Cost Reduction

The Future of the COVID-Accelerated Ghost Kitchen

Ghost kitchens were on the rise even before the pandemic shook the restaurant industry to its core. Now, every day we hear about yet another full-service restaurant going the way of the dodo and morphing into a ghost.

Let’s take a look at the latest players in this field and what the industry predicts for the long-term success and sustainability of this model.

What Is a Ghost Kitchen?

Simply defined, a ghost kitchen is a delivery-only restaurant. In one model, a restaurant rents space in a shared commissary, along with several other delivery-only restaurants. Another rising model is setting up a BOH ghost kitchen within an existing establishment. Still another venue includes full-service restaurants transforming into a commissary.

One of the latest to enter this space is Cali Comfort BBQ.

Just one year ago, California-based Cali Comfort BBQ was a full-service 5,700-square-foot restaurant. Then, COVID-19 struck, and their in-house dining that once claimed 70% of their sales went to a digital-only model.

Owner, Shawn Walchef, told Restaurant Hospitality that, by the end of 2021, construction will begin that will convert 60% of the restaurant into a commissary and smokehouse. Eight smokers will be dispensing Cali Comfort BBQ and other concepts to virtual restaurants located across San Diego County.

Reopen for Delivery

Big players in this space include Cloud Kitchens, Kitchen United, and Kitopi. Third-party food delivery companies are also making their mark, including Deliveroo, Uber Eats, GrubHub, and DoorDash who have all opened their own ghost kitchens and encouraged their restaurant partners to do the same.

As restaurants closed around the country, temporarily or permanently, DoorDash saw a need and an opportunity and started their Reopen for Delivery program. This initiative involves matching ghost kitchen operators with the restaurants that have shut their doors.

The first restaurant to claim a spot in the program is Krazy Hog BBQ in South Side Chicago. Closed since March of 2020, the barbeque brand is ready to start up again as a delivery-only brand.

Permanent Changes to the Restaurant Business Model

According to Euromonitor, the global ghost kitchen market could reach $1 trillion by 2030. The international firm also predicts that ghost kitchens could capture 50% of takeaway and drive-thru foodservice, 25% of dine-in foodservice, as well as 35% of ready meals, and 30% of the prepackaged ingredients for the cooking segment.

That’s a whole lot of the foodservice pie.

The firm’s Global Food and Beverage Lead, Michael Schaefer, also noted in a recent webinar that this format is accelerating due to the comfort level of consumers, 52% of which would order from delivery-only restaurants. In addition to demand, the growing real estate openings and operators looking for opportunities that require less capital have created the perfect storm for ghost kitchens to fill the void.

Some of the larger chains testing the waters in this space include Chick-fil-A, Bloomin’ Brands, Brinker International, and Wingstop. Top brands, Wow Bao, Dog Haus, and The Halal Guys, are also finding success with this model.

In the U.S., the online food delivery market has soared to $17 billion and is expected to reach $24 billion by 2023. Ghost kitchens are expected to support this growth.

But is there a dark side to this rapid expansion of ghost kitchens and virtual brands?

The Dark Side of Dark Kitchens

When CNBC spoke with Dan Fleischmann, vice president of Kitchen Fund, a venture capital firm, the answer was yes. “You can’t keep just throwing up virtual brands—at some point, there’s saturation.”

While virtual brands differ from ghost kitchens in that they don’t rent from third parties but use their own existing kitchen to create additional delivery-exclusive menus, dark kitchens are witness to the same trends. Every week, more restaurant brands are announcing their foray into the dark kitchen segment. And as the demand increases, so do the prices.

One would think that a ghost kitchen would have fewer moving parts and therefore be more manageable. But those that have entered the space have found that profitability requires careful attention to details. Profit margins are thin, and, in many instances, third-party delivery systems are taking a chunk out of those profits.

One operator reported opening two ghost kitchens. One was in a multi-brand facility and the other was in a restaurant that had temporarily closed. The costs associated with the multi-brand ghost kitchen left little, if any, profit for their company.

As with most ventures in life, there are two sides to the same coin. One believes ghost kitchens will be the wave of the future for restaurants. The other sees diners ready to return to their favorite eateries and an associated falling demand for these ghosts as the country recovers.

Time will tell.

There are currently 1,500 ghost kitchens within the U.S. China leads the global space with 7,500.

Restaurant Dive took a deep look into the ghost kitchen model and created a ghost restaurant calculator that crunches the numbers to determine profitability.

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