As the COVID-19 pandemic continues to impact the restaurant industry, restaurateurs have needed to re-evaluate how they can keep their employees and guests safe. Many restaurant owners have shifted to take out or delivery only, reducing the need for a traditional dining area. As we all adapt to life with COVID-19, restaurant owners should examine if shifting their business model to a ghost kitchen could help them sustain and possibly grow in the future.

What is a ghost kitchen?

While the term ghost kitchen may sound a bit scary, the truth is they are a viable alternative to your regular restaurant. A ghost kitchen is a conventional restaurant, without the dining area. Ghost kitchens are fully equipped, inspected kitchens designed to prepare foods for delivery or takeout only. They have been around for a few years now, but the COVID-19 has dramatically influenced the growth of these hybrid restaurants.

Where are they located?

Ghost kitchens can be located nearly anywhere that will sustain a fully functioning commercial kitchen. Since there is no dining space for patrons, parking requirements are minimal and the square footage requirement is reduced by at least 60% when compared to a conventional restaurant. Ghost kitchens have found homes in a variety of unusual locations, such as in malls that have vacancies left by closed restaurants.

Virtual kitchens - and how they differ from ghost kitchens

Virtual Kitchens are also an intriguing concept borne out of the pandemic. Virtual kitchens are typically the domain of established restaurant chains that want to expand their brands without the expense of brick and mortar construction. How? They take their products to hotels and restaurants that have excess kitchen space. This collaboration can be a win-win for both the established restaurant and the hosting property. The established restaurant gets increased sales and the hosting property gets an increased brand exposure. A good example is Nathan’s Famous, a fast-food restaurant specializing in hot dogs. This legacy brand has opened nearly 100 virtual kitchen locations since the beginning of the pandemic – many more than they could have opened had they taken a more conventional approach.

What are the drivers behind the growth of ghost kitchens?

The biggest driver is the change in consumer dining trends due to COVID-19, but that is not the only driver. Additional drivers for ghost kitchens are:

• Lower cost of entry
• Lower lease costs
• Lower staffing requirements
• Location becomes less important and ultimately easier to find
• Ability to test customer response to a new concept or a new menu

These attributes make ghost kitchens a more viable option for many entrepreneurs. The lower cost of entry has attracted new operators as well as restaurants that want to expand their brands cost-effectively. Sometimes they manifest as “pop-ups” and other times assume a more permanent role. Either way, they are a key part of the survival and growth strategies necessary to survive the current economic conditions created by the pandemic. As consumers become increasingly more comfortable with delivery, we see an extended lifetime for these ghost kitchens that extends far beyond the end of the pandemic.

Ghost kitchen pros and cons

Fed by the current increased consumer demand for pickup and delivery, ghost kitchens show no signs of slowing down. Even chain restaurants have gotten into the arena – from using ghost kitchens as new menu/concept, testing sites to explore the market before building a full-fledged brick and mortar restaurant. Ghost kitchens seem to be a natural evolution, initially driven by demand and further fueled by the operational efficiency inherent with a facility without dine-in guests. However, ghost kitchens do come with challenges:

• No in-person interactions with customers, operators have to be more innovative to stay in touch
• Customer base is limited to those that live or work within a defined delivery area
• Customer acquisition costs are higher
• The use of digital technology is a must, often resulting in a high up front cost for restaurant operators
• The operator will not always have access to consumer data if using a third-party delivery platform
• The restaurant must have the right menu and packaging with delivery to ensure food does not spill or spoil during transfer
• Training of staff becomes even more critical in a delivery-only concept as you have one opportunity to get the order right as it goes out the door

Are ghost kitchens the wave of the restaurant future?

Despite these challenges, ghost kitchens are finding homes across the country. The prediction is that we will see constant growth as more and more people continue to work from home well past the end of the pandemic. Consumers are rapidly becoming comfortable with delivery and pick-up taking the place of dining inside conventional restaurants. Ghost kitchens can be profitable at a lower sales threshold due to their lower occupancy, labor and operating costs. Ghost kitchens are a sustainable restaurant format with strong growth potential.

Is a ghost kitchen right for you?

Each restaurateur needs to evaluate their business goals to see what makes the most sense for their restaurant. A few key factors to consider:

• Does a ghost kitchen fit into the long-term growth plans for your business?
• Can your concept and menu be adapted to delivery only?
• Are you able to adapt your meals and packaging for delivery without denigrating food quality?
• Is your concept too dependent upon the in-house dining experience to easily port over to delivery only?
• Do you have – or are you willing to secure the digital technology necessary to become a highly efficient ghost kitchen operator?
• Are you a savvy enough online marketer to quickly build your delivery-only business?

Shifting your business model is a big decision. Take time to think about your goals, these questions and answer honestly. If you are ready to adapt, do not be frightened – these ghosts are friendly!

About the author

David Foster is a seasoned restaurant and hospitality consultant.