With thousands of restaurants closed permanently as a result of the pandemic, empty storefronts and ghostly signage haunt many communities. But another apparition might just prove to be the treat in this season full of tricks.
Ghost kitchens — also known as virtual brands or dark kitchens — mean plenty of opportunity for restaurants of all sizes.
At a time when the industry is still reeling from the impact of the pandemic, increased food costs, high rents and severe labor shortages, these shared-space, delivery-focused kitchens boast an opportunity to expand, all while operating on a shoestring.
Scaling into new markets
The field is becoming crowded. Once the domain of small restaurants or regional chains, even the largest national and international restaurants are getting into the mix. Wendy’s announced plans to open 700 ghost kitchens across the United States, Canada and the United Kingdom by 2025. Quiznos and sister brand Taco Del Mar will open 100 ghost kitchens in the coming year.
Reef Kitchens, which is helping Wendy’s in its ghost concept, handles most of the operations. “We’ve professionalized the delivery restaurant industry and shown how food concepts can scale through our platform into new markets in ways that would have been impossible five or 10 years ago,” says EVP Kenneth Rourke.
“In addition to helping brands support their delivery business, which saw a surge during the pandemic, we’re helping them reach new markets that would otherwise have been extremely intensive from a time and cost perspective.”
No matter what it is called, a virtual kitchen has traditionally seen a small brand sharing a building with other small restaurant brands. The restauranteur handles the food operations while an overarching entity — the ghost kitchen — handles operations. Food is delivered by Grubhub, DoorDash and others. In some cases, there might be a few small tables, or a drive-thru window for customers who want to pick up.
But even that is changing as restaurants are looking to their own shuttered operations, downtime in existing restaurants — whether in the same brand family or not — or operating a virtual brand inside the kitchen of an existing operational restaurant.
Small wonder, then, that ghost kitchens were a $43.1 billion industry in 2019, and expected to reach $71.4 billion by 2027, according to Hospitality Technology.
The pandemic — with its boost in food delivery — is certainly a driver. At Kitchen United Mix, another ghost brand that should be operating in 20 cities in the U.S. by year’s end, the pandemic drove a 400 percent year-over-year increase in same store sales, according to Atul Sood, chief business officer.
But as restaurants began to reopen, sales didn’t drop as anticipated. “Consumers kept coming back, driven by two factors,” Sood says. “There’s a shift in consumer dining habits in ready-to-eat meals, and one of the things consumers really liked was the ability to order across concept. If I want Chinese and you want barbecue, we can get that on the same ticket with the same delivery driver.”
Rourke believes the idea is here to stay. “While a large number of restaurants had to close during the pandemic, those that pivoted to delivery were able to continue their operations in a more cost-effective way, while expanding their customer base and reach,” he says.
“During this time, many saw the overall benefits of prioritizing delivery as part of the overall business model. Being able to serve delicious food to a community without having bricks-and-mortar allows culinary concepts to grow more quickly and efficiently.”
Big players enter
Ghost kitchens have been around for a while, but they’re no longer located on the outskirts of town. Applebee’s is running its Cosmic Wings out of its existing Applebee’s locations. The biggest difference: The wings will be dropped on a doorstep as a delivery-only brand.
That idea is at the forefront of how brands intend to grow. Cracker Barrel Old Country Store has long focused its expansion on interstates and other major thoroughfares. Realizing that those in cities might “desire comforting homestyle food as well,” Cracker Barrel successfully piloted one new brand: Chicken ‘n Biscuits, says Desiree Graham, senior director of off-premise marketing at Cracker Barrel. Two more concepts are coming: The Pancake Kitchen has already been announced and a third will be revealed later in October.
“The first two will leverage third-party partners like DoorDash, Uber Eats and Grubhub to deliver food from our existing restaurants as well as new ghost kitchen locations,” Graham says. “The third will offer some of our most beloved meals from ghost kitchens in new markets.”
Graham says the company will target “several major cities for expansion where we already have a strong brand connection, but our restaurant locations are too far away from those living in the city center to visit frequently. We are making it easier than ever for guests across the country to enjoy our most popular homestyle menu items on demand.”
Large cities are on the agenda for many ghost kitchens, Sood says. “We thought when we launched this that we could penetrate a city like Los Angeles with 10 to 12 kitchens. We’ve expanded our plans and can double down more aggressively than that.”
By 2022, he believes Kitchen United Mix will be in second- and third-tier cities like Nashville, Tenn., Tampa, Fla., and Charlotte, N.C., by late 2022.
Those who scare up interest in a ghost kitchen are ready to grow. That includes concepts like Fresh Brothers, which opened its 21st restaurant and first ghost kitchen with Kitchen United Mix in May. It sells pizza and wings in Los Angeles, Orange County and San Diego.
“Really, for us, it was an opportunity to break into a new market that we didn’t have a presence in and to accomplish a few different things,” says CEO Geoff Goodman. “If we wanted a more traditional bricks-and-mortar location, it would be a risk-averse way to seed the brand in that market and to test the viability of ghost kitchens as a growth mechanism for our company.”
It also offered the opportunity to promote from within, realizing that not every employee has the people skills or desire to run the front of house. “Since we just have to focus on our production and making the food, we need about one-third the number of employees we have in a bricks-and-mortar store,” Goodman says.
“Since we’re not having to staff a more senior management team in that location, it allows us to fill the store with people who just want to focus on great execution and making our product to our standards.”
It’s a strong selling point in a season when restaurants are struggling to find enough workers. So, too, is the turnaround time: Fresh Brothers went from signed contract to selling slices in 23 days — far shorter than the typical six to eight months to open a new physical location.
That speed — and cost savings — will allow Fresh Brothers to grow, Goodman believes. “As we get outside our traditional core of L.A., this allows us to more rapidly have a presence in a new market, without having to have five or six locations.”