GHOST KITCHENS (IMPACT DURING & POST COVID-19)

GHOST KITCHENS (IMPACT DURING & POST COVID-19)

Restaurateurs are one of the main users of ghost kitchens in their effort to adapt their operations to the changing food industry landscape. The ghost kitchen concept basically involves a cooking space, bundled menu, and a brand that is dedicated to the end-to-end experience of online food ordering and delivery. One of the impacts of ghost kitchens on the restaurant industry during COVID-19 includes the creation of new revenue streams for restaurants grappling with the effects of the pandemic. Oyster Bah, Gabriella’s New York City Pizza, and Chick-Fil-A are examples winners in the ghost Kitchen landscape.

CONCEPT OVERVIEW

Overview

  • Ghost Kitchens are one of the innovative solutions witnessed in the food service industry following the online food ordering revolution in the industry, with more than 60% of the US adult population ordering takeout at least once every week.
  • With third-party delivery apps disrupting the industry, restaurateurs are one of the main users of ghost kitchens in an effort to adapt their operations to the changing landscape by choosing to rent out the required extra kitchen space and meet the online ordering demands.
  • Additionally, most restaurateurs operating ghost kitchens often have their own brick-and-mortar restaurants already in operation, with most of the ghost kitchens operating in areas with low foot traffic and even lower rental costs and nondescript factory buildings.
  • Ghost kitchens can be located anywhere since they do not offer dine-in services and generally require a kitchen space with a team of chefs, saving on real estate costs associated with the traditional brick-and-mortar restaurants.
  • Rent is typically lower with ghost kitchens, as well, compared to a standard restaurant, and are often fully fitted out with food preparation tools and equipment, such as kitchen implements, warming drawers, ovens, sinks, and refrigerators.

How They Work

  • The ghost kitchen concept basically involves a cooking space, bundled menu, and a brand that is dedicated to the end-to-end experience of online food ordering and delivery.
  • They often involve a professional operator running one more commercial cooking spaces across specific regions or jurisdictions, fully fitted out with the necessary cooking equipment and, sometimes, the technology for logistics.
  • These companies focus on lowering the capital costs of opening and operating in the food service industry by offering a quick, cost-effective method of running and taking care of all the logistics, enabling users to assume immediate operations from the start.
  • One of the value propositions of ghost kitchens is that customers can make multiple orders of different types of food from one menu, and have them delivered together.
  • Examples of companies in this space include Cloud Kitchens, Reef Technologies, and Zuul in the US, Deliveroo in the UK/European market, and Recipe Unlimited’s Ultimate Kitchens in Canada.

Business Models

  • Ghost kitchens operate in three models whose major differentiating factors include their ownership and mobility.

(i) Pop-Up Ghost Kitchens

  • Pop-up ghost kitchens, also known as incubators, are those that operate as a dedicated segment of a traditional restaurant that is only utilized for online ordering and delivery, often having their own personnel and using supplies.
  • This model of ghost kitchens is most suited for existing restaurants in need of a dedicated cooking space for online orders, new revenue streams, or a structured new food concept test.
  • These ghost kitchens essentially help alleviate the extra pressure of fulfilling online orders by isolating the workflows involved.

(ii) Shared Kitchens

  • Shared ghost kitchens, also known as commissaries, are the most common model of ghost kitchens. They include those that are owned by resourceful entrepreneurs, such as Kitchen United and CloudKitchens, who rent them out.
  • In this model, the entrepreneur buys a multiplicity of kitchen spaces and equips them with the necessary cooking accessories before renting ut to restaurateurs.
  • The major advantage of this model to restaurateurs is that it saves them the cost of shelling out substantial up-front expenses for the privilege.

(iii) Kitchen Pods

  • Ghost kitchen pods, also known as dark kitchens, entail small shipping containers fitted out with a cooking spaces most of which have no windows, with chefs having little or no interaction with front-end restaurant staff.
  • Mobile smart kitchens are an emerging concept in the ghost kitchen landscape, where the mobile kitchens come fully-packed with smart technology specifically focused on a delivery-only framework.
GHOST KITCHENS (IMPACT DURING & POST COVID-19)
Two young multiracial baristas in aprons standing in kitchen of coffee shop. Smiling man and woman standing by kitchen counter of cafe and looking at camera.

IMPACT DURING COVID-19

  • COVID-19 has accelerated the shift of all restaurants’ delivery business, with ghost kitchens becoming more appealing to restaurateurs due to the loss of significant revenue to delivery apps, upwards to 30% of total earnings.

(i) COVID-19-Driven Food Delivery

  • QSR Magazine notes that the resulting stay-at-home guidelines forced many of the world’s restaurants to, either, close temporarily to foot traffic or pivot to an online ordering and delivery or take-out model.
  • The pandemic has led to increased demand for food delivery, with people going into quarantine to minimize unnecessary physical contact, leading to a corresponding growth of ghost kitchens.
  • This has led to the emergence of various companies to support the off-site preparation and delivery of food, more chiefly, ghost kitchens, which, although not a new concept, have now been multiplying and taking many new forms.
  • Ghost kitchens are allowing restaurants to “outsource the making of their takeout and delivery meals, without cannibalizing the stoves, walk-ins and prep areas needed to serve seated diners outdoors or in. With national reach, they’re also promising to expand a restaurant’s footprint and brand recognition beyond the immediate neighborhood. “
  • Reef is an example of a ghost kitchen company that has stepped up to accommodate restaurant businesses during the pandemic, with three modular kitchens operating in New York City and a goal of running 300 of them throughout the US.
  • According to Carl Segal, the company’s chief operating officer, Reef is approaching the food delivery service as a matter of urgency despite having been in the business before the COVID-19 crisis.
  • Noting that the establishment a second kitchen would be expensive for a restaurateur given the initial set-up costs, such as rent, construction, utilities and staffing, Reef alleviates all of a participating restaurant’s upfront expenses and keeps the revenue generated, paying them a royalty percentage every month. Food is prepared by Reef’s cooks, based on the restaurant’s recipe, without the involvement of the restaurant’s personnel. Some of Reef’s clients include Michael’s Genuine in Miami and Saucy Asian in San Francisco.
  • On the other hand, Zevv, an emerging ghost-kitchen company, offers partnerships with chefs, allowing them to prepare food with their own employees, while maintaining a team of chefs who can participate.

(ii) Increased Revenue Generation

  • According to Food Logistics, one in four restaurants are expected to go out of business in 2020 due to the pandemic’s impact, especially, those that are unwilling to adapt to third-party food delivery services, instead sticking to the traditional brick-and-mortar restaurant model.
  • Ghost kitchens are offering a suit of solutions during the pandemic, including technology, semi-automation and efficiency, providing such restaurants with an opportunity to set up revenue streams.
  • This has led to a 52% year-over-year growth of restaurant delivery sales, expedited by the pandemic’s impact.
  • According to research conducted by Technomic and the National Restaurant Association, only 15% of restaurant operators reported using a ghost kitchen before the pandemic, while 51% were utilizing them by May 2020.
  • BBQ Holdings is an example of a restaurant chain that has adaptively implemented ghost concept to two of its brands, including Famous Dave’s and Granite City Brewery. According to Jeff Crivello, the company’s CEO, the company “expects each ghost kitchen to produce $6,000 to $12,000 in additional sales per week, without having to pay for additional rent, utilities or staff. Additionally, if a customer spends $10 with a ghost concept, the company expects $3 to $4 to be profit. With a typical sit-down, the profit is an estimated $1.50.”

POST-COVID-19 FORECAST

(i) Increased Market Share

  • Food 2.0, the suit of innovations aimed at transforming the way food is consumed, enables a more technology-based to services delivery in the food industry, of which ghost kitchens are a huge part.
  • With ghost kitchens forecast to potentially create a $1 trillion global opportunity by 2030, Euromonitor predicts that their affordability, reliability, and efficiency, could drive the acquisition of 50% of takeaway food services ($250 billion), 50% of drive-thru services ($75 billion), 35% of ready meals ($40 billion), 30% of packaged cooking ingredients ($100 billion), 25% of dine-in food service ($450 billion), and 15% of packaged snacks ($125 billion).
  • One of the key drivers behind this growth is diners becoming more comfortable with online ordering and food delivery, with restaurant closures, following the pandemic’s impact, changing how physical restaurant formats are being utilized, particularly, with shuttered businesses leaving empty real estate behind.
  • According to Michael Schaefer, Euromonitor’s Global Food and Beverage Lead, “this shift will prime the industry for an acceleration in ghost kitchen development. We expect in the current pandemic to see more of this re-purposing, real estate operators doing anything they can to drive revenue from their existing properties. Likewise, we’re going to see a lot of new operators looking to fill the void with cheaper concepts … more delivery-friendly concepts that require less capital up front.”
  • Restaurant Dive notes that the global food service delivery sales more than doubled between the 2014-2019 period, with 52% of global consumers becoming comfortable ordering from a delivery-only restaurant that has no physical storefront.

(ii) Better Dining Experience

  • According to Forbes, ghost kitchens are not just anticipated to benefit restaurants alone, but are becoming increasingly popular with customers, offering them an increasingly better dining experience.
  • Examples showcasing the increase in popularity can be witnessed in the growth of food delivery services, such as Uber Eats, Postmates, and Grubhub in recent years.
  • Forbes notes that a growing number of customers are shifting preference to eating from the comfort of their homes rather than queuing for a table or delivery of their order. Digital orders alone have experienced a 20% annual growth, while in-restaurant dining numbers have remained relatively flat in recent years.
  • One of the key drivers behind this anticipated customer experience is the fact that ghost kitchens offer more flexibility for customers by giving them control over exactly their choice of food and time of delivery. Additionally, with the use of cloud-based mobile ordering, customers can personalize their meal order tastes and preferences, getting their specific meals made to order.

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