Limited Service Restaurant

5 Ways a Ghost Kitchen Could Boost Your Profits

Apr 06, 2022

5 Ways a Ghost Kitchen Could Boost Your Profits

Thanks to the pandemic, the restaurant industry is evolving at the fastest rate since quick service restaurants revolutionized dining generations ago.

First came the explosion of delivery orders in 2020. Now a closely related phenomenon—the ghost kitchen model—is throwing open the door to innovation and attracting billions of dollars in venture capital with investors hoping to capitalize on the growing market for food on demand.

If you run an independent restaurant or small chain, ghost kitchens represent both an opportunity and a competitive threat. In this article, we’ll discuss five strategic ways you can use the ghost kitchen model to your advantage to overcome operational and financial issues in the age of delivery.

The rise of restaurant infrastructure as a service

Ghost kitchens—restaurants without dine-in space that fill orders exclusively for delivery—are a solution to the challenge of opening or expanding a restaurant’s footprint. A typical dine-in operation can take up to a year to open with a minimum $375,000 investment.1

Ghost kitchens, by comparison, eliminate real estate costs and front-of-house overhead like decor and servers. Instead, they employ a smaller crew to cook and package the orders for delivery. Some restaurant-infrastructure-as-a-service (RIAS) companies claim to be able to stand up a new location in just 4-6 weeks, with little or no upfront investment.

Ghost kitchen space is now available in a growing number of formats:

  • Standalone kitchens typically in industrial locations with proximity to urban customers. They can prep food for one brand or multiple brands that share the space.

  • Existing restaurants that agree to fill orders for other brands using their unused kitchen capacity.

  • Retail spaces and supermarkets that offer branded meals to go from a shared kitchen.

  • Mobile kitchen trailers and trucks that prep food for one or more brands in unconventional locations—like parking lots.

Your favorite restaurant, coming to a parking lot near you

Reef Technology is a leader in this emerging market. Reef—also the largest parking lot operator in North America—places mobile kitchen trailers in parking lots, bringing new choices and shorter delivery times to high-density urban areas. Some of their “kitchen vessels” are dedicated to a single restaurant brand like Burger King. Others fill orders for multiple restaurants. Reef received its most significant boost in August 2021 when Reef Technologies signed a franchise agreement with Wendy’s to create 700 new, delivery-only locations worldwide. Reef hires all of the cooks and buys all of the food, and their scale helps them negotiate more favorable rates with third-party delivery firms. Since 2018, it has raised more than $2 billion in funding.2

CloudKitchens, founded by former Uber CEO Travis Kalanick, takes a different tack, renting out the kitchen space and kitchen equipment to operators who hire their own staff and buy their own food. This gives the operator complete control over food quality while retaining the upfront cost savings of the ghost model.

Companies like Local Kitchens and Crave Delivery operate what are essentially online food halls, offering select dishes from local and regional restaurants. The partner restaurants train the staff to make the recipes correctly in a shared kitchen. The draw of this model? Guests enjoy the convenience of being able to mix and match multiple styles of cuisine from various restaurants in a single order.

Reef isn’t the only nontraditional player getting into the restaurant business via ghost kitchens. Third-party delivery companies like Uber Eats have been marketing their own virtual restaurant brands on their apps and recruiting local restaurants to fill their orders anonymously.

Hypothetical example: Through the ordering data it collects, Uber Eats identifies a neighborhood with a strong interest in fried chicken but without a fried chicken restaurant nearby. It strikes a deal with a local restaurant, say, a pizza place, to make the fried chicken under one of the virtual brands listed on its app. Uber Eats picks up the fried chicken orders from the pizza place and delivers them to the customer.

If you find this profusion of choices exhausting, you’re not alone. The ghost kitchen landscape is evolving by the minute.

Five ways to use ghost kitchens to your advantage

It’s a compelling question: what would you do/serve/build if the upfront cost of opening a restaurant was largely eliminated? Here are five possibilities:

  • Test new restaurant concepts. Wondering how your new concept for a vegan barbecue restaurant will be received? Create a virtual brand, market it on a third-party delivery app, fill the orders through a ghost kitchen and see what happens. If it fails, it may cost you some time, but it won’t cost a lot of money.

  • Expand your delivery area. Whether you build your own or simply rent kitchen space, a strategically located ghost kitchen can broaden your delivery range for a lot less than it costs to open another full-blown, dine-in location. If you have a food truck, a ghost kitchen can help you expand your service area and let you continue to serve customers when your truck is tied up at events like weddings.

  • Monetize your excess kitchen capacity. Don’t just let that equipment sit there. Partner with a third-party delivery service to fill orders for their virtual restaurants, or create your own virtual restaurant with the help of a company like Maya Eats.

  • Accelerate your growth. You have a restaurant concept that’s taking off faster than your ability to fund it. Imagine taking your food to a national—or even international—audience in just a couple of months without having to spend millions of dollars. That’s how fast you can add locations with a partner like Reef Technologies.

  • Segregate your delivery and dine-in operations. For many traditional restaurants, a flood of delivery orders added to an already-busy kitchen is a recipe for chaos. Having a ghost kitchen manage your delivery business can help you streamline both operations, reduce the stress on staff and be more successful all around. This goes for campus and corporate feeders, too. Check out how Good Uncle is helping colleges meet off-premise dining demand.

Now all you need is a good idea

Restaurants have just weathered a brutal pandemic. Yet, in some ways, it’s never been a more exciting time to be a part of the foodservice industry. With the advent of ghost kitchens, many of the financial and logistical barriers to serving off-premise are coming down, liberating food entrepreneurs to test their hunches and exercise their creativity in relative safety. Rather than decry the additional competition, many owners are embracing the ghost kitchen model and taking charge of their own destinies.

1 Restaurant Owner
2 Business Insider