How Ghost Kitchens Can Boost Your Franchise Business

Dine Brands Global Inc., home to both Applebee’s and IHOP, is encouraging franchisee success and takeout business through implementation of ghost kitchens. According to Mark Madler for the Los Angeles Business Journal, Dine Brands “operates 3,600 domestic locations and nearly 200 locations internationally,” and its primary source of revenue is franchise and rental fees.

EHL Insights says that the term ghost kitchens “refer[s] to restaurants that don’t offer dine-in services … [and] are also referred to as micro-cloud kitchens or virtual kitchens.” These kitchens are particularly powerful in increasing revenue by reducing costs associated with the dine-in experience and capitalizing on consumers’ desires to order meals for takeout and delivery. Sometimes, these kitchens are shared spaces with other restaurants that do offer dine-in services. Other times, the kitchens are located within stand-alone buildings that may not be in an optimal location for a dine-in establishment.

“You don't have to be located in a busy location, you don't have to employ wait staff and you can easily customize your menu so that it only focuses on food that is delivery-friendly,” says EHL.

John Payton, Dine Brands’ Chief Executive, told Madler, “Our asset-light model allows us to invest in what we do best – menu innovation, marketing and technology – all for the benefit of our franchisees.” Applebee’s has launched Cosmic Wings, and IHOP is testing two virtual brands in multiple test markets; all of these initiatives utilize ghost kitchens.

Dine Brands has seen a substantial increase in revenue, and “Brian Vaccaro, an analyst with Raymond James & Associates Inc., said in his research report that it was a good sign the company and its franchisees were investing in technology and equipment to improve the guest experience off-premise, drive operational efficiencies and enhance marketing,” writes Madler.

Ghost kitchens are appealing to franchisees for a myriad of reasons. Not only are there lower start-up costs, but operations are generally more affordable due to shared or lowered cost of utilities, cleaning services and other necessities such as wait staff. Furthermore, these kitchens come with a high margin of profitability due to their ability to tap into the rapidly growing market for food pickup and delivery services.

Read the full article at labusinessjournal.com.