What are Ghost Kitchens by Aaron Harker
Posted 1 year ago
Ghost kitchens, also known as ghost restaurants, virtual kitchens, or satellite kitchens, are foodservice businesses without dining areas that offer delivery and, occasionally, takeout services. Using third-party delivery services, these establishments can get meals to customers. The ghost kitchen model was especially beneficial for restaurants during the coronavirus pandemic and has continued to play an important role in the post-pandemic foodservice industry. The advantages of ghost kitchens include providing consumer convenience, reducing operational expenses, and allowing for easy menu expansion.
These restaurants don't have a physical dining area, but instead prepare meals when they are ordered and rely on third-party delivery services. To make up for the lack of walk-in customers, virtual restaurants create strong social media presences and invest in digital ad campaigns. They are not home chefs selling their wares online, nor are they distributors of prepackaged food. Instead, they operate on the same scale as sit-down restaurants, crafting unique menus. Most virtual restaurants operate out of a commercial kitchen space, referred to as a commissary kitchen, which is available for rent. It is beneficial for these restaurants to rent their own private commissary as they need the space at different times than other users.
The digital ordering and delivery sector has seen an increase in growth of 300% over its dining counterparts since 2014, making ghost kitchens a highly lucrative business venture. Compared to owning a dine-in restaurant in expensive, crowded areas, virtual restaurants offer significant savings in startup costs, maintenance, and labor costs. The main challenge to the profitability of cloud kitchens is the exorbitant fees charged by third-party delivery apps, which can amount to 15-30% of each order.
- Independent
Independent ghost kitchens prepare orders to order in a kitchen without a storefront. They rely on partnered third-party delivery services for order receipt and customer data. As a result, they cannot interact with or retain customers without their partnered delivery apps. Deliveries are left at the front desk for the driver to pick up.
- Multi-Brand
Multi-brand ghost kitchens provide orders and make deliveries in the same way as single-brand kitchens. The difference is that a multi-brand kitchen utilizes a single kitchen space to cook multiple virtual restaurant menus. This allows them to increase their total orders and expand their customer base. Unlike physical restaurants, multi-brand ghost kitchens can offer a variety of menus without raising skepticism because the anonymity of their satellite kitchens.
- Operator Managed
Operator managed ghost kitchens, also known as virtual franchises, offer brick-and-mortar eateries the opportunity to prepare a virtual restaurant’s menu in their kitchen space. These restaurants are not listed on the physical menu; instead, orders are placed through third-party delivery apps or the virtual concept’s central food order website/mobile app. Additionally, customers can choose to pick up their order and avoid delivery fees. Grocery stores such as Walmart and Kroger are taking advantage of this business model, and it is especially advantageous for bakery and cafe owners who do not require their kitchen space during the day.
- Mid-Ground
Mid-ground ghost kitchens provide a great alternative for entrepreneurs who want to offer high-quality food without a traditional restaurant setup. These kitchens have a small storefront where customers can pick up their orders if they prefer, and also provide a drive-through option for those who don't want to pay a delivery fee. By cutting out the need for delivery services, mid ground ghost kitchens are able to keep more profits and maintain ongoing access to their customers.
- Brand Owned
Ghost kitchens that are owned by a third-party delivery service can reap numerous rewards, but they must also be aware of the risks that come with it. The delivery service has complete control over the customer data and access, and can continually raise fees. However, the delivery app will also likely push more business their way, and they will appear higher in the search results page. It is important for businesses to consider the pros and cons before signing a brand owned deal.
- Virtual Spin-offs
Some brands are taking advantage of their popularity by creating ghost kitchen concepts based on sections of their menu. These brands can test out new markets without having to open a physical store by offering a limited menu specifically designed to be delivery friendly. Examples of this type of ghost kitchen include Chicken n’ Biscuits from Cracker Barrel and Just Wings from Chilis.
The benefits of running a ghost restaurant are numerous. Concept flexibility enables you to switch up the restaurant's theme without having to update signage or decor. Additionally, the menu can easily be adjusted, whether it be due to a new dish, an expensive ingredient, or out of season produce. Moreover, a smaller investment is required, as expensive aspects such as decor, signage, dinnerware, and seating are not needed. Finally, reduced staff is possible, as satellite kitchens eliminate front-of-house employees, allowing operators to focus on hiring and keeping quality chefs and investing in quality ingredients and appliances.
The drawbacks of running a ghost kitchen are considerable, including the costs and challenges of setting up a delivery system that is cost-effective. Most satellite kitchens rely on third-party delivery services, though this comes with a fee of between 15 to 30 percent of each order. Furthermore, customers place their orders through third-party apps, which means the restaurants do not own their customers’ data. If the third-party delivery app becomes too expensive to use, the customer base generated by it will be lost. Additionally, third-party delivery services tend to prioritize restaurants that they have exclusive agreements with, which puts pressure on restaurants to commit to one partner.
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