When so-called “ghost kitchens” started appearing on the dining scene, they seemed like an enterprising solution to several nagging problems: the tight labor market, rising costs and the public’s growing appetite for delivered meals.
Some companies have thrived – most notably Green Summit, which operates delivery-only brands out of commissaries in major metropolitan areas. But others, including the chef-backed Maple, have drowned in a sea of red ink.
Ghost kitchens – typically remote spaces rented by existing restaurants to handle delivery and takeout orders – are not for everyone, but they can open a new revenue stream, boost profits and grab more market share.
WHY GO REMOTE?
Most operators launch a ghost kitchen to capture more of the hot delivery segment. U.S. food delivery sales will top $19.4 million in 2019, with growth estimated to rise another 6% per year for the next five years, according to Statista. Restaurants that aren’t equipped to handle high-volume delivery, however, face certain challenges. The food looks and tastes different from what’s served on premise, or dine-in customers are alienated by slow service from an overburdened kitchen.
Terri Bloomgarden, co-owner of Canter’s Deli in the Fairfax neighborhood of central Los Angeles, says kitchen logjams drove her to open an off-site commissary dedicated to delivery orders. “We do a lot of takeout and delivery, and if you don’t have a separate area for that, customers don’t understand what you’re doing when they are in the restaurant, waiting in line,” she says. Reaching a potential new market – downtown Los Angeles – factored in as well.
WORK THE SPACE
Leasing and equipping a ghost kitchen is a bargain compared to building a new restaurant. Owners tend to face $750,000 to $1.2 million in expenses to open a small restaurant in a high-demand urban area. However, $50,000 or so in initial fees for hiring, training and other opening costs can land a leased, fully equipped facility like those run by Kitchen United.
Unused space also can be devoted to building out a separate identity as a ghost concept. Will Gilson, co-owner of Boston’s Puritan & Co., converted a storage area into Puritan Trading Company, a takeout/ delivery concept. The move has allowed him to explore global flavors. Instead of braised lamb shank and mushroom cavatelli, Puritan Trading customers can order banh mi sandwiches, fish tacos and seafood dumplings with piri piri sauce.
“The first week we were doing about the same volume that were doing out of the restaurant,” Gilson says.
PROBLEMS THAT DISAPPEAR
Because guest traffic typically isn’t a factor, site selection is less crucial, provided a space is located within a populated delivery radius. Affordable rent and self-sufficiency drove Rich Levy to cofound three ghost concepts in Chicago – Cluckson’s, Butterclaw Lobster Co., and GuacDog. Leaving behind traditional restaurants, he targeted a specific niche, corporate catering – then set a 10-person minimum for orders. Levy, a partner and one employee handle all orders, and if more help is needed for events, he finds it. “In catering, the only time you have to be on is when the phone rings, and when you show up to deliver and present the food.”
Eric Greenspan, a Food Network regular and former chef at Patina and the now-closed The Foundry in Los Angeles, also doesn’t miss the pressures of a brick-and-mortar operation. From a rented kitchen, he launched Alt/Grub/Fraction to allow for a more stress-free lifestyle. It’s a virtual food court that’s incubated four concepts: Chino (Latin-Asian fusion), Bubu’s (fried chicken and burgers), Brekkie (all-day breakfast) and 2 On a Roll (breakfast and deli sandwiches). “I can shift concepts and hours of operation on a dime,” he says. “With a restaurant, I have to be open and completely fleshed out. Now, if I change my hours, I’m not inconveniencing anyone. I can add and take away concepts, change menu items and see what effect that has on my business.”
Greenspan is eying the conversion of at least one brand into a growth vehicle for brick-and-mortar locations, but he plans to continue with delivery-only concepts. “The landscape is changing dramatically, and I think this is a good way to mitigate those changes,” he says.
THE DEVIL IS IN THE DETAILS
Ghost kitchens come with their own set of challenges, says Lettuce Entertain You Enterprises chef-partner Tim Hockett. In 2017, he launched a ghost restaurant, ASAP Poke, out of a kitchen that serves two other Chicago brick-and-mortar concepts: Naoki Sushi and Stratford on the Park. “If you don’t do it with another restaurant there, you don’t have the benefit of dine-in or alcohol sales, which really drive the bottom line,” he observes. A ghost operation on premise allows the staff to pitch in as necessary.
Scoping out a high-demand area supported by digital natives is paramount, says Jim Collins, CEO of Kitchen United, which is growing and eying New York, Chicago, San Francisco, Los Angeles, Seattle, and some college and university towns – “where there is very deep penetration of delivery.” Ghost kitchens, he says, make the most sense in cities densely populated with millennials and Gen Z'ers, who order delivery several times a week.
Food quality can be controlled best by dishes that travel well, and ensuring that hot foods stay hot and cold foods stay cold, Collins says.
Ghost kitchens, for better or worse, depend heavily on third-party delivery, such as Uber Eats, Postmates and GrubHub, which makes it tough to forge a personal connection with diners. “It’s almost at the point where you can’t take it on yourself,” Greenspan says. “It used to be people would look at restaurant websites when they wanted to order food. Now they say, ‘I’m hungry,’ turn on their favorite delivery app, and start to scroll through to decide what they want to eat.”
Cannibalization of an established restaurant’s business is also a risk. A potential workaround? Operate delivery-only as a “sub-brand,” separate from your flagship operation, offering either different food or a scaled-down version of the on-premise menu. The latter is probably advisable, since so many delivery orders are placed via mobile devices, where simplicity is a plus.
With takeout becoming a fact of life, ghost kitchens can help restaurants prepare for what’s almost inevitably on the horizon. “If people want it delivered, they’re going to have it delivered,” Canter’s Bloomgarden says.
Is a Remote Right for You?
Some considerations before setting up a ghost restaurant:
- If your current restaurant can’t accommodate high-volume takeout, a dedicated offsite space could be the answer to increasing the bottom line
- Foot traffic isn’t critical, but driving radius and the density of customers is. Leasing in a less popular area could lower costs
- Launching a remote concept can help determine if a risky or offbeat concept can work, thus allowing chefs to explore their creativity
- Off-site operations don’t benefit from bar sales, an argument for adding to an existing operation if space allows