Operations

Virtual Restaurants on the Rise as the Coronavirus Recovery Slows

Forced innovators succinctly describe entrepreneurs in the restaurant industry who are fighting their way through the pandemic of 2020. Sink or swim. Create or perish.

It is estimated that 1 in 6 restaurants have permanently closed and that the end of the year will see 100,000 restaurants in the U.S. shut down for good. The estimated number of independent restaurants that may permanently close is even greater, a startling 85 percent.

The digital age has offered a lifeline for those willing to go dark—ghost or host kitchens that offer low overhead and a piece of the quickly growing delivery pie. By 2025, the global online food delivery market is set to reach $200 billion, up from $94.4 billion in 2019. In the U.S., the $17 billion online food delivery market is projected to reach $24 billion by 2023.

Virtual restaurants are now growing at an unprecedented pace giving rise to a variety of options in the cloud arena. Nation’s Restaurant News (NRN) reports that ghost restaurant sales are expected to increase by 42 percent this year.

Ghost Kitchens

Ghost or cloud kitchens come in several different forms. One is the commercial facility built specifically to produce food for delivery for virtual restaurants. Known as commissary kitchens, these warehouse-like structures contain multiple small kitchens designed for 10 to 20 delivery-only restaurants that rent the space. Some current companies in this segment include CloudKitchens, Kitchen United Mix, Virtual Kitchen Co, Reef Kitchens (cloud kitchens in parking garages), and DoorDash Kitchens. Grubhub, Uber Eats, and Deliveroo have also all set up their own ghost kitchen locations, encouraging their restaurant partners to incorporate delivery-only concepts.

When working with their third-party delivery partners, some restaurants are using their existing kitchen to create multiple delivery-only brands under one roof. Several major chains as well as independent operators have developed this strategy as they search for opportunities to increase revenue.

Rick Scott, the owner of a café in Brooklyn, called UberEats when sales started slowing down. He learned that there was a demand for specialty burgers in the area that was not being fulfilled. The Caribbean-inspired Gerizim Burger Factory was born on the Uber Eats platform. Scott told U.S. News, “It was a 90-degree turnaround. It changed our whole business.” He reported that sales increased by about 75 percent almost immediately.

Brinker International, the parent company of Chili’s and Maggiano’s Little Italy, has come out with its first virtual brand. NRN reports that It’s Just Wings is made in over 1,000 of their restaurants and that CEO, Wyman Roberts, believes the virtual brand could make $150 million in the first year of operations.

Smokey Bones, the fire-grilled food specialists that were sold off by Darden Restaurants Inc. over 10 years ago, is now offering their popular barbeque dishes in Chicago via Kitchen United Mix. They have also launched two additional delivery-only brands at all of their 61 locations. The Wing Experience and The Burger Experience will also be available in markets where there is no Smoky Bones’ brick-and-mortar location by partnering with ghost kitchens.

Bloomin’ Brands Inc. is using their Tampa-based Carrabba’s Italian Grill casual-dining concept to test their new virtual chicken brand, Tender Shack.

Granite City Food & Brewery, with 30 restaurants in 13 states, is preparing Famous Dave’s barbecue for delivery while some Famous Dave’s locations are producing grub for Hayward’s Hen House, a virtual concept.

Confusing? Absolutely. But wait, there’s more.

Host Kitchens

Kitchens in already established restaurants are renting their space out and establishing themselves as host kitchens. Foodjin provides a platform that allows restaurants to create a profile, set available time blocks, and list their rates. Chefs then have the opportunity to rent the space. Foodjin takes 20 percent of all bookings.

Some brands have opted to go for bust and delve into both types of virtual spaces. Nathan’s Famous—the popular hot-dog chain from New York City, has partnered with Reef Kitchens as well as Franklin Junction. The latter is an Atlanta-based company that matches restaurants with host kitchens, ensuring the targeted market and the right space is aligned with the specific brand and its requirements.

A few of the brands that are now cooking and providing Nathan’s Famous signature hot dogs for delivery include Ruby Tuesday and Frisch’s Big Boy.

Virtual restaurants offer brands unlimited growth potential, minimal startup costs, and increased margins. All this model is missing is the ambiance, entertainment, and a gathering place for consumers interested in connecting with others. For those that grew up in the age of dinner out on Fridays, you may want to make a point to visit your favorite haunts before they become ghosts.

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