The coronavirus pandemic has shaken up the restaurant industry in unprecedented ways, forcing restaurants around the world to either shut down temporarily, or adapt to a takeout and delivery model exclusively.
Because of the need to find new and creative ways to drive revenue, the future of restaurants may lie in a trend that started several years ago – ghost kitchens and ghost restaurants.
While no one knows exactly what the post-pandemic restaurant industry will look like, ghost kitchens certainly remain a popular option. For instance, Creating Culinary Communities (C3), a food hall and virtual kitchen subsidiary of SBE Entertainment Group, is currently on a hiring spree and plans to open 138 ghost kitchens before the end of 2020.
Ghost kitchens don’t look like a typical restaurant – these particular haunts have no tables, chairs, host stands, bars, or patio. They do, however, still abide by health standards, employ a slew of cooks, and operate through a fleet of delivery couriers.
With our new reality of delivery first, dine-in second, the idea of ghost restaurants and ghost kitchens makes sense during the pandemic – and could potentially stick around for good.
In this guide we’ll go over:
Ghost kitchens – also commonly known as cloud kitchens or dark kitchens – are professional food preparation and cooking facilities, set up specifically for delivery-only meals. These kitchen operations are generally shared commissary spaces located outside the walls of a typical brick-and-mortar restaurant. And while they contain everything a typical restaurant kitchen would, they don’t have a dining area for walk-in customers. Generally, restaurants that use a ghost kitchen still have a physical location somewhere else for dine-in service or takeout, but the ghost kitchen is used to produce delivery meals.
In contrast, a ghost restaurant is a restaurant that only offers delivery from its brick and mortar location. Customers can order meals over the phone, online, or through third-party apps, but there is no option to enjoy a dine-in meal from a ghost restaurant brand.
Put simply, the main difference between a ghost restaurant and a ghost kitchen is that a ghost kitchen may not be a restaurant brand in itself and may contain the kitchen space and facilities for more than one restaurant brand.
Many restaurants will use commercial kitchens that have no seating area to facilitate their delivery-only business. Space in the kitchen is maximized so that there’s more room for food prep and food output – this also enables the possibility of multiple menus to share the same commercial space.
Since many restaurants have their dining rooms roped off right now, they may opt to temporarily close their location and expand their operation into delivery only through a ghost kitchen. This allows them to increase output and remain open in some form.
As on-demand delivery flourished even before the pandemic hit, customers have come to expect that food delivery be effortless, available at all hours, and at their fingertips. The online ordering business overall was worth $5 billion for the first two quarters of 2018 alone, and some experts predict that the food delivery market could be valued at $365 billion by 2030.
Ghost kitchens allow restaurants to expand their online ordering business by increasing their exposure on third-party apps. For instance, a Mexican restaurant may use a ghost kitchen to launch a separate Tex-Mex brand, giving the restaurant a way to reach even more customers without opening a whole new location. In the wake of COVID-19, this helps restaurants better adapt to the increasing demand for delivery.
Most restaurants have their customer-facing storefronts on busy streets, where parking can be an issue for couriers – especially in major urban centers. As a result, couriers are often faced with the tricky task of securing a spot close to the venue that won’t result in a ticket, but also won’t have them walking 10 blocks just to pick up an order.
In contrast, a ghost kitchen can operate with less space and doesn’t need to be in a high-foot-traffic, popular location. This means that parking is less likely to be an issue for delivery couriers in these quieter areas. These lots are also typically optimized for flow, making it easy for drivers to arrive, wait for their order, and drive off to their delivery location with ease.
Pre-pandemic, it’s estimated the U.S. restaurant industry was generating between 22 and 33 billion pounds of food waste each year. Not only is that a hit to a restaurant’s bottom line, but it’s environmentally unsound.
Ghost kitchens have the unique opportunity to minimize food waste and pare down inventory costs to be more economical. For example, restaurateurs that operate multiple brands can have all their restaurants in the same ghost kitchen, which allows them to strategically craft menus to share and reuse ingredients. Moreover, staff can be trained to prepare dishes according to dining style, but the nuts and bolts of the dishes remain the same across brands.
Ghost kitchens aren’t exempt from the typical complications that come from offering delivery. From cold food due to poor takeout food packaging, to order errors and long wait times. Like all delivery operations, these are challenges felt by all delivery-reliant restaurants, but may be amplified when delivery is the primary or only revenue source.
Lending truth to the phrase that there can really be “too many cooks in the kitchen,” multiple cooks, dealing with multiple brands and orders can create inconsistency, even in spite of ingredient standardization. Unless your back of house is divided in the kitchen between different menus, your cooks need to be trained at making many more dishes – and their accompanying modifications – than a single restaurant and kitchen.
This could result in a lack of consistency, or at the very least make it difficult to maintain specific brand and food standards. And a lack of consistency can compromise your ability to secure repeat business.
Ghost kitchens are more useful to restaurants looking to expand their delivery operation and reach more customers at a lower cost. For new restaurants that don’t have a foothold in the business or an existing audience to sell to, this could be a challenge.
A ghost kitchen’s appeal is the high volume, so knowing that it’s all about scaling an existing operation, the model may not make sense for a new restaurant.
A ghost restaurant is just one restaurant brand, with its own brick and mortar location – not rented through a third-party kitchen – and currently only offering delivery.
Also known as the digital restaurant, virtual restaurant, or delivery-only restaurant, this concept is the natural offspring of over-saturated delivery apps and may well find a home in the new normal, post-COVID world.
At first, ghost restaurants emerged out of sheer competition and the challenge to meet delivery needs and the demands of a brick and mortar dinner service. But since the beginning of the pandemic, many restaurants have become de facto ghost restaurants, anyway.
Ghost restaurants, by nature, operate in a smaller physical space and don’t require as many people to staff them. No front-of-house staff means lower operating costs, and a smaller space means lower rent costs.
These major cost savings give ghost restaurants some financial flexibility to operate and adapt to the changing circumstances of COVID-19, such as shrinking revenue.
The cost of rent in most city centers will likely continue to rise and the commercial real estate landscape will look very different once the pandemic is under control. Currently, it’s estimated that at least one in four restaurants will never open again, and because many office-based businesses are moving to work-from-home models permanently, we may see a shift in what makes a good location for a restaurant.
For ghost restaurants, there is more ownership over where you set up and operate your shop, and the opportunity to explore new neighborhoods with lower commercial rents
Because ghost restaurant menus exist solely online, changing, shifting, and adapting to food trends is much more seamless. There’s no redesign or re-print of menus needed – restaurants can simply adjust what’s available online to reflect their new offerings.
Since the move to takeout and delivery has already forced many restaurants to adjust their menus to be as efficient as possible, this also means that food trends – like Hawaiian poké bowls, sushi burritos, or pandemic comfort food – are easy to introduce or remove when consumer preferences change.
Before the pandemic ever hit, the restaurant industry was already plagued with glass-half-empty stats. It’s reported that 60% of restaurants close or change ownership in the first year of business – 80% within the first five. For physical restaurant locations with hundreds of thousands of dollars on the line, opening a restaurant is a risky endeavor by nature.
Ghost restaurants, on the other hand, come with a much lower risk because of the reduced opening costs. Florida restaurant chain Kona Poké was planning to open up to seven corporate locations before the pandemic hit and has since pivoted to opening 20 ghost kitchen locations instead.
Because opening up a ghost restaurant is only a fraction of the cost of a typical restaurant, the cost of failure is lower too, meaning if the concept fails, the investment lost isn’t as high.
For ghost restaurants, ironically, the biggest challenge is being visible. Without a physical storefront, all of their marketing must be done online. And it’s a crowded market, especially on third-party delivery apps where every restaurant is vying for a customer’s attention.
As a result, ghost restaurants need a very different kind of marketing plan in order to drive new business. And in some cases, they may be limited to the expensive marketing solutions available from third-party apps.
Reputation management can also be a challenge because a ghost restaurant’s reputation is largely limited to the memory of its convenience and food quality. If a problem occurs with a guest’s meal, a restaurant owner may not discover the issue until a negative review pops up online after the fact. This means if something is wrong with an order, there’s little that ghost restaurants can do to redeem the customer experience at the time.
This is a far cry from the typical dine-in experience, where a restaurant has the chance to make a lasting impression on guests with exceptional service and ambiance. If there’s a problem, the owner can simply send over a manager to chat with a guest one-on-one.
And because the experience is far less hands on, it can be particularly challenging for fine dining restaurants that charge a premium for exceptional service, like sending over a sommelier to pick out just the right wine to go with your meal. For ghost restaurants, that special experience is entirely confined to a takeout box.
It’s no secret that restaurants make a large portion of their sales from marked up alcohol. But in most places, ghost restaurants don’t have this option. Even though many places in North America have (at least temporarily) revised their liquor laws for delivery and takeout, ghost restaurants have to find other ways to make up for the loss of revenue because, even if they can offer alcohol to go, it may not be as frequent with takeout as it is with dine-in.
Additionally, some restaurants are turning to an additional COVID-19 surcharge to help pay for PPE and cleaning supplies to keep dining areas and patios safe and operational. Though ghost restaurants can technically bump up the cost of their menu items, the additional surcharge doesn’t make a lot of sense as customer safety is less at risk when ordering from a ghost restaurant.
There remains a lot of uncertainty around how COVID-19 will change the restaurant industry and consumer behavior in the long term. For now we’re seeing tightened wallets and a lack of comfort with dining out. A recent survey showed that only 51% of people plan to dine out as often as they did pre-pandemic.
In areas around the world that continue to shelter in place or that are only inching towards reopening, many restaurants are now, in one way or another, a ghost restaurant.
That said, disruption often fuels innovation. Ghost kitchens have given restaurants an avenue to test out new concepts, experiment with different business models, and adapt to a new future that’s less reliant on the dine-in experience.
As COVID-19 continues to change the landscape of the restaurant industry, ghost kitchens and ghost restaurants have distinct benefits that allow them to continue to operate – or they’ll be one of the stepping stones to a completely different restaurant industry.