When it comes to hotel food and beverage, the future appears to be digital.
Digital kitchens -- also known as ghost or virtual kitchens -- have gained significant traction amid the pandemic, as diners remain homebound and demand for food delivery surges. The concept typically involves a shared kitchen space, which is utilized by a variety of delivery-only brands looking to leverage economies of scale.
Typically, these delivery-only brands don't have a traditional storefront, instead solely fielding orders through their own online and mobile channels or via third-party delivery apps like UberEats or GrubHub.
While a variety of digital kitchen startups have flooded the market over the past few years, one of the more high-profile players to have entered the space -- C3 -- has a hotel connection: It's helmed by SBE founder Sam Nazarian.
C3 launched as a joint venture among SBE, Accor and real estate group Simon Properties in 2019, and it has put its own spin on the model: It focuses not only on digital kitchens and food delivery but also brick-and-mortar locations in cities like Los Angeles, New York and Miami.
The platform is also differentiated through its own diverse collection of eight culinary brands, which include the Japanese-centric Krispy Rice, fried chicken sandwich specialist Sam's Crispy Chicken and gourmet burger joint Umami Burger. C3 plans to launch 10 more brands this year alone.
"Ultimately, the pandemic accelerated what we had in the pipeline," said Nazarian, who serves as C3's CEO. "Covid advanced the shift in consumer behavior to delivery-only dining, which further prompted hotels and operators to rethink their food and beverage programs. The pandemic really exposed how grossly underutilized hotel kitchens are, with most only operating at 15% to 20% efficiency."
According to Nazarian, a single C3 digital kitchen space can support up to eight brands, with each brand able to rake in an estimated $1 million in revenue annually.
"The hotel F&B space is a prime vertical for our digital kitchens," he asserted.
The Graduate Berkeley near the University of California campus will be one of the first to feature a Graduate Food Hall.
In late January, C3 announced its first foray into the hotel sector, joining forces with boutique hospitality group Graduate Hotels. Launched in 2014, Graduate has carved out a strong niche in what it calls "university-anchored" markets, with 28 properties currently open in the U.S. and an additional eight hotels, including two in the U.K., set to debut by the end of 2022.
Full-service food and beverage outlets have long been central to the company's strategy, with many Graduate properties housing "destination" restaurant and bar venues as well as outposts of the brand's signature coffee shop, Poindexter. A robust delivery program, however, has long been on its wish list.
"Honestly, as far back as a year and a half ago, we were thinking that delivery could be even be bigger than our standalone destination-dining options," said Graduate Hotels president David Roche-fort. "I've always said, there's nothing more quintessential to the college experience than food delivery. And we're still real estate developers at our core. So, we're always looking at whether we're producing the most revenue per square foot."
Enter Graduate Food Hall, a C3-Graduate alliance billed as a new "delivery-focused, hybrid digital kitchen concept," under which C3 will take over on-premises food service across Graduate's portfolio (Graduate will continue to operate its own bars).
As part of the Graduate Food Hall rollout, Graduate's hotel kitchens will be converted into multibrand digital kitchens, with each kitchen able to host up to six brands at one time. Graduate and C3 expect to have their first Graduate Food Halls up and running at the Graduate Richmond in Virginia, Graduate Berkeley in California and Graduate Tempe in Arizona within the next few months, with the concept set to expand to the majority of the Graduate Hotels portfolio by the end of this year.
Each Graduate Food Hall will offer delivery and takeout as well as dine-in options.
"You'll still be able to have that tableside experience, but on your menu, you're going to actually see all of these different concepts and outlets," said
Rochefort. "And then, obviously, we'll have the virtual component, through which each brand will have its own standalone, local presence."
Graduate Food Hall deliveries will be serviced by third-party vendors. According to Rochefort, having C3 spearhead relationships with third-party delivery apps, many of which have a reputation for charging restaurants high fees, has proven hugely beneficial.
"C3 negotiates these national contracts with a third party on a scale that is so much larger than ours," said Rochefort. "We were once close to signing our own deal with a third-party app, but the deal that C3 was able to negotiate was probably 35% better than the deal we were going to be able to get."
Meanwhile, C3 is currently in the process of developing its own delivery app, which SBE's Nazarian said will help "streamline" the process, allowing all orders from any C3 brands to be placed on a single ticket and picked up from one location.
Still, despite delivery's significant upside, Nazarian is convinced that C3's dine-in and brick and mortar components are integral to the company's long-term success.
"I don't believe many of these new virtual-only concepts will survive in a 'post-pandemic' world, when delivery stabilizes and restaurateurs shift their focus back to creating memorable in-person experiences," said Nazarian. "Ultimately, personal experience and a connection to a brand is necessary for its survival and longevity."