2022 put dine-in restaurants to the test, as many had to get creative with how they reached their customers. With limits on dining options, takeout and food delivery apps became more popular than ever before. This in turn has made online ordering a priority for multiple restaurants of all sizes.
If you're thinking of starting ghost kitchen brands, this guide is for you. We'll talk about how they work, the different types available, whether they tend to be profitable, and how to get started with setting one up. By the end of this guide, you should have a good understanding of which model would fit best your needs and goals.
What is a Ghost Kitchen?
In recent years, the food industry has seen a dramatic rise in the number of "ghost kitchens".
The idea of a "ghost kitchen" originated around the same time that the demand for restaurant meal deliveries started to soar. Companies that offer a commercial kitchen recognized an opportunity to meet this new need as more and more individuals began ordering meals online for delivery to their homes.
"Commissary kitchens" are a term used to describe ghost kitchens. Other names include:
- Cloud kitchens
- Dark kitchens
- Delivery Kitchens
- Off-premise kitchens
- Shadow kitchens
- Virtual kitchens
In terms of how meals are made, a traditional kitchen and off-premise-kitchens are actually fairly similar. A 'ghost kitchen' is a commercial kitchen that prepares food and only offers delivery and take-out options, without any dining room. Customers place an order and then the meal is prepared. This type of business model allows the ghost kitchen business to be located away from high-rent urban areas with little foot traffic.
How do ghost kitchens operate?
The way customers would order from a regular restaurant applies to ghost kitchens as well - through the establishment's website or mobile app, or through a third-party delivery service. Customers can select their meals and pay via credit card or bank transfer.
Customers order food from the virtual brand kitchen in much the same way as they would at a traditional restaurant. Customers may contact the ghost kitchen through the restaurant's website or mobile app, or via a third-party delivery application, to place an order, and pay for their food with a credit card or bank transfer.
When a customer places an order, the kitchen is informed so that meals may begin to be prepared. Delivery drivers employed by the restaurant or third-party delivery applications carry the meal to the specified address once it is ready. Funds are then available to the company after the consumer receives their purchase and the transaction is completed.
The online food delivery market is booming
The online food delivery market has become a booming industry in recent years and is expected to continue to grow in the coming years. This is due to a number of factors, including the increasing popularity of ordering food online and the growing number of people living in urban areas.
As the number of Americans ordering food online continues to grow, market providers and consumer data, such as Statista, are working hard to keep up with demand. According to Statista’s latest data:
- The Online Food Delivery segment's revenue is estimated to reach US$63.02bn by the year 2022.
- By 2027, it is estimated that the number of users in the Online Food Delivery segment will reach 217.1 million people.
- It is projected that revenue will grow at an annual rate of 8.9 percent over the next five years, resulting in a market volume of $96.5 billion by 2027.
How many orders does a ghost kitchen get each day?
This number can vary greatly depending on the location, size, and type of ghost kitchen. Some ghost kitchens are able to fulfill a large number of orders each day, while others may only receive a handful.
One way to determine how many online orders a ghost kitchen is likely to receive is by looking at the number of people living in the surrounding area. For example, a ghost kitchen located in New York City is likely to receive more orders than one located in a small town. This is because there are more people living in urban areas, and they are more likely to order food online for delivery.
Another factor that can affect the number of orders a ghost kitchen receives is the type of menu items they offer. For example, a ghost kitchen that specializes in online orders such as pizza is likely to receive more orders than one that specializes in salads. This is because people are more likely to order pizza for delivery than they are to order a salad.
Why would you want a ghost kitchen?
There are several benefits that ghost kitchens provide, both for established restaurants and for customers.
For restaurants, ghost kitchens can:
- Reduce overhead costs: Because they do not require a physical dining space, ghost kitchens have lower overhead costs than traditional restaurants. This includes costs such as rent, utilities, and insurance.
- Increase efficiency: Ghost kitchens are designed to be highly efficient in terms of both space and labor. This helps to keep costs down and increase profitability.
- Scale quickly: Ghost kitchens can be set up quickly and easily, which is ideal for businesses that want to expand their operations rapidly.
- Increase flexibility: Ghost kitchens can be located anywhere, which gives restaurant businesses the flexibility to open multiple locations without incurring the costs of opening and maintaining an established brick-and-mortar presence.
- Expand reach: Ghost kitchens allow restaurants to reach a wider audience by expanding their delivery range. They can also target new customer segments, such as office workers and stay-at-home parents.
- Ability to use your existing kitchen equipment: If you have a home kitchen that is not being used to its full potential, you can use it as a ghost kitchen to generate additional income.
- Offering delivery-only items allows you to experiment with new menu items or appeal to a wider range of diners. For example, an upscale steakhouse could add a delivery-only menu focused on burgers, or a pancake house could deliver pizza at night.
- Caters to growing customer demand for take-out and home delivery
For customers, ghost kitchens can:
- Provide more options: With more and more people ordering food online, ghost kitchens provide customers with additional dining options.
- Increase convenience: Ghost kitchens can be located near customers’ homes or workplaces, making it more convenient for them to get their meals delivered.
- Save time: Customers can save time by ordering from a ghost kitchen instead of having to cook their own meals.
- Offer food from a wider variety of restaurants: Because they are not limited by geographic location, ghost kitchens offer customers access to a wider variety of restaurants.
- Provide faster delivery: A ghost kitchen typically have shorter wait times for food delivery than a traditional restaurant. This is due to the fact that they are designed specifically for delivery and do not have to accommodate on-premise customers.
The challenges behind the ghost kitchen model
Although ghost kitchens offer various advantages, they also present difficulties that businesses should take into account. For example, the ghost kitchen business model tends to be more complicated for smaller ghost kitchen operators to execute.
We've outlined the lists of the common challenges of this type of business model. These include the following:
- High upfront costs: While ghost kitchens have lower operational costs than traditional restaurants, they often have higher upfront costs. This is due to the fact that they require specialized equipment and dedicated kitchen space.
- Risk of failure: Without a brick-and-mortar location, businesses are reliant on delivery sales to succeed. This can be risky, as delivery orders can be unpredictable.
- Competition: The ghost kitchen market is becoming increasingly competitive, with more and more businesses vying for a share of the pie. This means that it is important for businesses to differentiate themselves in order to succeed.
- A limited type of customer: Some customers may be hesitant to order from a virtual restaurant, as they may not be familiar with the concept. This can limit the potential customer base for businesses operating in this kitchen space.
- Decreased visibility: Without a prime location, businesses may have difficulty getting their brand in front of potential customers. This can make generating awareness and building a loyal customer base difficult.
- No walk-in traffic: Because ghost kitchens do not have a physical location, they rely on delivery orders to generate revenue. This can be a challenge for businesses, as they will not have the benefit of walk-in traffic.
- Over-relies on technology: The ghost kitchen model relies heavily on technology, from online ordering platforms to GPS tracking for delivery. This can be a challenge for a ghost kitchen business, as they need to ensure that their systems are up and running at all times. It also requires a high degree of coordination between different businesses. They also have to contend with the risk of delivery orders being delayed or canceled
6 Unique Types of Ghost Kitchens
1. Independent Ghost Kitchen
An independent ghost kitchen is a single-menu food business operation that doesn't have a storefront. Most of them partner with multiple third-party delivery apps, and they leave prepared orders for their drivers to pick up at the front desk. If these companies do not own their customers' data, they cannot interact with or keep them separate from partnered delivery services.
2. Multi Brand Ghost Kitchen
A ghost kitchen may be a single-brand or a multi-brand company. In the same manner, as single-brand ghost kitchens, multi-brand ghost kitchens accept orders and deliver goods. The scale of a multi-brand facility differs from that of a single-brand one.
Having several virtual dining concepts not only boosts the number of orders you receive but also broadens your customer base. People are hesitant to try out restaurants that say they have the best sushi and spaghetti, but with satellite kitchens, you can anonymously make different menus without raising suspicion.
3. Operator Managed Ghost Kitchen
Virtual restaurant menus are created in brick-and-mortar locations' kitchen spaces known as operator-managed ghost kitchens or virtual franchises. They won't have a physical menu with the virtual concept listed on it. Customers can order through either the food ordering website/mobile apps or third-party delivery apps.
Operators who manage ghost kitchens can capture customers who typically avoid them to save on delivery fees. This is especially advantageous for bakery and cafe owners whose kitchens are unused during the day. Many grocery stores, including Walmart and Kroger, have adopted this business model as well.
4. Mid Ground Ghost Kitchen
In a mid-ground ghost kitchen, employees prepare meals in a tiny storefront where clients can pick up their food if they want. Many mid-ground satellite kitchens are creating a drive-through-only, off-premises dining model, but a simple pickup window is enough. Although renting a pickup area may cost you more money, delivery services may take up to 30% of each order, ensuring that you'll make more money than if you served clients on the premises.
In contrast to other delivery services, mid-ground ghost kitchens take orders directly from customers. This gives them greater control and ease of access to their client base if they ever need to modify how they deliver food. Furthermore, since many purchasers want the flexibility of eating at home without having to pay a delivery charge, mid-ground ghost kitchens have the potential to attract a broader range of consumers.
5. Brand-Owned Ghost Kitchen
More and more brand-owned ghost kitchens are partnering with single third-party delivery apps services to maintain better control of their product's quality. When a business owner agrees to only take orders through one platform, they have an increased level of power when it comes to overseeing the delivery process.
Virtual brand companies that sign an agreement with a third-party delivery service are relinquishing any authority over their customer data to that company. If the virtual restaurant tries to make a change, they would lose all of their customers and have to begin anew, which means higher prices could be enacted at any given time by the delivery service.
While it may be riskier, one delivery business may have a variety of benefits. If you choose an app for your ghost kitchen, it's more likely to assist you succeed. Furthermore, if the experience is branded, you'll appear higher on the search results page and will be eligible for extra free advertising.
6. Virtual Spin-Off Ghost Kitchens
To take advantage of its popularity, numerous businesses develop virtual kitchen concepts based on their food. These firms can test out new markets without having to open a physical location by providing a limited menu that includes food delivery-friendly items.
What factors should be identified before choosing a concept for the ghost restaurant
Ghost kitchen facilities are great, but they come with a few things you should be aware of before diving in head-first. For example, some versions of the shared-production partnership model don't give the primary restaurant any input on how the ghost kitchen's food turns out. Additionally, none of its own personnel are involved in making it which could risk its reputation if something goes wrong and the quality is poor.
If you're a restaurateur mulling over adding ghost kitchens to your business, there are quite a few questions you'll need answers to first.
The restaurant's objectives are important to take into consideration
Before you choose a ghost kitchen operator, consider what your goals are for this new facet of your food business. Are you looking to do away with dine-in service entirely? Add delivery where it wasn't an option before? Or take orders from somewhere outside of your restaurant's usual delivery range? Once you've decided on your objective, it'll be easier to identify which potential operator would best help you achieve it.
Consider your current physical space
Are your current point-of-sale and kitchen display systems working for your company — especially when it comes to takeout and delivery? To support a virtual-kitchen concept, a restaurant's technology and payment solutions must be connected with an effective online-ordering platform.
Factor in potential costs and ongoing volume
Are you willing to pay a ghost kitchen operator in order to maintain your volume of orders? How much money do you stand to make? Ghost kitchens have shown themselves beneficial for large food chains by providing additional resources and the ability to deliver or allow customers to take out their food.
Shared-kitchen operators charge start-up fees and monthly expenses to restaurateurs, yet smaller restaurants should do cost analyses to see if any ghost-kitchen collaboration makes financial sense in terms of costs and delivery/order volume.
A Ghost Kitchen Checklist
Now that we've gone over some of the basics, let's get into what you'll need to have in order to make a successful ghost kitchen.
1. Rent a commissary kitchen or space
Ghost kitchens are simply kitchen spaces with no sitting or waiting areas. When searching for a location to start your delivery kitchen business, you have two alternatives:
- Commissary kitchens: Food service kitchens that are entirely equipped with everything you would find in a restaurant kitchen are available for rent at these locations. They cost less than what you would pay to lease space in a commercial building. If you want to lower your rent costs, even more. You may opt for a commissary kitchen that is shared with another virtual restaurant.
- Low-rent commercial spaces: If you want to open a restaurant, then you should ideally choose high-traffic areas. However, ghost kitchens don't need foot traffic to survive since they focus on delivery services. You can operate from a low-rent commercial space as long as it is still easily located and accessible by customers and delivery couriers.
You may operate a pop-up ghost kitchen as a unique new business even if you already owned traditional restaurant business. A pop-up ghost kitchen can be utilized as an online order fulfillment center.
2. Create Your Food Concepts
When deciding on a concept for your restaurant, remember to keep your target delivery customers in mind. A recent study found that the popular age group among vegetarians are millennial. If you're wanting to serve vegan-friendly foods, then it might be a good idea to adopt vegetarian fusion cuisine. Build your menu around items that best represent your concept.
Another advantage of ghost kitchens is that if one concept fails, you may easily move to another for a minimal cost. You can also utilize ghost kitchens to test new ideas for your restaurant business.
What type of online menu has seen the most success?
To have a successful restaurant, you should prepare food that is popular in your area. However, even if there is a high demand for food in this kind of business model, the quality of great food matters just as much. If Mediterranean food, Asian food, or chicken wings are wanted by many people but don't taste good, the restaurant will not do well.
3. Create an Online Presence
One of the simplest and most cost-effective methods to market your restaurant is by creating a website and social media accounts. By doing this, potential customers will have no trouble finding you online. To further interest them in dining with you, post pictures and detailed descriptions of every dish on your menu.
When it comes to your virtual brand and social media channels, you need to post frequently with interesting material in order to attract new followers. Remember to always include your company's contact information and availability times so that consumers may get in touch with you if they have any queries.
4. Ghost Kitchen Staffing
While typical restaurants require front-of-house staff, such as waiters and hostesses, ghost kitchens only require cooks. Therefore, when hiring for a commercial kitchen, you must solely consider how many cooks to hire based on your establishment's budget and needs.
To keep employees safe, establish social distance standards, impose personal hygiene requirements, and clean high-contact surfaces on a regular basis. With virtual kitchens, there is limited customer interaction in comparison to dine-in restaurants.
5. In order to streamline your business, develop a food delivery process, or join forces with food delivery apps
It's possible to deliver meals to your consumers in a variety of ways. You might utilize a third-party food delivery app, establish your own delivery system on your website, or do both.
Here are some advantages and disadvantages of each option.
Third-party delivery applications: While food delivery businesses make it simple for customers to locate you, each third-party app has a fee that may damage your company.
Website delivery system: Keep operational costs low by using a website builder to process orders rather than a point-of-sale system. Although POS systems have monthly payment plans, builders are generally cheaper in the long run.
6. Provide Excellent Packaging When You Deliver Your Products
To ensure customer satisfaction, it is important to package your product well. Use high-quality materials that will protect your product during shipping and delivery. Utilize creative packaging solutions that will make your product stand out on store shelves or online.
Who would benefit most from a ghost kitchen model?
The ghost kitchen business model is popular among people who are cash-strapped and wish to start a low-risk company with little overhead. Ghost kitchens have fewer expenses than conventional restaurants since they avoid the costs of front-of-house personnel and dining space. However, are they the ideal method to begin? You'll be competing against delivery-focused chains that have been fine-tuning their strategies for years. And you'll have nothing going for you when it comes to a customer base or reputation.
The off-premise kitchen model can provide a platform to newbies with a lower barrier to entry, which makes sense if you're trying to build a brand without investing in a brick-and-mortar outlet. However, you should also keep in mind that the right tech investments for your kitchen, order management equipment, menu optimization, and the team will improve your chances of success tenfold in such a competitive market. With this said, don't try to do it on too tight of a budget.
The current popularity of take-out has resulted in many restaurateurs finding that to-go orders now exceed those dining in. Some entrepreneurs have come up with the "own ghost kitchen" concept to make use of this change in customer tastes. Ghost kitchens are delivery-only side businesses that don't build separate kitchens; instead, they utilize physical space from existing restaurants.
These virtual restaurants could either be a spin-off from their regular dine-in menu or new concepts designed to meet customer demands. The food delivery service model can help you convert and take advantage of the existing kitchens without spending a lot of money on completely more space. To make the most of your existing resources while keeping staff occupied at quieter times. It also has the danger of compromising dine-in enjoyment. The goal of establishing a ghost kitchen is to increase efficiency. You won't receive this benefit if your kitchen isn't geared towards serving both dine-in and delivery customers.
Operators of Food Trucks Seeking Growth
A food truck's advantages are that you can take your kitchen with you wherever customers might be. The disadvantages to this model, however, include the lack of kitchen space in a mobile unit, the difficulties of finding good locations and insurance coverage, and how business is affected by external forces such as weather.
If you're a food truck owner and interested in expanding your business, ghost kitchens could provide the perfect solution - helping you to centralize production aspects or reach more new customers. Of course, this option is best if you have some financial capital to invest and strong brand identity.
Restaurant Chains Switching to Take–Out or Delivery
A ghost kitchen can serve as a production hub for your restaurant group's many successful concepts in one city or region. Moreover, it can be designed specifically to fill takeaway and delivery business orders quickly and efficiently.
A ghost kitchen has the potential to enable you to serve more customers outside of your restaurant's usual catchment areas. This could lead to an increase in production efficiency for your whole group, as well as new revenue opportunities. All of this means that more people can try out more of your restaurants, which could pave the way for exponential growth.
Restaurant chains increasing productivity
If you're running a restaurant business internationally or even on a global scale, every element matters. Time, space, and efficiency all play key roles in success. Consequently, an increasing number of restaurant chains have been utilizing ghost kitchens to help with productivity and reduce unnecessary expenses.
By analyzing big data, restaurant chains can determine where an off-premise kitchen would be more beneficial than a brick-and-mortar restaurant. They can also tell when it's best to have one central production facility that serves multiple nearby locations and provides delivery service.
Can ghost kitchens turn a profit?
The digital order and delivery sector has expanded three times as fast as dine-in traffic since 2014, showing that ghost restaurants can be highly profitable.
Cloud kitchens can save on initial expenses, property maintenance, and front-of-house staff. The most substantial threat to a virtual restaurant's bottom line is the pricey third-party delivery fees that could be as high as 30%.
What does the future hold for ghost kitchens?
Though it's still in its early days, the ghost kitchen business model leaves a lot of room for development. With more people stuck at home during the pandemic, there has been a significant rise in demand for delivery and takeout food options- one that is predicted to continue even after restrictions are lifted.
As the world slowly returns to some sense of normalcy, it will be interesting to see how ghost kitchens adapt. Some believe that there will be a shift towards more permanent locations, while others speculate that the rise of home cooking will lead to a decline in the popularity of the delivery business. Only time will tell what the future holds for this unique and innovative industry.
Are ghost kitchens right for your business?
Cloud kitchens are becoming more popular in the restaurant industry, as they offer a flexible and cost-effective way to open a restaurant. However, before deciding if this is the right option for your business, it's important to weigh the pros and cons. If you're considering opening your own ghost kitchen, do your research and consult with experienced professionals to ensure that you make the best decision for your business.
See your ROI grow as you invest in the 'Ghost Kitchen' trend and its potential for profitability. By staying ahead of the curve, you're not just keeping up with industry changes; you're securing your place in the future of food service.