Beware, says The Urbane Franchisor, don’t ghost a ghost kitchen
Photo by Nicholas Upton
There’s something stirring in the shadows of the restaurant business, and it’s too early to say if it’s spooky, scary, creepy or perhaps like Casper, friendly. I’m talking about the fast rise of ghost kitchens and other delivery-focused restaurant formats that are flipping the age-old restaurant business model on its head by taking dining rooms, costly high-vis real estate and front-of-the-house staffers out of the mix. If initial reports are true, these foodie phantoms are well capitalized, multiplying quickly and headed right for us.
Delivery is quickly becoming a larger part of the sales mix at restaurants. Keeping guests in the dining room happy is increasingly difficult when they see a line of delivery drivers grabbing orders that are heading to customers outside of the restaurant. In the kitchen, many restaurants are working hard to create space for a second production line to keep the in-store orders flowing on time, even when off-premises orders spike during the lunch and dinner rushes.
Balancing the demands of in-store guests with those ordering remotely is easier said than done, especially if your kitchen or prep space is already maxed out. At this point, restaurant operators need to look beyond their four walls for a solution that balances the demand from in-store diners with those who are chilling at home in their pajamas.
Here’s where ghost kitchens come into play. These delivery-only, multi-tenant kitchen spaces are lean, mean production machines giving restaurant operators a new off-site production space that is entirely independent of their existing locations. Think of these facilities like food trucks that never move, but are located next to desirable areas such as college campuses, office nodes or affluent residential neighborhoods.
Zuul Kitchens recently opened its first ghost kitchen facility in Manhattan, with plans for several more in New York City.
A new formula
In theory, ghost kitchens take away the frustration of municipal permitting, paying regular bills that are rolled into monthly lease rates and, in some cases, even dish duty so cooks and expediters can focus exclusively on executing delivery orders at high volume—no dining rooms to clean or ticked-off guests to soothe.
Another key ingredient of the ghost kitchen formula is that, by renting kitchen space in neighborhoods or buildings that tend to be lower cost and away from Main and Main-type districts, their leases tend to be more affordable and shorter than the 10- or 15-year leases for traditional restaurants.
As rents keep rising amid an ongoing shortage of new commercial spaces, ghost kitchens—on paper—allow restaurant owners to avoid hassles inherent in the restaurant business, while opening the floodgates for high-volume, lower-risk delivery operations. This flexibility gives operators the chance to significantly scale up their off-premises sales without risking the farm along the way.
There are countless ghost kitchen operators out there, with the most prominent being Kitchen United, CloudKitchens and Zuul Kitchens. The first wave of restaurant brands jumping on this bandwagon include Dog Haus, which is up and running at Kitchen United’s first Chicago location, and East Coast industry darling Sweetgreen, which recently opened at Zuul Kitchen’s first Manhattan spot. Results remain to be seen, but this modern day land grab is now underway.
At some ghost kitchens, the facility’s staff expedites orders to delivery providers.
In this murky new corner of the restaurant industry, it’s important to differentiate between ghost kitchens and virtual kitchens, which many industry watchers and business reporters have used interchangeably. They aren’t the same thing. Virtual kitchens are entirely new restaurant concepts created strictly for delivery and run out of an existing restaurant’s kitchen—no new real estate or leases required.
A classic example of a virtual restaurant can be found in Los Angeles at the famous Canter’s Deli. Seeing an opportunity for additional lunchtime volume within their existing kitchen space, family scion Alex Canter started Grilled Cheese Heaven, which is only available for delivery and with a menu purposely designed to survive trips in the delivery car.
Compared with traditional third-party delivery where it’s tough to tell, every virtual kitchen sale is arguably 100 percent incremental to the business. Grilled Cheese Heaven is not a separate LLC, which means there’s no payroll differences, additional staff or separate overhead. It does, however, have separate contracts with third-party delivery providers.
Another is Dugg Burger in Dallas. The burger concept created what it calls the Chicken Sandwich Project, slinging grilled and fried chicken sandwiches and sweet treats all created exclusively for delivery out of its restaurant that had excess lunchtime capacity. This virtual restaurant is classified as a DBA (doing business as), meaning it’s one company with a single payroll and staff. Team members handle the orders as they come in the same, regardless of the concept.
It’s worth adding there’s another form of competition for restaurants that deliver, and it’s even stealthier than a ghost or virtual kitchen. Starting in a handful of cities, the third-party delivery brands themselves are partnering with others to launch their own delivery-only restaurants—armed with hordes of data about what customers want to order in neighborhoods throughout the country.
In Chicago, Grubhub teamed up with Lettuce Entertain You to open a Whole30 diet-focused delivery concept, and that duo is also working with Bon Appetit for another delivery-only kitchen featuring meals created by Bon Appetit’s Test Kitchen editors.
With Google’s backing, Kitchen United has huge growth plans.
To ghost, or not to ghost?
Deciding if a ghost or virtual kitchen is a worthy opportunity for your restaurant brand depends on available kitchen capacity, as well as your goals for the future. If your restaurant is already slammed at various points in the day, adding a secondary production line to produce the same, existing menu or a totally different one designed for delivery will likely create more headaches than profit.
If your existing restaurant’s cuisine has inherent issues surviving a delivery trip, like a concept based on high-end steaks, gravy-soaked French fries or fried fish, developing a new, delivery-only restaurant brand might be your best option. Some restaurants are also tweaking their dine-in menus to be more suitable for delivery.
Tiptoeing into a ghost kitchen this early in the game is also dependent upon which operators are in your market. Kitchen United has locations in California and Chicago, but hopes to enter dozens of new markets in the coming years. CloudKitchens is focused on Southern California, and Zuul Kitchens is only operating in New York City at present.
I’ve also been contacted by restaurant operators who are considering banding together with fellow restaurant owners to lease some space and open their own ghost kitchen.
While there’s nothing stopping them, that ownership does take away the prime benefits of somebody else managing the facility—and shouldering the ownership of sub-prime real estate. Tread lightly and carry a big stick.
With all the noise and new competition in the restaurant world, from meal kits by mail to grocery stores partnering with restaurants, operators can’t react to every new trend. Ignoring a fundamental shift of the industry landscape, however, is definitely not advised. It’s a scary world out there, and you never know when a friendly face turns out to be a masked madman or a zombie popping up to steal your customers.
Tom Kaiser, pictured on opening page, is senior editor of Franchise Times and writes about urban tales in franchising in each issue. Send story ideas to firstname.lastname@example.org