Incredibly, 80% of restaurants shut down in their first year. That’s because running a restaurant is capital intensive and involves complicated operations. COVID-19 only made the restaurant industry more volatile, and dealt a devastating blow. During the first 13 months of the pandemic, 8 million restaurant employees were laid off or furloughed, and the industry lost $280 billion in sales, according to the National Restaurant Association. The organization estimates 90,000 restaurants permanently closed.
But the pandemic brought to light an opportunity for the tough restaurant industry. It combines the strategy of financial technology (also known as fintech) with restaurant operations to create new revenue streams — ghost kitchens.
Ghost kitchens are rented spaces where food is prepared. They offer restaurants several benefits. First, those who want to launch a food concept primarily for delivery purposes can do so with ease. Think of a ghost kitchen as a fulfillment center. For example, you can rent a kitchen from Kitchen United or CloudKitchens for your food concept, and it can be up and running in under a month.
As well, ghost kitchens help underutilized space within restaurants become fulfillment centers, which then gives a boost to popular brands entering new markets and helps hungry people get exactly what they want to eat. Brands like Mr. Beast and Mariah’s Cookies utilize this concept.
Finally, ghost kitchens provide customers with multiple food options in one location. How many times have you ordered food from a delivery service, and everyone wanted something different? Ghost kitchens can act as a digital food court, letting users mix and match from top local restaurants in a single order.
Ghost kitchens are estimated to become a $1 trillion business by 2030. Even pre-pandemic, one of the main struggles for restaurants was scalability. While startups in the software business can scale quickly with capital investments, the typical restaurant sits in just one location. A typical non-chain restaurant can reach people only within a 5- to 10-mile radius. That dramatically reduces the opportunity for massive growth and leaves the industry stagnated. Plus, funding for the restaurant and food industry is typically sourced from banks and debts.
While business ideas were already in the works to solve this problem, the pandemic created a space and time for experimentation. As with any catastrophe, new possibilities arrived. The extinction of dinosaurs allowed mammals to flourish, and the 2008 financial crisis allowed blockchain technology to grow. But, the fintech revolution still has not truly reached the restaurant and food industry until it was forced to deal with changes in dining behaviors. Pre-pandemic, people mostly dined in or cooked at home. Pickups and delivery were rare. But the pandemic and stay-at-home orders created a huge increased demand for food delivery.
POS innovation, RIAS, and endless opportunities
Thanks to delivery companies, restaurants stayed alive during the pandemic, and many are doing better than ever. The restaurant industry is always looking for new revenue streams such as delivery and catering opportunities, and people’s new food delivery habits have revealed more potential for innovation on the delivery and point-of-sale end. POS companies have so much data about the performance of the restaurant, and now savvy entrepreneurs are able to monetize it.
At our company One Stop Kitchen, our core is to use the existing infrastructure and improve the utilization rate — which we call restaurant/retail infrastructure as a service. RIAS is highly scalable at a low cost. Rather than building new kitchens from scratch, we tap into a shared fulfillment model that utilizes existing, underperforming restaurant kitchens. Our team works with restaurants to develop scaled-down menus of the most popular items, with packaging optimized for delivery and takeout. It even sets up fulfillment centers at no cost to the brand.
Then, our company helps local restaurants reach new neighborhoods without the upfront investments associated with opening a brick-and-mortar location, allowing restaurants to expand their service radius up to 150 miles. Ultimately, this enables restaurants to scale rapidly, which was previously unheard of in the food industry.
Ghost kitchens present a genuinely scalable model for the traditional, less scalable restaurant industry. The solid competition proves that opportunities for the restaurant industry are endless. Perhaps as more restaurants embrace ghost kitchens, we can start to tip the scales more favorably to an 80% success rate for new restaurants.
About the writer
Vijayaraj Gopinath is the co-founder and CEO of One Stop Kitchen and MayaEats, a Y Combinator-backed company. A serial entrepreneur, Vijay is a leader in the emerging ghost kitchen industry and has helped hundreds of restaurants. Vijay holds a master’s degree in information systems and management from Carnegie Mellon University and is pursuing a graduate certification in artificial intelligence from Stanford University.
Prior to MayaEats, Vijay served as a lead engineer at Google for its child safety programs. Vijay helped develop the end-to-end tech stack to detect, report, and penalize child pornography offenders in the Google infrastructure, saving thousands of children and earning recognition as “national interest” work in the U.S.