Every day from 3 p.m. to the wee hours of the morning, 24-year-old Connor McPhail sits inside an 8-by-10-foot box on Toronto’s Dundas Street just east of Bathurst Street surrounded by chips, chocolate and soda. This mini-shipping container is home to Snacko, Mr. McPhail’s new delivery-only convenience store that’s aiming to bring snacks to the doors of hungry customers across the country with just a few clicks on their phone.
Snacko is among a new breed of food-delivery businesses that have don’t have publicly accessible spaces and rely on third-party services such as Uber Eats, Foodora and Skip the Dishes to handle delivery. Snacko only sells prepackaged goods, but other businesses following the same model are full-service restaurants without dining rooms. Dubbed ghost restaurants or virtual kitchens, these businesses that operate out of hidden commercial kitchens are increasingly popping up across the country.
Much lower overhead and startup costs compared to a traditional restaurant are obvious draws, but the third-party apps make it all feasible. They deliver the food, handle customer service, help with marketing and even offer insights that help businesses decide what kind of menu would work best in their market.
“Starting a restaurant is very difficult and capital-intensive, and frankly a little crazy,” said Dan Park, general manager and head of Uber Eats Canada. “This is all about creating a platform for entrepreneurs to create food concepts with very little risk.”
Snacko’s Mr. McPhail had an inside view into the delivery app world before he decided to launch his company. “I saw that food delivery was taking off and it wasn’t just your classic pizza or Chinese food,” said Mr. McPhail, who worked as an account manager at Uber Eats before founding Snacko. “I found that desserts were popular, but they were undersupplied. There weren’t many places, especially late night.”
That’s how he ended up spending all his nights since he launched in late August waiting for the ding from a tablet that alerts him to dole out bags of chips, microwave popcorn (unpopped), drinks and candy bars to delivery drivers. “I have no social life,” Mr. McPhail admitted. “I get to meet a lot of drivers, but that’s about it.”
But after just more than a month of operations, Snacko has already been successful enough for Mr. McPhail to start hiring help (fittingly, using an app called Hyr) so he can take some time off. “It cost me under $3,000 to start and I don’t need to have more than one person here at a time, so it’s a very lean business,” he said. “And right now we’re the highest-rated restaurant on Uber Eats [in Toronto] because we obviously have very quick prep times – we don’t have to cook anything so the drivers get the bag and go. People are happy.”
Another Toronto entrepreneur taking advantage of Uber Eats is Kim Vo, owner of the delivery-only Vietnamese restaurant, North Saigon. Last year, Ms. Vo launched North Saigon as a food truck serving lunch in downtown Toronto, but soon found that a truck was too limiting. She had many requests for large office catering jobs and preparing those from a small truck just wasn’t feasible.
With a larger commercial kitchen in the neighbourhood, she realized she could not only fulfil catering orders but also prepare individual meals and let third-party delivery services handle the rest. “For someone like me who hasn’t operated a restaurant before, they’ve really simplified it,” Ms. Vo said. “It’s less overhead, it’s less stressful. The restaurant industry is hard, it’s probably the toughest industry to get into, and this is almost like hacking the system.”
The cost of using the app, however, is significant. Third-party delivery services take about a 30-per-cent commission on each order. “It is a lot, but I don’t have to develop my own platform, I don’t have to develop a whole system that runs as smoothly as what they already have,” Ms. Vo explained.
The idea of a virtual restaurant or convenience store isn’t entirely new, but these businesses are certainly becoming more prevalent. Uber Eats counted 50 online-only concepts on its platform in Canada earlier this summer, but Mr. Park estimates the number is now nearing 100. That growth can be especially quick since operators can house multiple ghost restaurants in a single kitchen.
Ms. Vo has modelled her business after the Green Summit Group, a New York-based company that operates 16 brands out of four kitchens and is on pace for sales of about US$18-million this year. Ms. Vo said her business, which has only been online for a few months, is just getting started. She’s currently serving 200 to 300 meals a day, operating only during weekday lunch hours, and she’s slated to launch two more brands out of her kitchen this month, one with a vegan East Asian Buddhist menu, and another serving Thai food. In the future, she aims to raise more capital, create new brands and operate out of more locations, so she can cover a larger delivery zone.
Mr. McPhail of Snacko also has designs on growth. First, he wants to set up delivery hubs that cover the entire city, and then expand to other cities, with a focus on college towns. He’s betting that the coming winter will be a period of growth for his business, as the cold weather spurs more Canadians to use delivery apps. “I’m hoping that it’s gonna be a terrible, terrible winter,” he said with a smile.