Can Ghost Kitchens Bring the Restaurant Industry Back From the Dead?

While third-party delivery has been in the spotlight for some time now, ghost kitchens may be positioned to be the next big leap in the restaurant industry. Ghost kitchens, also known as cloud kitchens or dark kitchens, are physical locations designed to serve delivery-only concepts or serve as mobile order-only restaurants, with no storefronts or dining areas. The move was already having a major impact on restaurant franchises, in particular QSRs and fast-casual concepts, who had already experienced steadily decreasing foot traffic in recent years. 

Now, as brands from Chuck-E-Cheese to Chipotle pivot towards the virtual amid COVID-19, ghost kitchens are quickly becoming the way of the future. According to a Euromonitor virtual webinar presented by Euromonitor's Global Food and Beverage Lead Michael Schaefer, ghost kitchens could create a $1 trillion global opportunity by 2030.

Even before COVID-19, global foodservice delivery sales had more than doubled from 2014 to 2019, and 52% of global consumers are comfortable ordering from a delivery-only restaurant with no physical storefront, according to Euromonitor.

Now, one of the main drivers of the growth of the ghost kitchen market is the changing cost structures of the foodservice environment, Schaefer noted during the webinar. In general, the reduction of employees that come with a delivery-focused model can significantly bring down rent and staffing costs for restaurants and grow thin margins. Entrepreneurs are finding that all you really need is a kitchen, an online menu and a way to deliver food (usually through a delivery app).

According to the webinar, Euromonitor predicts cheaper, faster and more reliable delivery — AKA ghost kitchens — could help the QSR segment “capture 50% of drive-thru service ($75 billion), 50% of takeaway foodservice ($250 billion), 35% of ready meals ($40 billion), 30% of packaged cooking ingredients ($100 billion), 25% of dine-in foodservice ($450 billion), and 15% of packaged snacks ($125 billion).” 

As delivery becomes less expensive and ghost kitchens grow and become more centralized, reducing food delivery times in the process, restaurants could find financial gains in optimizing their business for off-premise rather than dine-in experience. Plus, ghost kitchens can provide fulfillment help with the added volume delivery creates, especially as diners become more comfortable with food delivery.

This is why major restaurant franchisors are dipping their toes into the ghost space. Bloomin' Brands is piloting kitchen-only formats for takeout and delivery orders. Chick-fil-A is experimenting with kitchen-only locations in Nashville, Tennessee and Louisville, Kentucky, that prepare individual and catering orders for delivery through DoorDash. McDonald's opened a ghost restaurant in London last year with Uber Eats as a delivery partner.

Although franchisors are slowly catching on, third-party delivery platforms have been the true leaders of this movement, with Uber Eats operating over 1,500 virtual restaurants and DoorDash launching a shared ghost kitchen in Silicon Valley last year. Former Uber CEO Travis Kalanick even got into the ghost kitchen business with a startup called CloudKitchens a few years ago, buying inexpensive property in the U.S., India, China and the U.K. and letting chefs and would-be restaurateurs lease space and start delivering food.

The Independent Restaurant Coalition has predicted that as many as 85% of independent restaurants could permanently close by the end of the year without sufficient aid. These closures will drive a change in how physical restaurant formats are being used, especially as shuttered businesses leave empty real estate behind. As entrepreneurs look for the best ways to fill these vacancies, ghost kitchens may be the answer. 

As major companies like McDonald’s and Uber create an easy-to-follow path, this kind of restaurant-driven experimentation could be the key to helping small restaurants avoid closures, buy up new property and continue to cater to increased delivery demand.