Ghost Kitchens? Virtual brands? Food halls? These days, the terms used to describe the restaurant business can be very confusing.
We have produced this complete guide to ghost kitchens. We want restaurant owners and operators to better understand ghost kitchens and their benefits to restaurants. We explore the meaning of a ghost kitchen, the pros and cons of a ghost kitchen and the different ghost kitchen models.
What is a ghost kitchen?
A ghost kitchen is a type of cooking facility where multiple brands produce food. These facilities are usually for delivery only and are often located in warehouse districts. They can also be in strip malls and more heavily trafficked areas. While ghost kitchens are usually delivery only, some of them offer pickup. These facilities are also called a delivery-only restaurant, virtual kitchen, shadow kitchen, commissary kitchen, cloud kitchen or dark kitchen. There are even hybrid models where limited seating is available within a ghost kitchen, often referred to as a food hall.
Restaurants have embraced ghost kitchens because of the cost. A traditional brick-and-mortar restaurant can cost hundreds of thousands of dollars to renovate, and thousands of dollars a month to operate.
A ghost kitchen reduces costs and creates an easier barrier to entry. Often, the larger ghost kitchen facilities already have fulfillment and logistics built into the operation. Restaurant operators only have to focus on cooking and marketing.
Where does the term ghost kitchen come from?
The term ghost kitchen was first used in 2015 in an NBC New York article. The network was investigating restaurant listings in Seamless and GrubHub restaurants where the addresses did not match with a city database. They were termed ghost kitchens. The report led to changes in the way listings were managed on the delivery apps and the term ghost kitchen stuck.
The idea of a ghost kitchen, where a facility produces and transports food, is not new. According to legend, Queen Margherita of Italy was visiting Naples and was tired of royal food. She wanted to eat food from the local population. Raffaele Esposito, a local chef, cooked several pizzas in his kitchen, and the pies were delivered to the queen. A letter was later crafted and sent back to the chef. It read: “Most Esteemed Raffaele Esposito, I confirm to you that the three kinds of pizza you prepared for Her Majesty were found to be delicious.”
Since 2020, and the start of the pandemic, ghost kitchens have exploded. According to a recent survey, the ghost kitchen market was estimated at $43.1 million in 2019 and is forecast to be $71.4 billion in 2027. Major brands like Wendy’s, Nathan’s Famous, Quiznos, and Taco Del Mar are utilizing ghost kitchens.
Wendy’s has used ghost kitchens to quickly grow a presence in Canada.
“Building a brick-and-mortar restaurant in every neighborhood across Toronto may not always be possible,” said Stephen Piacentini, vice president, global restaurant development and recruiting at The Wendy’s Company. “(With a ghost kitchen), we can bring Wendy’s into dense, urban areas without the overhead of operating a traditional restaurant space.”
What are the pros and cons of a ghost kitchen?
- Lower overhead cost: When compared to traditional brick-and-mortar space, a ghost kitchen is much less expensive. Often a restaurant rents the space by the hour, much like a commercial kitchen, but some ghost kitchen companies offer monthly rental packages. The price, like real estate, vary greatly depending on the location
- Expand established brand with limited costs: For an established brand, ghost kitchens are a great way to expand. When someone scrolls through the offerings in a third-party delivery app, the person easily recognizes the name. There is no need to worry about brand recognition. The brand can move into a new area with limited costs when compared to opening a new location.
- No front-of-house expenses: Because a ghost kitchen is designed for delivery, a restaurant does not have to pay wait and customer service staff. The cost to operate a ghost kitchen is significantly less than a brick-and-mortar location. The restaurant only worries about paying operations and kitchen staff.
- No need for customer parking: With a brick-and-mortar location, a restaurant must provide ample parking. That is why restaurants are often located in stand-alone buildings or strip malls. With a ghost kitchen, the restaurant does not have walk-in traffic, so it does not have to worry about providing enough parking.
- Increased flexibility: A ghost kitchen is not tied to any particular décor or theme. The menu for a ghost kitchen can quickly change and adapt to the market. If customers are demanding wings and not burgers, a restaurant can adapt and modify the menu. There is no need to completely remodel the restaurant.
- Ability to meet online demand: Off-premises dining is the future. Fewer and fewer people are interested in sitting down and eating a meal. They want to order food and watch a movie at home. They would rather have a dining experience at home than in a restaurant, and the industry needs to adapt to that fact.
- Good profit margins: Profit margins have the potential to be good for a ghost kitchen operation. Because the operating costs are low, a restaurant can make money with a ghost kitchen.
- Hard to market: Unknown brands can have a hard time building a customer base. A brick-and-mortar restaurant has a physical location, something people can see and experience. A ghost kitchen brand only exists on the Internet and customers have a hard time connecting and trusting a virtual brand. That makes marketing a challenge.
- Less connection with customers: It is easier to make a connection with customers when a restaurant has a physical location. The owner or manager can interact with customers directly. That is not the case with a ghost kitchen brand. The only connection is the online ordering experience and the food. It can be hard to create a positive connection with customers through a ghost kitchen buying experience.
- Hard to get customer feedback: When a customer at a physical location has a bad experience, the person can speak with the manager or waiter. The same is true for a positive experience. It can be challenging to get any type of feedback from customers through a ghost kitchen, especially if the restaurant is using third-party delivery. The restaurant has no direct contact with the customer.
- High cost of third-party delivery: Third-party delivery companies charge 20-30% for delivery. That can eat into the already thin margins of a ghost kitchen operation. In addition, much of the interaction with customers is out of your hands. A restaurant is relying on a gig worker to interact with customers and provide a great customer experience.
- Lack of data from third-party delivery: Third-party delivery is not an open platform. The companies do not provide customer contact information, so the restaurant has no way to engage the customer after an order is completed. That can make it very hard to grow a ghost kitchen brand.
- Image of ghost kitchens as being shady: A lot of people have the perception that ghost kitchens have something to hide and are not honest. That is in part because the concept is new, and people are used to seeing the physical location of a restaurant. That perception can be hard to change and creates hurdles to growing a virtual brand.
- The menu must be designed for delivery: A ghost kitchen menu must be designed for delivery. A meal that does not travel well cannot be sold through a ghost kitchen, so that severely limits the types of food that a ghost kitchen can cook and sell. Wings, burgers and tacos are often popular ghost kitchen brands.
- Not eco-friendly: Delivery requires a lot of packaging and some customers, especially younger ones, are turned off by the use of single-use containers. Many people want to buy from a brand that considers the environmental impacts.
Are ghost kitchens profitable?
Like a lot of things — it depends. Some large brands, like Mr. Beast and David Chang, have been very successful with ghost kitchens and virtual brands. The Brinker International virtual brand It’s Just Wings has grown tremendously, and the company wants to continue to grow the concept.
At the same time, many people who have opened a brand out of a ghost kitchen have not found success. They have had a hard time getting traction from a virtual brand and many of them have had to close. While working out of a ghost kitchen is less expensive, an operator must overcome other hurdles.
Carl Orsbourn, author of the book, Delivering: The Digital Restaurant, believes a restaurant can make money and be profitable through a ghost kitchen but it is not easy. The operator must focus on keeping costs low and understanding the third-party delivery marketplace. The restaurant also must find a way to convert third-party delivery orders to first-party customers, where the customer orders off the restaurant’s website. It is a very different way of operating a restaurant.
“You have to ensure that you have established third-party optimization and have a solid, frictionless first-party interface,” Orsbourn said. “In addition, you must have a budget that can appropriately support the necessary levels of digital marketing to acquire and retain customers so that your operation can at a minimum achieve $500,0000 annually.”
Shawn Walchef, who owns Cali BBQ Media in San Diego, said a ghost can be a great way to expand and existing concept, but it is more challenging to start a restaurant operation out of a ghost kitchen. He has operated his restaurant for over a decade and used several ghost kitchens around the city to expand.
“If you operate an established and successful restaurant brand, ghost kitchens are the perfect vehicle to expand and test your concept in new emerging markets,” Walchef said. “However, if you are new to the restaurant business, opening a ghost kitchen as your first brick-and-mortar store can be extremely risky if you do not have access to seasoned experts to rely upon to get you through the complexities of operating a digital hospitality business from scratch.”
What are the types of ghost kitchens?
According to Orbourn, and co-author, Meredith Sandland, there are four main types of ghost kitchen models. The lines at times between virtual brands and ghost kitchens can get a little blurry.
Kitchen as a service: A kitchen as a service is a fully built-out kitchen, and the restaurant rents space. The restaurant focuses on creating and selling food within the kitchen. Some ghost kitchens help the restaurant market the brand and have their own marketplaces, but in general, these types of facilities are real estate companies. Kitchen United and Cloud Kitchens fit into this category.
Forward Logistical Points: These are basically micro-fulfillment centers for the restaurant industry. Food is prepared at a different location and kept warm in the facility. The operations are an inexpensive way for restaurants to expand their geographical footprint. All Day Kitchens is built under this model.
Virtual brand of an existing kitchen: Wow Bow, Next Bite and others are established under this model. These companies supply either the menu or the food and an existing restaurant fulfills orders. The brand only exists online and in the kitchen. It is a virtual brand. The idea is to help restaurants expand through under-utilized kitchen space and delivery.
Vertically integrated virtual restaurant: A fully integrated virtual restaurant controls every point of the process from ordering to delivery. ClusterTruck is the best example of this model. The company developed the software and controls the entire operation including the gig drivers. The company offers a variety of brands through the ghost kitchen.