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Ghost kitchens help to ease site selection fears


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“Meredith Sandland, COO at Kitchen United, says virtual kitchens make “it easier for anyone to expand, but I think the franchisees will be the primary beneficiary,” allowing them to move toward a capital-light model.

Off the main drag, in a darkened, decrepit building, something stirs. The sound of metal on metal reverberates through the night and the mysterious smells wafting across the parking lot can mean just one thing: a G-G-G-Ghost kitchen!

Ghost kitchens go by many names: virtual restaurant, a dark kitchen, foodservice fulfillment center, shared kitchen or a delivery-only restaurant. But at the core, these new buzzwords are all evolving the traditional commissary kitchen where a crew of cooks and chefs cook or prepare food to be consumed elsewhere.

While most commissaries dice veggies, par bake bread or blend up big batches of soup or sauce for a traditional restaurant, there are a handful of innovative models designed for the burgeoning food-delivery space.

There are two big reasons the model makes sense: real estate prices and food quality.

Anyone developing new locations knows real estate prices are difficult to digest and the competition is fierce. The Commercial Property Price Index from real estate advisory firm Green Street Advisors sits at the highest point on record. According to the firm, prices have ticked up 1 percent in the past 12 months and have even accelerated by 3 percent in the past three months.

At the outset, light industrial areas along highways made a lot of sense for ghost kitchens. Those areas are generally cheaper per foot, but come with one major demographic drawback. People just don’t live in light industrial areas and those that frequent such areas aren’t the affluent, young urbanites who make up the bulk of food delivery orders. It might be cheaper real estate, but if delivery drivers have to waste time driving to where the people are, it’s not efficient real estate.

“In terms of trade area, it’s really about finding areas that have the highest levels of delivery usage,” said Meredith Sandland, chief operating officer at Kitchen United, a startup shared kitchen space with 13 virtual restaurants.

ClusterTruck

A look at some of the cooking stations that power ClusterTruck.

For the first location, the company looked for a younger demographic and dense office population to drive catering orders. In essence, it’s a similar trade area that any restaurant would seek out.

“Those tend to be, frankly, places that are difficult for many brands to build their traditional free-standing models. Any place that is really dense tends to be very difficult for a free-standing model,” said Sandland.

The shared kitchen space is designed for delivery but also has a shared waiting area for delivery drivers to wait and customers to pick up food from any of the 13 restaurants housed within (including one franchised brand). But because there is no need for an attractive storefront or more than a single front-of-house employee, they could cram the kitchen into a less-attractive space.

The marketing is just about to kick off, but through the soft opening, Chief Business Officer Atul Sood said they’re seeing very encouraging order volumes. “One of our restaurant chains said they just bumped their revenue projections here by about 60 percent,” said Sood.

The promising early days got Sandland pretty excited. Before joining the company, she was the chief development officer at Taco Bell. She said the shared kitchen space was the answer to a lot of her most arduous development issues.

“I was looking for a solution like this to build out Taco Bells and it didn’t exist at the time Atul first took me on a tour of the facility. I think my face just lit up because this is what I wanted,” said Sandland.

For franchisees, it could be maybe the first option to grow their operation without major capital commitments, establishing a beachhead in a new market or just expanding affordably to the other side of town.

“Franchisees by and large have provided the capital for restaurant growth for the last 10, 20 years, and this solution allows franchisees to become capital light as well. It minimizes their costs, which I think may usher in a new era of franchise growth,” said Sandland. “This makes it easier for anyone to expand, but I think the franchisees will be the primary beneficiary.”

Driver Joel

Driver Joel making the curbside handoff.

Six minutes old

Chris Baggott, the co-founder and CEO of ClusterTruck, made those same rent calculations. The startup founded in 2015 has six locations stretching from Indianapolis to Denver.

The menu is a collection of “virtual food trucks” ranging from Asian cuisine to burgers and salads, all out of a central kitchen.

Unlike other delivery-only startups, ClusterTruck has its own delivery fleet and some incredible proprietary software to precisely time every aspect of the experience from order to delivery.

“If a driver is 12 minutes away, and the food takes six minutes to cook, we won’t start cooking for six minutes,” said Baggott. “This customer will have their food in under 30 minutes, but the food will only be five or six minutes old.”

That ensures the food spends as little time as possible steaming itself in a delivery bag—one of the chief challenges of delivery. Baggott also found a spot in a prime location in the middle of his six-minute delivery radius in a unique partnership with a parking garage.

It’s not the sexiest looking spot from the outside; it looks like a parking ramp. But it works seamlessly for the model—which Baggot is pondering for franchising or licensing. Drivers tend to stick around because they can pull though the ramp right to the kitchen door and be back on the road immediately with the next order, thus greatly increasing the number of orders they can deliver. And a kitchen in a parking ramp is a heck of a lot cheaper than comparable space with a dining area.

Alex Canter, founder of Ordermark and the fourth generation operator of the famous Canter’s Deli in L.A., said food quality was a big reason for the family’s ghost kitchen tests. The non-franchised restaurant is known for amazing pastrami sandwiches, great breakfast and decadent milkshakes and other deli fare.

“You can really refine and focus on a delivery friendly menu and you don’t have to deliver items that won’t hold up well like milkshakes. A lot of restaurants see this issue,” said Canter.

“We have one virtual kitchen through Cloud Kitchens, then another in Kitchen United. Both are doing really well for us and have helped us expand our delivery reach,” said Canter. “Before, we were limited to the three or four miles around our store, now we’re expanding on the east side of L.A.”

Given the benefits, don’t be spooked by more talk about ghost kitchens in franchising. Just like other non-traditional spaces have become important growth vehicles, the ghost kitchen could be just another model in the mix.

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