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What are Ghost Kitchens, and Why are They Becoming so Popular?

Restaurant Operations - September 28, 2020 Written By: Krista Dinsmore

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2020 has been a rough year for the restaurant industry. Seating capacities have been dramatically reduced in most locations, and in some countries restaurants aren’t even allowed to open their doors to customers.

A recent Forbes article has shown just how difficult the restaurant industry has been over the past nine months.

The article took a look at Brinker International, and how seating capacities at its chain restaurants Chili’s and Maggiano’s Little Italy are capped at 50 percent in most states and entirely closed in others. This sent the company’s stock crashing from $40 in February this year, to just $7.62 on March 18.

Yet, as of August 12, the company reported a smaller-than-expected Q2 loss after it pivoted to curbside pickup and delivery. The company went one step further by announcing a new virtual concept. It’s Just Wings is projected to generate more than $150 million in its first year alone, significantly boosting Brinker International’s stocks.

It’s Just Wings has experienced huge success since it has opened, and is part of a wider trend that has grown in popularity over the past couple of years - known as “ghost kitchens”.

What is a ghost kitchen?

Ghost kitchens, also known as cloud kitchens or virtual kitchens, are a rapidly emerging business model in which restaurateurs operate delivery-only food businesses from kitchens that do not have brick and mortar locations.

Ghost kitchens are a departure from the traditional brick and mortar restaurant concept. They have no waiting staff, no storefront and no seats for walk-in customers, operating entirely online and serving dishes to their customers through third-party delivery services.

The ghost kitchen business model involves renting a space from a landlord, and then using delivery applications to start landing customers. Ghost kitchens only send orders out for delivery from their rented kitchen space, they do not serve walk-in customers or have door signage to market their business. Everything is done online.

Why are ghost kitchens becoming so popular?

Ghost kitchens have been made possible by the rise of delivery apps such as UberEats, DoorDash or SkipTheDishes. In fact, Frost & Sullivan predicts that by 2025, revenues in the online food delivery sector will reach a staggering $200 billion.

Not only that, but the increasing trend of ghost kitchens has been further bolstered by the growth of consumer demand for convenience when it comes to food. This article in Nation’s Restaurant News, for example, claims that 51 percent of American use delivery services to purchase meals from casual dining restaurants and 26 percent order food delivery at least once a week.

It further claims that these behaviours show little sign of slowing, since digital ordering and delivery have been growing 300 percent faster than dine-in traffic since 2014.

Is it possible to expand your existing restaurant business with ghost kitchens?

Operating a restaurant is expensive. By managing a ghost kitchen instead, your business can save on the labour and real estate costs associated with running a full-fledged restaurant. Ghost kitchens can be used to launch an entirely new restaurant business, or to expand the delivery range or service or your existing brand.

A ghost kitchen could help you experiment with a new restaurant concept where you will be serving something entirely different to your existing brick-and-mortar restaurant, or it could help you move your business into nearby towns and cities that have heard of your brand but are located too far away to dine with you.

Alternatively, it could also help you scale back costs. Perhaps your restaurant is currently making most of its money from online delivery services and you don’t see that changing in the future. Instead of operating a brick and mortar restaurant at a loss, you could instead transition to a cloud restaurant and significantly cut down on the costs associated with running an in-person restaurant.

Before opening a ghost kitchen though, consider whether it truly is the right business decision. Ghost kitchens are a bet that the food industry lies in delivery. While the food delivery industry is exploding, there’s no doubt that many customers still love to eat out, and many restaurants are losing money when they use delivery apps.

Is food delivery the answer to a profitable business for your brand? Is getting rid of your physical restaurant the right business decision? Only you can truly answer whether a ghost kitchen is the right direction for you.

Remember, there are plenty of other ways you can scale back costs and improve the profitability of your brick and mortar restaurant, such as proper menu pricing, implementing beverage and food inventory management systems and much more.

Are you looking to improve the bottom line of your restaurant business, but not sure how? Contact Sculpture Hospitality today. Our team of local experts would love to help and answer any questions that you may have in regards to effective inventory management solutions.

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