COVID-19 Restaurant Trends: The Rise of Ghost Kitchens

What if you could bring a new menu to market in a month, instead of a year? What if you could also do it at 10-20% of the cost of opening a brick-and-mortar and with minimal licensing, hiring, or startup costs, and instead simply pay fixed rent and delivery fees? 

These are some of the promises of ghost kitchens, which are rapidly gaining traction as  consumers lean into off-premises dining and social distancing measures continue to restrict dine-in options. Ghost kitchens and virtual restaurant concepts have taken on new relevance for the restaurant industry, potentially signalling a long-term shift in how restaurants do business.

Ghost and virtual kitchens, explained

Both ghost kitchens and virtual restaurants exist entirely online, and they differ primarily by where they’re located.

Ghost kitchens

Also called cloud kitchens, shadow, or dark kitchens, ghost kitchens are commissary-style kitchens that operate as restaurants without a storefront or physical dining space, executing menus exclusively through online ordering and delivery. Customers find the menu, order and pay either directly through their ghost kitchen website, or through a food delivery platform like GrubHub, DoorDash, or UberEats

Virtual kitchens

As opposed to ghost kitchens, virtual kitchens’ menus are produced in existing brick and mortar restaurant kitchens, rather than in a separate space. Some restaurants spin off items from their existing menu while others come up with completely new menu items that are designed specifically for the online food delivery market.

Off-premises dining is on the rise

In a 2019 survey from the National Restaurant Association, 66% of operators offered delivery via third-party apps, citing additional revenue as well as the ability to reach new markets as reasons to offer the service. Now, it’s a matter of adapting to survive. 

In August, 70% of restaurants surveyed reported lower same-store sales year-over-year, despite having reopened for dine-in service. So far in October, the restaurant industry has experienced a decline in seated diners of 44% compared to the same time last year, with overall sales down 15.6%. Off-premises sales have made up some of the shortfall, but there is still a long way to go to raise sales to pre-pandemic levels.

Virtual concepts are boosting sales for some chain restaurants

Virtual concepts continue to bring in revenue for restaurants that reopened for dine-in service, a trend that is likely to continue as patios close and dining capacity restrictions continue.

Dog Haus, a gourmet hot dog restaurant chain, had planned to launch their suite of eight virtual brands in December 2020, but instead rolled out four of the eight brands this spring, preparing orders in restaurant kitchens for delivery, or for pickup while dining rooms remained closed.  

Famous Dave’s Barbecue was also exploring ghost kitchen options when stay-at-home orders put an end to dine-in service in March, and they opened their first cloud kitchen in Chicago in April. Smokey Bones Bar & Fire Grill launched two virtual brands, The Wing Experience and The Burger Experience, from inside its new ghost kitchen in Chicago, and from its 61 existing restaurant kitchens. 

MIami-based The Local Culinary has created 50 distinct, digital-only brands for its ghost kitchen operation, and is currently expanding as a franchise, licensing its brands for production out of existing restaurant kitchens or ghost kitchens. Franchisees benefit from preferred rates with third-party delivery providers.

Ghost kitchen are big business

POS integration company Chowly recently estimated that between ghost kitchens and virtual brands, there are as many as 100,000 digital-only concepts currently operating, and the industry is booming. 

Kitchen United, a ghost kitchen operator that launched in 2017, raised $40 million in 2018 and 2019 to expand their operations, while former Uber CEO Travis Kalankick has reportedly invested $130 million of his own into his current ghost kitchen venture, CloudKitchens, which now operates over 40 locations across the U.S. 

Last year, NYC-based Zuul secured $9 million for expansion, and Reef Kitchens is rapidly growing its neighborhood kitchen venture into more of its 4,500+ parking lots across North America.

Benefits of embracing virtual concepts

  • Greater return on fixed costs – Existing kitchen staff and space can be used to produce virtual menus.
  • Trial run new menu items – Minimal startup costs and low-cost promotions through existing third-party apps and social media.
  • Leverage search engine functionality – A focused menu concept, like fried chicken, burgers, grain bowls, or pizza better attracts search hits than does a broad, restaurant-style menu. 
  • Diversify products and client base with multiple brands and still retain existing clientele for in-house dining.

Challenges of adding virtual to an existing kitchen

  • Order management – Coordinating orders from multiple sites and multiple concepts can be complicated, and mistakes can be costly. Order aggregators like Deliverect, Ordermark, Chowley, and Otter provide software and support, integrating with existing POS and delivery apps to manage orders for dine-in, takeout, and delivery. 
  • Restaurant layout – Not all restaurants are designed or equipped to shift to delivery, especially while trying to cook for a dine-in crowd as well. Offsite ghost kitchens can make the difference here.
  • Packaging and travel-friendly menu items – Designing menus and choosing packaging that can survive delivery will make an important impact on the overall customer experience.
  • High delivery fees – Third-party delivery services usually range from 20-40%.

Virtual dining in the next normal

As 2020 continues to challenge the restaurant industry, restaurateurs are rethinking how to adapt hospitality for the ‘next normal’ and beyond. With their relatively low barrier to entry, ghost kitchens and virtual restaurants provide a reduced risk, technology-driven option for restaurants to launch new menu items, drive sales and reach more off-premises diners.

Covid-19 has shifted consumer preferences, and health has become a priority. With the Klēn app’s proprietary scoring system, customers can quickly see if their new favorite virtual, ghost or brick-and-mortar kitchen is taking the right precautions to protect their health and safety so they can enjoy their meal with confidence, wherever they are.