood Arts District about three miles north of Downtown Miami, about 40 minutes away from the closest full-service Applebee’s in Hialeah, Florida.

“We’re excited with the way the territory stretches out. It’ll give us a good understanding of what we could potentially do from a brick-and-mortar standpoint in the downtown Miami market,” Kurt Pahlitzsch, VP of operations at Doherty, said. This location also gives Doherty access to Miami tourists.  

Doherty, which operates 90 Applebee’s restaurants, is also developing a delivery-only location in the Deer Park neighborhood of Long Island, New York. Pahlitzsch expects these delivery-only locations to require less staffing since they will likely run about 20% to 30% less volume than a normal Applebee’s.  

Both Applebee’s franchisees and corporate have been experimenting with different tactics to reach off-premise customers over the last few years. A franchisee first tested a drive-thru pickup window in Texarkana, Texas, in 2021. Applebee’s now has four total drive-thrus open, with 15 planned conversions for 2022, John Cywinski, Applebee’s president, said during Dine Brands’ Q1 2022 call. Last year, the casual dining chain also began testing ghost kitchens and launched virtual brand Cosmic Wings. Applebee’s expects to open at least six ghost kitchens domestically this year, Cywinski said. 

“Applebee's off-premise business is not only a core competency, but in 2021, it became a $1.2 billion convenience-driven business in a genuine consideration within QSR and fast casual occasions,” Cywinski said.

Generating sales without a storefront

While off-premise occasions are becoming a major revenue driver for Applebee’s, Doherty’s CloudKitchens location will still be a test-and-learn scenario. Pahlitzsch will consider the unit’s return on investment, how well CloudKitchens manages the space and how it works with third-party delivery companies, among other factors. Doherty is also interested in the impact CloudKitchens’ app, which allows guests to order from multiple restaurant brands within one order, will have on guest averages at its location, Pahlitzsch said. 

Doherty’s will also gauge the effectiveness of its menu at the ghost kitchen location. One of the company’s most popular items, fiesta lime chicken, was nixed because it requires ingredients that aren’t used across other dishes, for example.  Applebee’s spinach dip was included, however, because it has better ROI even though the chips associated with the dish take up a lot of space, Pahlitzsch said. 

Doherty’s was also careful to include kids’ items on its menu to appeal to a broad consumer base, a lesson learned the hard way by a fellow Applebee’s franchisee operating a CloudKitchens location in Philadelphia. When that unit offered just adult-friendly fare, it failed to engage many families with young children.

The franchisee’s biggest focus going forward will be marketing its ghost kitchen location through social media advertising, third-party partners and using its existing database of customers that might overlap with the nearby full-service location. Doherty has been using geotargeting to capture where it believes guests are, including fencing around certain hotels and hospitals, so a banner advertising the location will appear on their social media pages. 

It’s interesting how it’s different than a brick-and-mortar store,” Pahlitzsch said. “Normally everybody has anticipation of the building [opening] so the minute you unlock the doors, you get the mad flood. Where you get the ghost kitchen, you [have] to teach them you’re there.” 

Pahlitzsch said he expects to have a better understanding of the unit’s viability within three months, barring an unexpected economic downturn. 

Filling in delivery gaps

While Doherty’s ghost kitchen is designed to reach a new market, its delivery-only location aims to bridge a delivery gap. The location in the Deer Park neighborhood of Long Island is just outside the delivery radius of Doherty’s five closest restaurants. This location is also next to a shopping center and office parks, so it can appeal to the lunch crowd.

This unit will use a locker system that creates more accountability for delivery partners. Every part of the fulfillment process is computer time-stamped from cooking to packaging to when the food reaches the locker bays to be picked up. Cameras will also monitor when the food is picked up. 

Lockers, which are being tested in two locations, streamline the pickup process for delivery drivers and has led drivers to service the location more frequently, he said. 

“They know the minute they get the message that the food’s ready, they walk in the building, grab the order and walk out,” Pahlitzsch said. “The throughput for them gives them the ability to generate more personal income because they know they aren’t standing around waiting for Bob or Joe to finish putting the order together. …Their time in the building is less than 30 seconds.”

If the driver doesn’t pick up the food in time, the operator has a way to show the third-party delivery company that it wasn’t the restaurant’s fault that the food went cold or had to be remade to stay fresh for the customer, he said. After 20 minutes, the locker turns from green to red, signaling to a manager that the order is still there and needs to be remade. 

“The biggest thing that concerns me in regards to off-premise guests is customer satisfaction because to acquire new guests, it’s harder and harder,” Pahlitzsch said. “A lot of effort goes into social media advertising to make the customer aware of off-premise options, but if that order is cold or inaccurate, it is more difficult to get repeat visitors.”