Ghost Kitchens Continue to Deliver a Profitable Opportunity
Ghost kitchens are appearing all over, especially since the pandemic began. Also called cloud kitchens, dark kitchens, virtual restaurants, satellite kitchens, and similar, these types of food establishments make contact-free service easy. Orders are usually taken online through a third-party system or a restaurant’s own POS, then prepared and delivered or made available for pickup.
Online on-demand food delivery is expected to grow worldwide, almost 30% year-over-year through 2025 (CAGR of almost 20%), particularly in the APAC region. The global food delivery app industry is estimated to reach a $320 billion market size by 2029, led by China, the US and the UK. This presents a huge market opportunity for food producers and delivery services.
Benefits
Cloud restaurants operate entirely online, without space for guests to sit and eat. Curbside or drive-through pickup is sometimes available, but often kitchens offer delivery only (no takeout). This means no fancy storefront, printed menus or waitstaff. Ghost kitchens don’t need prime real estate in a commercial center, so they can be located in less expensive, secondary locations. Due to the drastically reduced overhead costs and efforts, cloud kitchens generally have a faster and cheaper startup process than a full-service restaurant.
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One ghost kitchen can also prepare multiple kinds of food, and menus can change frequently since it only requires an update to the online ordering system. Unlike in a traditional service-oriented restaurant, so-called “people skills” are not as essential for a cloud kitchen, meaning hiring can be based solely on cooking abilities.
Challenges
Attractive and practical plating has long been essential in full-service restaurants, but cloud kitchens are required to take this one step further and also consider delivery packaging. Food needs to maintain a proper temperature, some food (like soup) needs to be kept contained in a special sealed container, and sauces may need to be packaged on the side to prevent soggy bread or ingredients mixing in transport.
While the lack of a storefront reduces overhead costs, it also makes marketing more challenging. With fewer potential diners walking past, ghost kitchens need to rely more on digital promotion and distribution. Social media, review sites, and other online advertising are essential tools.
Third-party apps and delivery websites may be necessary for spreading awareness, but they also charge higher processing fees than an internal POS. Incorporating third-party solutions into the value chain also reduces the control a restaurant has over the customer’s full experience, possibly limiting ordering capabilities and making it difficult to ensure a smooth and professional delivery once it leaves the kitchen.
Types of Ghost Kitchens
Cloud kitchens can operate with a single menu, known as an independent kitchen, or they can run multiple brands (and even different cuisine types) in one space. While a traditional restaurant that serves both sushi and pasta might seem strange, one ghost kitchen can prepare both and consumers may never know.
Ghost kitchens can be independently branded, or can be operated as franchise models. Some celebrities have put their name on these operations, such as Guy Fieri's Flavortown Kitchen, Pauly D's Italian Subs, Mariah Carey's Cookies, and others. Traditional restaurants are also testing spin-off models like Just Wings by Chilis and Chicken n’ Biscuits by Cracker Barrel.
While traditional dine-in restaurants are likely not disappearing anytime soon, there is a clear demand in the marketplace for the contact-free flexibility and convenience of a ghost kitchen, and forecasts are positive.
About the Author
Dr. Cihan Cobanoglu, is CHTP, is the McKibbon Endowed Chair Professor, Dean, School of Hospitality and Tourism Management, Muma College of Business | University of South Florida. He is a member of HT's Research Advisory Board and MURTEC Content Council.