Hidden Profits: Ghost Kitchens Might Be the Future of Food

How many times have you thought about going out to eat at your favorite restaurant, but then realized that you didn’t feel like leaving the house and would rather have it delivered straight to your door? For an increasing number of people, food delivery is becoming an alluring option, especially because of how convenient it is to tap a few buttons on your phone and have hot food brought to you in a matter of minutes. Restaurants have caught onto the trend as well, jumping into third-party delivery with both feet.

According to Cloud Kitchens, the food delivery market is worth more than $35 billion annually and is on pace to grow even more. For concepts and brands taking advantage of the burgeoning market, they can position themselves for a major payday.

What Makes Cloud Kitchens A Good Investment?

But what is it about cloud kitchens, ghost kitchens, dark kitchens, etc., that are so appealing to expanding concepts? First of all, these delivery-only locations are much cheaper to set up, costing about $25,000 for the kitchen space and equipment, though specialized equipment does tack on additional fees. Still, this is drastically lower than what it costs to establish a traditional restaurant, which can cost hundreds of thousands of dollars and even creep up to $1 million.

PAR EverServ Kiosk from an angle - PAR TechnologyThe business model associated with a ghost or virtual kitchen is also much simpler than a standard restaurant plan. Because there isn’t a front of house staff to maintain and only a small kitchen staff to prepare the food, labor costs are drastically lower. Real estate costs tend to be much lower as well because concepts no longer need to rely on finding the best location to place a storefront. Instead, ghost kitchens rely on warehouse space in less expensive parts of cities where the rent is cheaper. In many cases, the only people entering these locations besides the cooks will be delivery service employees who will pick up the food once it’s ready.

The allure of finding an easy way to deliver more food more efficiently has not been lost on some popular concepts, who are jumping at the chance to expand operations quickly without taking on the risk that comes with opening up a traditional location.

Recently, Dog Haus, a fast-casual burger, sausage and hot dog chain founded in 2010, made news by joining forces with Kitchen United, a virtual restaurant company that provides space and equipment. The 35-location concept inked a deal for 25 KU locations in 10 markets by the end of 2020, allowing the popular eatery to nearly double its footprint without running the risk and capital it would need to spend to open the same amount of traditional locations.

Cousins Subs, a Brink POS user, is another chain that jumped at the opportunity to explore cloud kitchens. When the company decided to serve downtown Milwaukee, a ghost kitchen helped them relieve many of the pressures associated with launching a new location. Downtown property is usually rented out or sold at incredibly high prices, so finding a commissary in a cheaper area makes a major difference in the bottom line while serving more customers faster.

Concepts seem to be excited about this latest trend. Chick-Fil-A and Panera Bread are trying out the new concept to lessen the burden their locations are under, and smaller businesses like food trucks and local restaurants are using ghost kitchens as not just prep areas but for deliveries as well when their mobile location is swamped.

The Power of Third-Party Delivery Services

It’s no surprise that as more concepts latch onto the trend, more competition between commissary companies will develop. In fact, the industry is already attracting the likes of Amazon, which invested in Deliveroo overseas, Google Ventures, which invested in Kitchen United, and former Uber CEO Travis Kalanick, who landed a controlling stake in CloudKitchens in 2018 for $150 million.

Third-party delivery services, who will already use current ghost kitchens as online ordering pick-up points are also making the most of the trend. Uber is currently operating several ghost kitchens outside the United States, and DoorDash launched its own ghost kitchen in Silicon Valley in 2017.

At a time when it seems like everything is being funneled through delivery apps, with companies like Uber Eats, DoorDash, Grubhub and Postmates taking the stage, restaurateurs are using ghost kitchens to enhance a bottom line that is often hit hard by these same delivery orders. To combat the high commission fees these food delivery services charge, commercial kitchens are an interesting way to earn additional revenue while taking the pressure off brick-and-mortar staff.

Regardless, the restaurant industry is evolving, and owners are looking for new ways to keep customers happy while maintaining their growth. According to Technomic, more than $10 billion was spent on delivery platforms in 2018, and that number is expected to increase as consumers take advantage of the services their favorite concepts provide.

This isn’t to say the days of dine-in restaurants are numbered. Similar to how the internet has not replaced television or radio, the rise of ghost kitchens will not push out traditional restaurant spaces. If anything, the additional space is going to allow for more enticing chances for concepts to experiment, whether it be with new menu items and promotions or new concepts entirely. The main takeaway here is that brands are continuing to shine a light on customers, and when the customers are happy everything seems to naturally fall into place.