Ghost Kitchens Continue to Expand, Offering Chefs Prime Real Estate at a Fraction of the Cost

It’s hard to believe, but ghost kitchens have only been with us since 2013, less than a decade. Have you ever been to one? Probably not. But the odds are good that one of your orders placed online or through a food delivery app came from a ghost kitchen.

Let’s take a look at who the big players are in this food delivery segment and where they’re taking us as delivery and carry out become the new normal.

The Rise of Delivery

For the first time in their lives, many consumers ordered a restaurant meal online or via a mobile app in 2020. Their choices were minimal that year as restaurants closed down. If they wanted to enjoy one of their favorite dishes from their local eatery, delivery, maybe carry out, and drive-thru were their options.

According to Restaurant Dive, in 2021, carryout still makes up 38% of restaurant orders and, despite its growing presence, delivery only accounts for 8% of restaurant traffic.

If ghost kitchens have anything to say about it, that number will continue to rise as they significantly impact the delivery space.

Ghost, Dark, and Virtual Kitchens

With all the different types of service in the restaurant industry, some confusion exists over what a ghost kitchen is—is it the same thing as a virtual restaurant, and is a virtual restaurant synonymous with a virtual kitchen?

A virtual kitchen is a restaurant’s kitchen. In addition to preparing meals for the restaurant it resides in, the kitchen also acts as a virtual kitchen for other concepts. These menu items are usually sold through a delivery app.

In May 2021, QSR reported on America’s most exciting virtual brands. One of the top brands included MrBeast Burger, which partnered with Virtual Dining Concepts. Due to MrBeast’s (otherwise known as Jimmy Donaldson) massive YouTube fan base, the concept was virtually an overnight success and now lays claim to over 300 locations.

Virtual Dining Concepts (VDC) offers turnkey delivery-only concepts. Restaurant operators choose a VDC brand, and VDC provides the recipes and national supply chain. The service includes branded packaging, marketing support, and a national social media campaign. Restaurants receive online orders and contract with food delivery apps.

Mealco received $7 million in seed funding in January 2021. This startup helps chefs and restaurants create their own virtual brands.

Another one to make the top 57 was Sarah’s Hot Chicken. This brand came out of a Fish City Grill restaurant and was so successful that the chain decided to add it to their other 17 locations.

A ghost kitchen goes by many names, including a virtual restaurant, cloud kitchen, and dark kitchen. It exists only to provide meals ordered online or through a mobile app, or, at least, it used to. Today’s big ghost kitchen players are expanding their presence and services, with some, like Kitchen United, adding kiosks for pickup and even providing in-house seating in some locations.

The industry leaders in this arena include Kitchen United, REEF Technology, and C3—Creating Culinary Communities, to name a few. Investors seem to love these brands. Kitchen United received $10 million and another $40 million in 2019. C3 has received $90 million, $80 million of which came from REEF, and plans to use part of this capital to open 12,000 locations by 2023. REEF has raised an astounding $1.5 billion.

Kitchen United opened its first ghost kitchen in 2017 and now has six locations across the U.S., in Pasadena and San Jose, California; Austin, TX and two in Chicago, IL. Another 10 units are in the works. In addition to brand visibility and delivery, they offer in-person ordering and dine-in seating. These locations contain 10-14 kitchens and support 16-20 brands.

The benefits for restaurants are many. Time to launch can be an average of eight weeks from signing on. The initial investment is $30,000. Staff is limited to chefs, and Kitchen United handles the rest, including taking the food to the delivery driver or customer and cleaning the kitchen.

They continue to expand their offerings based on consumer preferences, adding direct kiosk-based ordering at each location. In the future, more units will have seating. Additionally, the brand has partnered with Kroger and will be setting up ghost kitchens in some of their grocery stores.

In October, the first acquisition occurred in the ghost kitchen segment. Kitchen United acquired Zuul, a ghost kitchen in Manhattan that launched ZuulOS, an operating system designed for ghost kitchens that include virtual brand creation, marketing, a kitchen management system, multi-brand ordering, and more.

As with most delivery models, the question regarding profitability remains unanswered. Time will tell as it’s clear that ghost kitchens will continue to expand across the country, increasing competition and giving chefs the opportunity to operate in once seemingly unreachable markets.

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