If you own a restaurant or are a chef, you have likely implemented creative strategies to bolster business during COVID-19 and beyond. If you are considering a new business model, a ghost kitchen may be your answer. Regardless, you want to be aware of this dynamic trend and its implications for the culinary world.
A ghost kitchen is a dedicated commercial facility where tenant chefs prepare restaurant meals for takeout and delivery. These kitchens rent space to restaurants and chefs who typically offer delivery service through third-party apps such as Grubhub. Customers order food under the restaurant’s name in the app and often have no idea the meal is produced in a facility other than a brick-and-mortar restaurant.
Also called virtual or cloud kitchens, these kitchens have become a growing business to serve off-premise dining. One leading provider is Kitchen United, which markets itself as a solution to promote restaurant growth. It has opened facilities in Pasadena, Scottsdale, Austin, and Chicago and has more locations scheduled.
Ghost kitchens seek to offer restaurants and chefs a turnkey solution that often includes:
- Dedicated kitchen space
- Standard commercial kitchen equipment
- Secure facilities and storage
- Utilities, pest control, trash, and cleaning supplies
- Onboarding and permitting support
- Marketing support
An Appetizing Trend
When you order from an app such as Uber Eats or DoorDash, your meal might be prepared in a shared commercial kitchen. COVID-19 is accelerating this trend. According to ABC News, virtual kitchens produced only 5 percent of food deliveries in 2019, but 2020 share has spiked to 20 percent.
Third-party delivery businesses such as Uber Eats and Grubhub are aggressively pushing the virtual kitchen model. Using trend data based on customer searches, they provide marketing concepts to targeted restaurants in the hopes of wooing them to try going virtual. However, the restaurant must decide whether to pursue the idea and assumes the risk for implementation.
The Cloud Kitchen Business Model
Even before the current pandemic, shared commercial kitchens offered an attractive business model for the right restaurants and chefs. Restaurants have expanded into the delivery space while maintaining a separate kitchen at a dine-in location. Chefs and bakers have gone entirely virtual to start businesses and launch their brands.
This model should not be confused with virtual restaurants, which is the widespread practice of offering third-party delivery service from your restaurant or food truck.
As a restaurant owner or chef implementing a shared kitchen, you would follow these basic steps:
- Rent space in a shared kitchen
- Sign up with a delivery app such as Grubhub or DoorDash
- Obtain delivery customers
- Produce meals or other food items for delivery
- Fulfill app orders from the shared kitchen address
Taking Your Brand Virtual from a Ghost Kitchen
Ghost kitchens are fueling the rise of virtual brands. These culinary brands exclusively offer online delivery service. Some are from chefs who create their businesses strictly for takeout and delivery. They often target a niche such as gourmet burgers or specialty gluten-free baked goods. Other brands are from established restaurants seeking to dominate their market online. Their virtual brands operate independently from their storefronts serving diners and in-person takeout.
Well-known chef and entrepreneur Eric Greenspan is a leading business champion of shared ghost kitchens. He has leveraged the model to launch a virtual food court featuring several brands that have never seen brick and mortar. Customers can order items for third-party delivery on the food court website or via apps.
The Cloud Chef Advantage
Startup costs for chefs wanting to open restaurants are often prohibitive. Before you invest everything in a concept, you can pilot it using a cloud location for far less expense. Though you are forsaking the dine-in experience during this phase, you save the cost of a lease, infrastructure, and staff. If the concept fails, you can retool and probably salvage your business.
Many established restaurants leverage their existing staff and infrastructure to expand delivery service. However, your business might outgrow your storefront resources, so a ghost kitchen is a reasonably low cost option to expand. Perhaps you are planning to sell packaged products and need dedicated production facilities. In these cases, a virtual solution might help you reach the next level. It also frees up restaurant resources to focus on the dine-in customer experience.
Culinary businesses that might find the virtual model feasible include:
- Chefs and bakers building their brand
- Chefs supplying food to other businesses
- Restaurants facing closure due to COVID-19
- Established restaurants creating new online brands
- Restaurants expanding their delivery radius
- Food trucks looking to increase production capacity
Disadvantages of Ghost Cuisine
An app can’t replace the experience of walking into an inviting restaurant and staying for a delicious meal. A storefront offers uniqueness and limited competition. In contrast, a delivery app serving a densely populated area is more like a supermarket. Your business competes in real time against several others with the same cuisine. You need brand recognition or another differentiator to stand out.
You are also dependent on the ghost kitchen facility’s location and sound operation. The average delivery radius is five miles or less, so you want to ensure it serves your target neighborhoods. Further, you need confidence that the kitchen is securely funded and managed and will not close on you.
Using a virtual kitchen to increase delivery volume might save your business in a difficult climate. However, you can take a loss due to third-party fees. According to NBC’s Today, third-party apps such as Uber Eats command up to 30 percent commission plus additional optional service fees. You want to choose your delivery service carefully and only pay for the features you need.
Are Outsourced Kitchens in Your Future?
These kitchens are a godsend to many restaurants during these challenging times. They enable businesses to stay open and serve their communities in novel ways.
However, they are not right for everyone. If you are considering renting commercial food prep space in a ghost kitchen for online delivery, research it carefully. Like other hot trends, this one is already competitive. No matter which business model you favor, shared kitchens should be an option for years to come.