The State of Ghost Kitchens in 2022

Over the past two years of the COVID-19 pandemic, franchise chains have had to come up with creative ways to save on costs while keeping revenue up. One of the most popular strategies has been the widespread adoption of ghost kitchens — physical locations designed to serve delivery-only concepts or serve as mobile order-only restaurants, with no storefronts or dining areas. Although the ghost kitchen phenomenon has been picking up steam for a while, especially among QSR concepts and third-party delivery providers, the pandemic significantly accelerated the trend. Now, heading into 2022, the ghost kitchen train shows no signs of slowing down. 

Ghost kitchens allow restaurants to secure market share at a lower cost of production by significantly bringing down rent and staffing costs. Franchisors are finding that all you really need is a kitchen, an online menu and a way to deliver food (usually through a delivery app). If done correctly, ghost kitchens can also reduce food delivery times and improve operational efficiency with the added volume delivery creates. 

And while some franchisors have decided to simply open ghost kitchens under their established brand names, many are choosing to start fresh with new brands — virtual concepts — as a way to differentiate their offerings and diversify their franchisees’ portfolios. Plus, virtual brands are an easy way to expand a franchisor’s reach without necessarily needing to sign new franchise agreements.

For the franchisee, virtual brands not only offer a way to increase the bottom line of their established restaurants, but also the opportunity to expand easily into new markets or diversify their consumer offering through multiple brands.

1851 Franchise spoke with Al Hank, BBQ Holdings Inc.’s chief operating officer, to learn about the strategy behind barbeque concept Famous Dave’s* successful ghost kitchen expansion and hear his opinions on the future of the trend in 2022.

1851 Franchise: Can you tell me a bit about Famous Dave’s history with ghost kitchens?

Al Hank: We first dabbled in ghost kitchens way back in 2018 when we launched a concept called Burgers and Sandwiches by Famous Dave’s. The thought process there was that Famous Dave’s was very well-known for barbecue, but we had a lot of other great menu items that weren’t being highlighted on third-party delivery platforms. At that time, there was a lot of data that showed people would primarily find food options through third-party delivery platforms’ different category sections, and Famous Dave’s was only showing up under the BBQ category. So we spun off a concept to make sure we showed up in other categories like burgers and sandwiches. We launched another concept called Hayward's Hen House to enter the chicken delivery segment in early 2020 and ran that for a little while. 

Now, our newest ghost kitchen concept is $5 Burgers, which we launched a few months ago. We know that burgers sell really well, but it is an incredibly saturated market. If we can go in and make a concept based around value, especially in a third-party-delivery marketplace, we can stand out while enticing guests to build the check through sides, sodas, etc. If you can go into that market and tell a compelling story, you will generate interest, buzz and clicks. 

1851 Franchise: How would you describe the state of ghost kitchens in 2022? 

Hank: We still believe that ghost kitchens are just a piece of the restaurant business. Generally speaking, ghost kitchens have provided a lift in some locations that weren’t performing as well as they had in previous years. Especially with some of our dine-in-heavy brands like Granite City Brewery, operators saw sales impacted by COVID-19. Famous Dave’s, on the other hand, was already operating at 30% off-premise service, which has now grown to 55%. If you look at those types of brands, they have that infrastructure to grow, while other brands are struggling. So, in locations where we have identified the viability of a market, we are able to deploy Famous Dave’s ghost kitchens and add anywhere from $5,000 to $12,000 a week in revenue for franchisees, which is incremental because rent doesn’t go up with a ghost kitchen. It has been a very viable lever for us to pull from that perspective. 

Now, as we look to the future, ghost kitchens will allow us to affordably test the viability of a market. For example, we’ve been able to enter markets where there was at one time a Famous Dave’s brick-and-mortar location and reintroduce the brand back into the community through a ghost kitchen. The brand already has a strong following in the market, so we are able to go back in and test the viability of that market. This is even more valuable in brand-new markets where we can determine if a brick-and-mortar location makes sense. That is typically a multi-million-dollar test, and you never know what the outcome is going to be, but ghost kitchens allow you to do it in a much more cost-effective manner. That is why ghost kitchens will continue to play a role in our business model.

1851 Franchise: Why are ghost kitchens well-positioned for the current industry landscape?

Hank: Based on what we’ve seen in our business, off-premise has sustained its popularity over the past year. We’ve seen a slight drop off from mid-2020, but a lot of that growth has been sustained. The key component to making sure off-premise stays strong is having a really fluid ordering and pick-up experience. The synergy has to be there. If you can execute a positive and seamless experience for the consumer, they will want to re-engage over and over again. Off-premise is all about convenience. 

When you think about ghost kitchens, virtual concepts have also played a role. Are all virtual concepts going to sustain and make it? No. You’ve seen those come in and make a big splash, like MrBeastBurger, but time will tell how long they stay successful. We believe that as long as the owner is continuing to promote the ghost kitchen and make it relevant, it will succeed. We’ve seen a lot of concepts sign on quite a few ghost kitchen units lately — it offers owners a way to increase top-line revenue, but only if the concept is viable. It has to be something that can operate successfully from the owner’s perspective. You can’t just innondate the back-of-house with a ton of new menu items, they have to be able to continue to maintain operations.

1851 Franchise: Speaking of the owners, can new franchisees sign on with a Famous Dave’s ghost kitchen?

Hank: We don’t take on franchisees from a ghost-kitchen-only perspective. We have about 20 franchise-operated ghost kitchens right now, all of which were with pre-existing Famous Dave’s operators who own other restaurants that they can operate the ghost kitchen out of. There is a lot that goes into Famous Dave’s, so we felt most comfortable executing this with current franchisees who already have the teams and knowledge in place. That creates a more successful environment. We’ve had inquiries about ghost kitchens with new franchisees, but for right now we are focused on existing Famous Dave’s franchisees. 

Photo credit: sctimes.com