2020 has been equal parts terrifying, mystifying, and heartbreaking for restaurateurs across the U.S. Virtually all life has been touched in one way or another by the sudden wave of business closings and restrictions brought upon by COVID-19. Restaurants being some of the hardest hit. Although ghost kitchens were gaining in popularity at a fairly steady rate over the past year, we anticipate that the 2020 coronavirus will bring with it long-lasting consumer behavioral changes. And by extension, a meteoric rise in to-go business across the restaurant industry.
The future of the restaurant landscape will be changing, and likely much faster than most operators are currently ready for. Over the last few weeks, the 9Fold team has helped a mass of traditionally dine-in restaurants pivot to an online ordering delivery / take-out focus. The pace left most of us dizzy. More than that, we couldn’t have anticipated that these traditional dine-in restaurants would immediately have a flock of loyal patrons willing to order from them online.
Sadly, many restaurants will simply not be able to resume operations after having closed for an indefinite time period. But with some preparation and strategizing, those that are able to come back might just flourish in the new world we find ourselves in.
What is the goal of this Ghost Kitchen Guide?
How to start a ghost kitchen is just piece of what we aim to uncover, so dig in. We aim to answer the following questions:
- What is a ghost kitchen?
- Who uses ghost kitchens?
- How to start a ghost kitchen?
- How do you market a ghost kitchen?
- What are the benefits using a ghost kitchen?
- Where is the ghost kitchen trend headed?
Lets talk ghost kitchens…
In recent years, the online ordering revolution has reshaped the way restaurants approach food service. With over 60% of the American adult population ordering takeout once-a-week, restaurants are coming up with innovative solutions to meet demand. One of the most interesting and impactful solutions we’ve seen so far involves “ghost kitchens”.
Ghost kitchens aren’t invisible, but they’re often located in out-of-the-way spaces and don’t have conventional storefront exteriors. Below, we explain why you may consider leasing a kitchen space with no chairs, tables, waiters, or even lobby signs.
What is a Ghost Kitchen?
Ghost kitchens (aka “virtual kitchens” or “cloud kitchens”) are in the most simple terms, restaurants without a dining space built to focus solely on fulfilling online orders for delivery. As 3rd party delivery apps capture a large chunk of the $800 billion dollar restaurant industry, restaurateurs are getting more and more savvy at adapting operations and using this changing landscape to their advantage.
If extra kitchen space is needed, why not just rent the space itself?
Many restaurants are doing just that. In fact, the most valuable benefit of ghost kitchens is that they can be located anywhere. You don’t need to pay top dollar for real estate in an expensive neighborhood. You just need a kitchen and several motivated chefs willing to work in spartan surroundings.
Note, however, that some restaurants have taken the concept of “ghost kitchens” to creative (but illicit) levels. Several mutations of ghost kitchens popped up in NYC in 2015. These restaurants operated without legal permits, offering food delivery without disclosing that they were subsidiaries of actual restaurants. Quality, of course, wasn’t assured with such a set-up, as none of the illegal ghost kitchens had permits from the NYC Department of Health.
In contrast, the ghost kitchens we are talking about are legitimate operations you can leverage to meet the demands of online ordering.
The Anatomy of a Ghost Restaurant
Ghost kitchens capitalize on the shift of customer behavior towards online ordering while reducing the costs associated with traditional brick-and-mortar restaurants. Since ghost kitchens are fully focused on the delivery aspect of a restaurant, you can optimize many other aspects. Streamline the kitchen, create unique workflows that support digital ordering, invest in insulated packaging to reduce delivery frictions, and customize your menu items to be delivery-friendly.
In fact, many ghost kitchens operate with only a few chefs and only the necessary kitchen tools. There’s no lobby to sweep or chairs to put up at the end of the day. Many ghost kitchens operate in areas with low foot traffic and even lower rental costs. Others are located in nondescript factory buildings. Many restaurateurs who utilize ghost kitchens already own brick-and-mortar restaurants, something we’ll cover in more detail soon.
The Different Types of Ghost Kitchens
Like restaurants, ghost kitchens come in different shapes and sizes. Currently, there are three primary ghost kitchen models that restauranteurs utilize. As time progresses, we fully expect to see new versions pop up as the popularity of ghost kitchens grow.
1. Incubator / Pop-Up Kitchens
An incubator/pop-up ghost kitchen is attached to a traditional restaurant but is only utilized for online orders (and deliveries). Not to be confused with pop-up restaurants (which are limited-time restaurants), pop-up kitchens are ideal for existing restaurants that need:
- A dedicated space to fulfill online orders
- New revenue streams
- A structured way to test a food concept
Popup kitchens help in minimizing the pressure of online orders on a brick-and-mortar crew. By isolating these kitchens, you can create unique workflows for existing or even new delivery models. You’ll typically see these kitchens operating with their own personnel and using some of their own supplies.
Popup kitchens are perhaps the most appealing virtual concept for restauranteurs. You can rapidly create new profit streams and see how your local market reacts to new concepts. Here’s why: You already have the space. All you have to do is create unique workflows and decide on your niche cuisine.
2. Commissary/Shared Kitchens
Restaurateurs can also rent ghost kitchen spaces owned by resourceful entrepreneurs. The latter purchases a multiplicity of kitchen spaces equipped with cooking accessories and rents them out to restaurants. For restaurants, these spaces can be an easy way to leverage the benefits of a ghost kitchen. A key driver is that it comes without having to shell out substantial up-front costs for the privilege.
In this ghost kitchen model, multiple restaurants share kitchen space, appliances, and kitchen tools. Kitchen United and CloudKitchens (founded by ex-Uber board member Travis Kalanick) head the list of organizations renting out spaces to restaurants. The former offers shared kitchens under a “turn-key” model, meaning restaurateurs assume immediate operations from Day 1. Both startups have secured millions in funding, and both have plans to open thousands of additional locations.
Shared Kitchens: What’s cooking around the world?
The explosion of ghost kitchens in the United States has fueled similar growth around the world. In August 2019, Mumbai-based Rebel Foods raised $125 million in Series D funding. Meanwhile, ghost kitchen startups, Dubai-based Kitopi and Berlin-based Keatz, collectively raised more than $100 million in funding.
By all considerations, shared kitchens can be a fantastic option for entrepreneurs looking to leverage the ghost kitchen framework. Rent is typically lower than that for a standard restaurant. And, everything needed to prepare the food (kitchen implements, ovens, refrigerators, warming drawers, and sinks) will already be in place.
Most importantly, these shared spaces are run by large organizations. Why does that matter? Because they’re almost guaranteed to be in compliance with OSHA laws, state building codes, and foodservice regulations — notoriously complicated elements of a restaurant business for first-time entrepreneurs.
3. Kitchen Pods
The final ghost kitchen type is the pod. These are small shipping containers with outfitted kitchens. Generally, we try not to recommend a specific approach to operational frameworks. However, we’re going to break that rule today.
In short, we strongly warn against the use of kitchen pods.
For starters, zoning laws are complicated for these spaces. In 2017, The Guardian revealed the almost claustrophobic conditions in these “dark kitchen” shipping containers. Many of these kitchen pods have no windows, and chefs have little interaction with front-end restaurant staff. At this point, renting a shared/pop-up kitchen is the better option, especially when it comes to safety.
How Ghost Kitchens are Giving Rise to Mobile Smart Kitchens
While ghost kitchens are great for decreasing Opex and Capex costs, they introduce a potential challenge — the cost of delivery. For many restaurants, food deliveries have become associated with 3rd-party apps. Unfortunately, these apps can quickly cannibalize your revenue takings.
Beyond the cost of paying for PPC ads to achieve a high listing on search engine results, delivery apps can take 30%+ off your total earnings. Given the relatively low margin of restaurants, the low-cost of ghost kitchens may not make up for it.
Fortunately, there’s a solution looming on the horizon — mobile smart kitchens. These kitchens-on-wheels come jam-packed with smart technology specific to the delivery-only framework. In 2019, Zume capitalized on its Forward Mobile Kitchens (equipped with proprietary AI, smart appliances, and predictive analytics platforms) to revolutionize restaurant delivery.
Of course, these mobile smart kitchens aren’t yet accessible to everyone. Another option for circumventing expensive 3rd party fees is to utilize your own online ordering portal. In fact, 9Fold allows you to leverage your own portal to convert customers from 3rd party delivery apps. This may be a necessity for ghost kitchens with very little marketing presence.
What’s Driving the Ghost Kitchen Boom?
Restauranteurs aren’t the only ones eyeing the benefits of ghost kitchens. Venture capitalists are salivating over next-gen ghost kitchen startups. To date, 378 venture capitalists have financed 25 ghost kitchen providers worldwide. Both Kitchen United and CloudKitchens have won multi-million dollar venture funds. Cloud kitchen entrepreneurs are springing up across the United States. In fact, ghost kitchens have become so popular that “The Kitchen Door” website facilitates searches for shared kitchens based on your location.
However, trends don’t just appear out of nowhere. There’s some real socio-economic pressure behind the rise of ghost kitchens.
Increased Demand for Food Delivery
It would be an understatement to say that the delivery market is “white-hot.” In 2019, Uber reported that the total delivery market was worth over $795 billion dollars in its IPO S-1 — noting a 77% increase in delivery orders year-over-year since 2013. And, reality supports Uber’s claims: The average American orders out at least once a week, and over 20% of Gen Z gets takeout more than three times a week.
By all indications, the delivery market is booming. However, it also comes with its own set of problems. Running a delivery-focused restaurant requires efficient workflows, lean operation frameworks, and leading-edge tech. Ghost kitchens aid restauranteurs by creating spaces dedicated to the demand-focused delivery market.
Booming Gig Economy
Another significant reason for the rise of ghost kitchens is the gig economy. Over 55 million Americans consider themselves part of this on-demand talent framework, and the gig economy is slated to grow from $204 billion to $455 billion by 2023. An expanding pool of delivery drivers can be an incredible opportunity for savvy restauranteurs.
Instead of paying 10% to 30% in delivery commission fees to 3rd party apps, restauranteurs can lease ghost kitchens and hire gig economy workers to make deliveries. All things considered, ghost kitchens even the playing field for both brick-and-mortar locations as well as digital outfits.
Disruptive Kitchen Technology
We’re on the precipice of a restaurant tech renaissance. From drones to smart kitchen gadgets and mobile kitchens, restaurants are increasingly aware that they’ll need to keep up with hi-tech developments. Ghost kitchens are poised to have an advantage. They’re small, agile, and tech-smart. If drone delivery cuts costs, ghost kitchens may have the most to gain.
Rising Real Estate Prices
Paying $160 per-square-foot for a building with four walls can be daunting. Add all the Capex and Opex costs of operating a restaurant, and you could be looking at a price tag of $1 million or more. Ghost kitchens reduce your liabilities in these areas. Of course, you’ll have to forgo a piece of the $2 trillion dollar dine-in pie. However, your delivery business could well make up for losses in that area.
Exploding Digital Marketing Power
In 2013, Walker (an experience management (XM) services firm) predicted that brand would overtake price and product in 2020. We quite agree. Unfortunately, branding isn’t cheap. Traditional restaurants have to promote their brands across two primary channels — in the brick-and-mortar and digital worlds. Meanwhile, ghost kitchens only need to promote their brands in digital spaces. That means more time (and resources) focused on digital branding and focusing on things like email marketing, sms marketing, and other omni-channel methods – all which are the key to a successful online restaurant.
How to Staff a Ghost Kitchen
In 2020 entered a new staffing challenge, as if staffing wasn’t difficult enough on the best of days. The outbreak of COVID-19 has seen many restaurants forced to close down indefinitely, mostly due to staffing issues. Employees across the country are not feeling safe or confident in coming to work. A fully equipped restaurant simply cannot run without a staff to prepare food, deliver, clean, and manage operations.
Let’s face it: the majority of restaurant employees work on the customer-facing end. They clear tables, seat guests, serve the hors d’oeuvres, process payments, and tend the bar. After the restaurant shuts down for the night, they mop floors, clean bathrooms, and wipe down menus.
Ghost kitchens turn that entire framework on its end.
Specifically, ghost kitchen providers distill the clutter of running a restaurant into manageable monthly payments. Those payments take care of a restaurant’s cleaning, dishwashing, equipment maintenance, and refrigeration needs. You pay a monthly fee — the provider takes care of the rest. In many ghost kitchens, there are only two to three staff members — and they’re generally all chefs. That’s the beauty of a ghost kitchen.
You may need someone to do prep work and clean-up if you’re running a popup kitchen, but you’ll still have a lean staff. In an interview with QSR, fast-casual chain Bamboo Asia made the shift to ghost kitchens and noted that its labor costs dropped to 19.5% of expenses — despite a 50% increase in the local minimum wage.
The 6 Amazing Benefits of Ghost Kitchens
1. Reduced Rent
Renting restaurant space in a city like Manhattan isn’t for the faint of heart, where cost is concerned. If you want to stand out in a semi-trendy location, you’re looking at around $120-per-square-foot. Fortunately, ghost restaurants don’t need to be located in trendy, high-traffic metropolitan areas. They can be located almost anywhere. You can even buy or rent property in distressed economic areas — your diners won’t be popping in for a visit.
Deliveroo (a European delivery app) has even set up ghost kitchens in abandoned parking lots.
2. Lower Overhead Costs
Picture not having to pay for chairs, tables, carpeting, decorative elements, extra floor space, or wait staff salaries. That’s the beauty of ghost kitchens. You can leverage lean production to the hilt with this business framework.
The average cost to decorate a restaurant is around $160-per-square-foot. That’s not exactly budget-friendly. This is where ghost kitchens come in: you won’t need to pay for faux golden elephants or avant-garde paintings when you rent one.
As long as you keep your permits up to date and meet Department of Health sanitary standards, you’re good to go.
3. Maximized Workflows
Surprisingly, the most significant benefit of ghosts kitchens isn’t the low cost. It’s the ability it gives you to focus on a core objective. When you’re trying to cater to BOTH online and in-person orders, things can get complicated. Focusing your entire kitchen on the single goal of winning the online ordering wars will give you room to try out new production concepts and optimize your workflows.
You may find new ways of solving space and workforce challenges. You may also discover inventive ways to maximize the efficiency of your inventory system and minimize waste.
Often, focusing on a key objective can lead to incredible breakthroughs in regards to operational challenges. Plus: you don’t want to have to deal with the logistics of juggling both in-house and delivery orders in one space.
4. Ability to Meet Modern Delivery Demands
Online ordering isn’t just a passing fad. A well-designed and intuitive online ordering system is a BIG DEAL.
- 31% of consumers use 3rd party delivery services AT LEAST once a week.
- 34% of consumers spend over $50 per online order.
- Online ordering has grown 300% faster than dine-in revenues every year over the last 5 years.
- 59% of Millennial orders are either takeout or delivery.
In other words, ghost kitchens let you focus on meeting the demands of the online ordering phenomenon.
5. Increases Speed to Market
Got a new culinary concept you’d like to share with the world? It will cost you $275,000 (on average) to open a restaurant. That number jumps to $425,000 if you purchase the land itself. In contrast, a ghost kitchen in South California costs around $20,000. That’s a big difference in outlay! Not only do ghost kitchens cost less, they let you build your business faster by utilizing a lean production model. Your ghost kitchen (and restaurant business) can be up-and-running in a week, not 6 months.
6. Frees up Resources to Implement Digital Branding and Marketing Campaigns
Conventional branding campaigns require money, effort, and usually, more money. You have to decorate your restaurant accordingly, hire dedicated wait staff, and handle customer concerns efficiently. Plus, you have to pay leasing costs and Opex/Capex expenses.
With a ghost restaurant, you won’t have to worry about any of the above — leaving you free to prioritize your digital branding efforts. You can work on Facebook marketing campaigns, cleanup SEO, and focus on the overall digital marketing strategy.
That said, both conventional and digital branding campaigns require effort. But, how important is the latter? Walker predicts that branding will overtake price and product considerations by next year, so it’s worth the time commitment to master it.
Whether or not you will be using an online ordering system with your ghost kitchen should not even be debate, its likely the sole source of revenue. But is having your own direct ordering system enough to make it a success? Answer – no.
Unless you are fortunate enough to land huge PR opportunities or a spot on Sharktank, you can’t expect to turn on the tap and have orders start flowing in out of nowhere.
How to Market your Restaurant Ghost Kitchen
So where do you spend your restaurants digital marketing budget when getting your ghost kitchen brand up and running? Consider these three key marketing objectives that translate to any business that intends to have a growing customer base.
- Although it pains us to say it, you will need to get your brand out there onto at least one or two 3rd party online ordering platforms. These platforms only make money when they get you orders, so it behooves them to market your restaurant to their network of customers. Make sure you have a structured approach here because the longterm survival of your brand depends on it (no pressure).
- Now that you have customers coming in and your restaurant brand is starting to gain some traction, you need to engage your customers. Email, SMS, Post mail, and Social media are all fair game and effective ways to communicate with your customers. Everything from post-meal surveys to targeted behavioral based promotions can keep your brand top of mind to your customers. More on how to make this happen shortly.
- Every ghost needs an evangelist. Delighting a customer comes in many shapes and forms. For a ghost kitchen restaurant this might start with the ordering process, continue on to the quality of the food being delivered, and end with the interactions you are having post meal. Every part of this is crucial. Your goal should be to have customers who want to sing your praises from the rooftops and effectively be your ghost kitchen evangelist.
Ghost Kitchen Marketing Options & Breakdown
We’ve covered the “Attract” segment in exhaustive detail in a previous post. Let’s focus on the latter two, “Engage” and “Delight”. In order to cover the points made above, you will need some sort of marketing CRM (Customer Relationship Manager).
There are tons of CRM providers out there, but mostly focus on business to business relationships or retail consumer relationships. As you know, the nuances of a restaurant are far different from that of retail.
To do it yourself or have it done for you, that is the question.
A well known and fairly easy to use example of a marketing CRM is Mailchimp. They provide a range from free plans to plans that start at $299/month and go up based on the amount of contacts you have or services you use.
Mailchimp provides great tools, especially at the higher end of their package list. Do note, Mailchimp is 100% do it yourself. If you want phone support you will have to be on the $299/month plan minimum and this won’t include any design or implementation services.
If you have a small marketing team and are tech savvy, this could still be a good fit. In order to do it properly you’ll need to create ongoing marketing designs, setup custom rule flows, and monitor the health of your system.
If you want to focus on the food, you might want to explore an all in one restaurant marketing machine. At the end of the day a digital customer is after-all a real life customer. You cannot afford to put marketing on the back-burner if you have a ghost kitchen, it is the lifeblood to this type of venture.
Consider using a system like FullRail which was built exclusively for busy restaurant operators with busy restaurants. FullRail was essentially built to supercharge any direct online ordering system with a turn key fully managed approach. The main goal? Attracting and keeping your customers ordering online in-house rather than through 3rd party commission portals. This type of marketing platform provides a systematic way of attracting, engaging, and delighting customers with little effort from you.
The FullRail approach
The FullRail system marries digital marketing to your in-house ordering system. The purpose of this is so that all of your customer data and spending habits are fed between the two systems in real time. Traditionally, restaurants rely on siloed methods where you would spend time uploading static email lists and sending blanket non-targeted emails and have very little insight as to who your customers are. Pricing packages for FullRail do vary based on what you choose but usually start in the $300+/month range. This would be similar to that of the top tier of the non-managed Mailchimp system or something similar.
Companies like Grubhub, UberEats, DoorDash (and the list goes on) spend millions on marketing to your potential customers in an effort to make those customers loyal to their brand. We advise you take marketing your ghost kitchen restaurant as a serious part of your business plan.
3 Restaurants that Are Winning With Ghost Kitchens
Let’s look at a few restaurants that are using the ghost kitchen model to serve up delivery-only orders.
1. Oyster Bah
Walk into Chicago’s Oyster Bah, and you’ll be treated to delicious seafood dishes and sides. Yet, although Oyster Bah is typically packed on any given day, it’s not oysters bringing in the big money — it’s the ribs. Oyster Bah is home to a ghost kitchen by the name of Seaside, which offers ribs and fried chicken to consumers through 3rd party delivery apps like Grub Hub and Uber Eats.
2. Gabriella’s New York City Pizza
This pizza joint goes by many names, six to be precise. That’s because Gabriella’s is a ghost kitchen in NYC that serves up pizza for 6 different brands. All of the brands serve the same stuff — which is American style pizza with all the traditional toppings. And all these brands have one thing in common: They ONLY take delivery orders.
Given that people in New York City spend the most (per capita) on food delivery than any other city, Gabriella’s model is a winner. It’s able to run 6 semi-identical pizza joints out of a single kitchen. The only missing pieces to this pie is that they have not (yet) put a focus on their own brands and taken control of the ordering process. Instead, they rely solely on 3rd party delivery apps. If they buttoned that piece up, i’d say it was a winning setup.
While Chick-fil-A likes to call its catering-only restaurants “fulfillment centers,” they’re really just large ghost kitchens. To support Chic-fil-A’s growth, C-suite level executives made the decision to utilize independent kitchen locations to handle all catering and overflow orders.
So, that catered Chick-fil-A birthday party dinner for your six-year-old probably didn’t come from your local franchise. Instead, it was likely prepared in a ghost kitchen in another location. Given that Chick-Fil-A is now the third-largest restaurant chain in the United States, the move to utilize ghost kitchens is a smart one.
Ghost Kitchen Companies To Watch In 2020
New year, new rules: the ghost kitchen scene is changing restaurant delivery as we know it. We fully expect to see an increase in the number of companies catering to entrepreneurial cooks in the next few quarters. For now, these are the stars of the show.
With a $10 million dollar investment from Google Ventures, Kitchen United has been one of the leanest (and fastest-growing) startups in the space. Founder Jim Collins has turned down hundreds of millions of investment dollars to focus on growing more organically. Currently, Kitchen United plans on conquering the global restaurant space — with 5,000 kitchens planned in the next four years.
All in all, Kitchen United offers a turn-key, light-capital model, delivering a complete, code-safe kitchen replete with appliances and cooking implements. All that’s left to do is to…cook.
The fastest-growing and most investor-friendly ghost kitchen startup, CloudKitchens, has already taken in over $400 million from investors. $150 million interestingly invested by its founder (former Uber superstar) Travis Kalanick. Like Kitchen United, CloudKitchens offers fully-equipped kitchens (branded as “smart kitchens”) for the delivery-only model. Honestly, you can’t ignore a project that Travis is a part of.
Another not-so-surprising entry into the ghost kitchen space is DoorDash, which has already premiered locations in San Francisco and Redwood City. Currently, DoorDash’s model is focused on catering to high-delivery areas for established brands like Chic-Fil-A, but we’re sure they have plans in the works for new locations, as well.
For the time being, DoorDash Kitchens is still in the experimentation phase, with only a few locations. And, like others on this list, it provides everything a restauranteur would need for a single monthly fee.
For the moment, we’ll set aside the possible conflicts associated with Uber’s ex co-founder Travis Kalanick — who’s also operating CloudKitchens. We’re sure that bridge will need crossing at some point if Uber expands its operations. For the time being, the ridesharing company has been keeping a low profile in the ghost kitchen space. To date, it has been testing ghost kitchens in a few markets, though it remains curiously reluctant to share the delicious details pertaining to its Paris operations.
Virtual Kitchen Co.
Another new entry is Virtual Kitchen Co. — which already operates several successful ghost kitchens. They plan to open 15 more kitchens over the next few years, driven by $15 million dollar Series A. Again, Virtual Kitchen Co. offers a similar pricing structure: Restaurants can pay a monthly fee for everything.
The one small difference here is that Virtual Kitchen Co. seems to be targeting existing restaurants that want to enter the delivery space.
The Wrap Up
In a nutshell, ghost kitchens exist to satisfy the ever-growing consumer demand for easy online ordering. In a post COVID-19 world, restaurants of all types will have to take a long hard look in the mirror to decide what the next chapter is. We think that with this tragedy comes a shift in consumer behavior, a shift that could benefit those that take time to make the right moves.
Countless restaurants have essentially been forced to become a ghost kitchen during the recent events, and although it was a means to stay afloat, it was quickly an eye opener for many as to the potential.
It’s not necessary to become 100% virtual in order to reap the benefits that a ghost kitchen can provide. In fact, our conclusion is that the best approach is a hybrid. The hybrid allows your brand to test the waters of a food concept without fully committing or losing your restaurants physical presence. If the tide starts rapidly changing to virtual-only, you’ll find yourself in a strategically advantageous position.
9Fold integrates with multiple regional and national “delivery as a service” providers which in essence can give you the best of both worlds. With this approach you can keep your brand front and center, gather the all-important customer data, and automatically summon 3rd party delivery drivers. All of this would be happening from your own system, and all without the commission charges.
If you want to learn more on how 9Fold can make it all happen for your restaurant Ghost Kitchen brand – Contact us to schedule a free demo of our powerful platform today.