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Feb 11 2022

The Rise of the Ghost Kitchen

You’ve probably heard the hype – ghost kitchens are the future of fast food. But what are ghost kitchens exactly, and are they here to stay?

We’ve got all the ins and outs of ghost kitchens. How they work, the different types, who else is jumping on the trend, and what the numbers say.

What exactly is a ghost kitchen?

Ghost kitchens, otherwise known as dark kitchens and virtual restaurants, are spaces designed for preparing delivery orders. They don’t have a storefront, a dine-in area, or really, any customers at all. They're instead designed just for fulfilling online orders. While some are set up as a delivery-specific addition to an established business, others are brand new small restaurant owners.

Unlike existing brick and mortar restaurants, ghost kitchens are often rented spaces, and sometimes even shared with other brands. They’re located in areas with a lot of demand for food delivery, but not necessarily in prime real estate.

They also rely entirely on their virtual presence, so marketing online is crucial to their success. As are their delivery drivers!

If you’re wanting to tap into this nearly half-a-trillion dollar industry, it’s important to build a brand that can evolve and meet changing customer demands in your area.

Growth from the COVID pandemic

To get a feel for how huge this market is right now, just look to this recent report from QSR. Up to 50% of dine-in restaurants have expanded their business to off-premise sites since the start of the pandemic.

In research from the National Restaurant Association, casual dining restaurants increased off-premise sales by 70% as a result of COVID-19.

Takeout has always been a part of American life. But today, it’s even more than that – takeout is ingrained into the way we live and eat. 64% of millennials say purchasing delivery food is essential, and 68% of adults say they purchase more takeout now than before the pandemic.

But will those numbers stick? Industry leaders (like Texas Roadhouse CEO Kent Taylor) seem to say, overwhelmingly, yes. While on-premise dining will eventually regain popularity, the demand for delivery will stay strong. The advanced ease and convenience now offered by food vendors is a permanent fixture in the restaurant market.

What's the difference between a ghost kitchen and delivery at brick-and-mortar restaurants?

Simply put, ghost kitchens are purpose-built for preparing delivery orders, while brick and mortar restaurants are designed for on-premise customers. Cooking delivery orders in a brick-and-mortar restaurant is almost like trying to make a coffee in your home kitchen while someone else is cooking. While it’s viable and even common, it often doesn’t maximize efficiency.

Brick and mortars restaurants typically have a front-of-house staff to process orders, payment and food. Ghost kitchens, however, rely on technology to automate those purposes, therefore cutting down on labor costs. They use kitchen display systems to view online ordering in real time for a streamlined workflow.

How does a virtual kitchen work

The first step to setting up a ghost kitchen is finding the right rental space. Figuring out what kind of kitchen you’ll need based on your brand will determine your ideal kitchen type and size.

You’ll also need to set up the right technology to support your workflow and services. Online ordering, contactless payment, and kitchen displays are all essential to building a successful ghost kitchen. It’s important to make sure that your technology is integrated, meaning each element is synched as one program. Integration helps keep your communication organized, and also allows you to track sales data, order history, and inventory.

TASK provides integrated restaurant technology that supports some of the biggest brands in the business. Their affordable and intuitive tech designs can leverage the success of a new or expanding ghost kitchen

Finally, you’ll need to launch your restaurant brand online. This involves designing and photographing your menu and building a strong online presence. While digital marketing may at first feel daunting, it’s also a golden opportunity to expand your brand’s influence beyond the confining walls of a traditional storefront.

How is a ghost kitchen operated?

So where to start? You have a brand that you’re ready to make into a versatile delivery business – but what do you need to get a ghost kitchen up and running?

Once you have a space, a menu that you’ve established with your new online brand, and the technology to get you started, it’s time to talk about what actually goes on inside a kitchen.

  • First, you’ll customize the kitchen to your needs. This includes everything from counter space to utensils to technology.
  • Next, your customers will place orders through your online ordering system or point of sale system. This links to your kitchen display system (KDS), so you’ll see orders pop up in real-time. The KDS will even automatically prioritize orders.
  • Once you’ve finished preparing the food, you’ll box it up in memorable, attractive packaging. Think of the packaging as an extension of the food presentation – you want every part of your customer-facing product to look ready for Instagram.
  • You’ll then mark the order as complete from your KDS. From here, the delivery may be handled by your rented kitchen space or a third party.
  • Finally, you wait for glowing reviews from your customers. Promoting positive feedback will help drive up your ratings and push your online brand.

Analyzing order and sales data through your automated technology will help you constantly optimize your menu based on demand. Flexibility and following local trends are essential for ghost kitchens.

Getting to know the main types of Ghost Kitchens

The term can refer to several types of cooking spaces. Some are shared, others are used just for one brand. Here are the main types, so you’ll know how your brand might fit.

Rented Commissary kitchens

These kitchens are often for new brands or small established brands who need more space designated for delivery orders. Imagine a small food truck business expanding its services to delivery. They will likely share the space and resources with a different food truck, and maybe they only operate a few days a week.

Commissary kitchens are great if you’re looking for low upfront costs and limited commitment. They’re not so great if you think you’ll need to dominate a lot of kitchen space to prep your orders.

Incubator/Hidden kitchens

You could also call these “pop-up” kitchens. They’re by nature temporary, put in place to help manage a new subsidiary from an already busy restaurant business or food truck. Maybe they only focus on delivery orders, or the establishment is starting a slightly new branch of their existing brand. Incubator virtual kitchens might even be attached or in the same kitchen as its parent brick and mortar restaurant company.

Incubator kitchens are great for flexibility, testing new recipes and menus or as a spinoff of a brick-and-mortar. They are not for new establishments looking to permanently establish themselves

Kitchen pods

Kitchen pods are an easy-to-transport, flexible option with low startup costs. Kitchen pods typically are converted shipping containers without windows. They have limited space, but more control of their location.

Kitchen pods are a good option for newer brands with low turnover who only require simple preparation methods. They are not designed for busy established brands who need a large amount of space and long working hours.

Impact on the food service industry

Ghost kitchens have exploded in popularity in the last few years. With 6 out of 10 adults saying they’re more likely to order online now than dine-in, it’s no wonder that demand is through the roof for more food delivery options.

Businesses are also waking everyone up to see just how valuable online marketing is for restaurant businesses today. Not too long ago, it would have been unheard of to try to open a food business without a storefront. But now, brands like this one in Santa Monica have established hugely successful food delivery services without ever interacting face-to-face with customers.

The other huge takeaway from the delivery-only restaurant revolution is that they are great for diversifying. If there’s one thing we know, it’s that customers want more choices – specialized, good choices – when choosing their food. Virtual restaurants have the unique ability to be able to run multiple brands under the same restaurant, and even the same kitchen facilities. For example, if you’re selling Asian fusion takeout, you might be able to set up brands for dumplings and noodles and curries – immediately tripling your customer base.

The pros and cons of ghost kitchens

You’re probably already weighing up the pros and cons of running a ghost kitchen versus a more traditional brick-and-mortar restaurant business. Here are the biggest pros and cons of starting a virtual kitchen.

Pros:

  • Low upfront costs.
  • Fewer overheads – lower labor costs without front-of-house staff, and lower bills with rented spaces.
  • Less pressure on location.
  • Ability to tap into a bigger market through virtual marketing.
  • Relatively easy to set up, get started, and experiment with low risk.
  • Easy-to-use and affordable technology can be easily set up to help you get started

Cons:

  • Lose the built-in marketing value of a storefront.
  • Face fierce competition – while your costs are lower, the market is filled with delivery options. To stand out, you’ll need to dominate a food category.
  • More pressure on your digital presence and online reviews.

Starting a ghost kitchen is a fantastic option if your brand is committed to staying delivery-only. For newer business owners, ghost kitchens provide an accessible way to tap into a booming market. For established restaurants, ghost kitchens are a great way to help you keep up with increased demand for deliveries.

Are ghost kitchens profitable?

In brief, yes. Virtual restaurants, if done correctly, can turn a handsome profit without much of an incubation period.

Research from McKinsey & Co shows that real-estate-related costs account for between 22 and 29 percent of a restaurant's costs. With occupancy adding less and less value since the beginning of the Covid-19 pandemic outbreak and dwindling dine-in numbers reducing the opportunities to sell high-value beverages, some restaurant businesses are looking to transition to low-occupancy models.

Ghost kitchens provide a low-cost, high-efficiency framework. Low overheads – reasonable rent, minimal labor, and zero printing costs – means low risk with potentially very high reward. Combine that with a high-efficiency kitchen, using affordable integrated technology, and you’ve got yourself a recipe for great profit margins.

Ghost kitchens are also a way for large brands to tap into a new market and extend their footprint to a wider range of customers.

What chain restaurants are associated with the ghost kitchen concept?

Many big names in the business have jumped on the virtual kitchen bandwagon. Just to name a few:

  • Five Guys
  • Panera Bread
  • Noodles and Company
  • Wendy’s
  • Marco’s Pizza
  • Texas Roadhouse
  • Applebee’s
  • Nathan’s Famous
  • Fazoli’s
  • Dog Haus
  • Dickey’s

Multi-brand Management

A multi-brand strategy is a powerful one established QSRs are using to trial new non-competing restaurant businesses while taking advantage of their existing supply chains and infrastructure.

The newest wave of franchise development sees additional brands developed to best take advantage of brand diversification, territories, existing infrastructures, available physical locations, real estate, and changing trends.

While this approach naturally comes with its own marketing and branding challenges, current trends towards takeaway-only or delivery-only restaurant businesses mean that multi-brand management is becoming a lucrative choice for ghost kitchen brands too. Without the need for dining rooms or even physical locations other than a virtual kitchen or kitchens, brands can deliver multiple streams and brands through minimum real estate.

How Ghost Kitchens Work With Food delivery services

While the virtual restaurant market grows, so will its reliance on third-party apps like UberEats, DoorDash and GrubHub. Rather than investing in in-house delivery drivers, a business model that integrates with established delivery driver businesses can help a ghost restaurant expand.

However, many diners report a preference for making orders directly with restaurants, rather than going through those third-party apps. And so a digital contactless storefront that's designed with your restaurant branding and seamlessly integrates with your kitchen KDS and POS can help leverage more customers and accelerate the success of your kitchen.

Are ghost kitchens the long-term future of fast food

At the start of the pandemic, ghost kitchens exploded as brands scrambled to keep up with increased delivery demand. Now, two years later, virtual kitchens are stronger than ever with no sign of slowing down.

Ghost kitchens may very well be the long-term and permanent solution to fast food delivery. And not just because the food delivery service industry has grown 300% faster than on-premise dining since 2014.

The main reason is that ghost kitchens significantly cut labor needs and costs. The national restaurant association found that 78% of restaurant operators declare that they don’t have enough staff to support their demand. In a growing industry, the only solution is to look to technology to keep up.

Virtual kitchens – and the tech that makes them possible – are certainly here to stay for fast food delivery businesses around the country.

Conclusion

Ghost kitchens are versatile and achievable solutions to growing consumer demand for quality fast food delivery. They can be a subsidiary branch of an existing brand to help streamline and improve delivery service. Or, they can be a new brand taking advantage of digital marketing to establish a low-risk business endeavor.

Ghost kitchens rely on integrated technology to make online ordering a win-win for customers and restaurant operators.

For an in-depth look at the technology behind ghost kitchens, get in touch with the expert team at TASK, and learn more about the future of restaurant industry tech.