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Amazon bets on the market for ghost kitchens and dark kitchens

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The exponential growth of delivery and the digital processing of restaurants have caused a change in the physiognomy of businesses. Spaces to serve visitors shrink or disappear completely. Digital restaurants arise where the diner can only access to pick up their order. Ghost kitchens or dark kitchens, restaurants completely closed to the public that only sell orders for home delivery.

Amazon, after a resounding failure with their food delivery initiative Amazon Restaurants, keeps the attention on the market of the delivery. It's too juicy a segment for the giant. With an annual growth rate higher than 10%, Amazon can't ignore the market.

Jeff Bezos' company went live in December 2019. At that time Deliveroo published their annual accounts, which showed that the state of the company was not good. So much Uber Eats as Just Eat had an advantage in the UK market.

Amazon analyzed the case and offered an investment of 575 million pounds. Unfortunately for Deliveroo, The transaction could not be closed immediately due to interference from the Competition and Markets Authority (CMA) british, a body charged with overseeing UK business interests.

The CMA found irregularities in Amazon's procedure and initially appeared that it would impede the deal. Nevertheless, the Deliveroo situation was accused and they contacted the administration to report that they met the conditions to be categorized as a failed company.

This statement changed the rules of the game. In the words of Stuart McIntosh, highest authority of the CMA in April 2020, "It is clear that Deliveroo would not have been able to meet its financial responsibilities and would have had to leave the market". The investment was accepted and it was closed in May 2020.

Deliveroo has been able to penetrate the market, something that Amazon Restaurants achieved only with very poor results. Because, although the accounts show weaknesses in the company, Amazon is very interested in know-how from the British delivery company, pioneer in the concept of ghost kitchens.

In this way, on Amazon they pretend approach the European market, launch pilot projects at high speed and explore the mode of operation of ghost kitchens, still wildly underused. Recall that according to Euromonitor it is understood that this hospitality format could move a trillion dollars annually and grows one thousand percent throughout the present decade..

Amazon's investment allowed the opening of new ghost kitchens and the pandemic brought with it an increase in demand for the delivery. In the second half of 2020 Deliveroo was in good economic health in all markets it operates. Something that allowed them to obtain additional financing from their pre-existing partners, who now estimate the value of the company at about 7000 million pounds.

Deliveroo's success with dark kitchens equates to Amazon's success in its new adventure in the mobility market. It is 2021 the delivery company intends to carry its Deliveroo Editions to a new level.

Deliveroo Editions are strategically located shared kitchens to facilitate rapid delivery over a wide radius to cover high demand. They are equipped with state-of-the-art equipment and boast of efficiency by sharing the spaces between several restaurants.

At the moment Amazon benefits from about a hundred Deliveroo Editions located both in British territory and as scattered around the world: Spain, France, Netherlands, Australia, United Arab Emirates, Singapore and Hong Kong. Its expansion has only just begun. The goal for this year is doubling the ghost kitchens available outside the UK.

Not only that. Deliveroo will also strengthen its presence on the islands thanks to a plan to achieve 100 new cities: Llanelli, Exmouth, Yeovil, Bangor, East Kilbride, King’s Lynn, Scarborough… According to Carlo Mocci, UK Business Executive Director at Deliveroo, «We want to do everything possible so that households receive the food they want and need, and develop our mission to ensure that families across the country have a wide selection of amazing food, drink and homemade products to order and receive in less than 30 minutes".

Although the horizon is very positive for the new collaboration between Deliveroo and Amazon, the route will not be free of obstacles.

Among the more than 20.000 Establishments that operate with Deliveroo do not lack accusations of abusive rates. Deliveroo usually charges a commission of 35% about the orders they manage. For some restaurants this is an unsustainable situation that eliminates their profit margins. A danger to its viability in the medium term.

The neighborhood associations do not see the Deliveroo Editions with good eyes as it happens in Spain. Some have expressed their disapproval because apparently the company does not comply with the urban planning regulations. Others complain about the constant hustle and bustle of delivery men in and out of ghost kitchens.. The noise from the kitchens and the odors emanating do not help either, especially when Deliveroo Editions are located in residential areas.

At Deliveroo they are already working to solve these problems. The recently opened centers will have all required permits and licenses. further, each Deliveroo Edition will have a management team to limit inconvenience that could be derived from the activity in the neighborhood.

Regardless of whether your position with Deliveroo is that of a minority investor, Amazon welcomes the evolution of Deliveroo in recent months. Their ghost kitchen strategy is more than promising.

Market Analyst James Lockyer, currently associated with the consulting firm Peel Hunts, consider that the best move for Amazon right now would be include the app of Deliveroo is your SuperApp. So far they have not, but the possibility is there. It would be a firm step towards Amazon monopolizing this market segment. Something that from the DWF law firm specialized in competition law in the European Union they see unlikely, but not impossible.

We will see how the ghost kitchens work for the giant of the retail.

About the Author

Article by the editorial team of DiegoCoquillat.com. It has professionals both in the field of hospitality, gastronomy and tourism, and new technologies and innovation.

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