Ghost Kitchens Deliver a New Business Model

The landscape of the restaurant industry is constantly changing, but increased customer demand for delivery has ushered in operational changes and new business models. The availability of food delivery has grown to meet customers' search for convenience and become an expected service, whether it is provided by employees on staff or outsourced to third-party companies (often at a hefty fee). Although ghost kitchens were an emerging concept before the pandemic in early 2020, every restaurant impacted by the closures essentially became a ghost kitchen when limited to curbside and delivery.

However, starting a ghost kitchen that can operate as a successful long-term business isn't as simple as closing a dining room and delivering food from a traditional restaurant space. Below, you can learn more about what ghost kitchens are, how they work, and where they fit in a post-pandemic industry.

Everything You Need to Know About Ghost Kitchens

On a recent Foodservice Equipment & Supplies magazine webcast moderated by editorial director Joe Carbonara, three industry professionals – Justin McCoy (VP of Marketing, Cousins Subs), Patrick Mock (CEO, One Olive Group), and Joseph Schumaker (Founder & President, FoodSpace) – discussed the reality of ghost kitchens and the role they may play in the future of the restaurant industry.

What is a ghost kitchen concept?

A ghost kitchen is a commercial foodservice operation serving customers primarily through delivery. These differ from traditional restaurant kitchens because they lack retail space – such as a dining room or the carryout counter at your local pizza place – and are set apart from commissaries because they focus on individual orders packaged for immediate transportation to the end user instead of bulk food prep.

"Any kitchen without a storefront or public facade could be considered a ghost kitchen," explains Schumaker. "This term is being thrown around because delivery services are so popular, but… for the last few years, ghost kitchens have popped up as a way of delivering a food product without a retail storefront."

The concept is easy to define, but depending on the goals and resources of the business opening it, a ghost kitchen can take several different forms.

They may be a viable business model for established brands or new concepts responding to increased demand in an existing market, expanding brand awareness in a new market, or hoping to serve businesses and residents in a location with steep real estate costs where traditional restaurant space isn't financially feasible. A ghost kitchen can also help an established business pivot to a different business model as part of a rebranding effort or restructuring plan.

Ghost kitchens can be installed in an individual building or pop up in shared kitchens housing workspace for multiple concepts. Because of this variation and the fluctuations in real estate costs in different areas, there is no standard size for ghost kitchens.

Are ghost kitchens here to stay?

Although ghost kitchens were trending alongside the rise of delivery and there is customer demand for them in many areas, operators should be aware that ghost kitchen concepts entering a post-pandemic landscape will likely have increased competition as more businesses have had to adapt to delivery service and now better understand the value of it.

"[If] we build all these ghost kitchens out of these dead kitchens – which could happen – is that a short-term solution, and is that actually a sustainable model?" said Schumaker. "I'm nervous for folks that were doing it right, that were coming up in the ghost kitchen world. I'm nervous that you're going to be flooded with competition over the next few years, and that's going to be a false bubble."

Additionally, ghost kitchens won't be the only – or best – option for all businesses. When customers can safely congregate once again, dining rooms will still be appealing as a place to gather with friends and enjoy a sense of community.

"I think that people are starved to get back together… and I don't see that going away," said McCoy.

McCoy also offered his perspective on the opportunity for drive-thru locations, which offer customers a level of convenience that falls somewhere between delivery and dining in. That convenience also usually comes at a lower cost for the customer because drive-thru employees are not tipped and there is no delivery fee – for them or for restaurants using third-party delivery services.

"Our drive-thrus are essential to our success as we move forward and even in a situation such as this [the pandemic]," said McCoy. "I don't know that the only solution is to go to a ghost kitchen model."

Ghost kitchens are a segment of the restaurant industry that's sure to see more growth as customers continue to demand delivery options, but as with a traditional restaurant, no concept has guaranteed success.

"This is not something that works for everybody," said Mock. "There are just too many variables to success here, and we've even seen some examples in our market where national brands have gone into ghost kitchens… and they've had to exit."

How do I start a ghost kitchen?

If you want to start a ghost kitchen, there are several critical aspects of the operation to consider, from location and layout to menu and equipment.

Where should your ghost kitchen be located?

Ghost kitchens are often installed in warehouse districts or retail spaces, but the building you choose should make it possible for drivers (or runners, if the area is walkable) to make their deliveries in a reasonably short amount of time to preserve the quality of your food.

Is there room for your concept in your desired market?

While there are no guarantees for how your concept will perform, conducting an analysis on an area to determine if it can support your business can help identify viable markets. For example, a ghost kitchen specializing in burgers and fries may have a much harder time finding success in a neighborhood that already has three concepts offering a very similar menu. Much like how a food truck can lead to a chef opening a brick-and-mortar location down the road, a ghost kitchen helps a brand test out a market before committing to a larger investment.

"In northern California, we have one of the most competitive real estate markets," said Mock. "One of the things we had been challenged with was trying to find real estate in a particular area. For us, it was an opportunity to go in there, go to market quickly, [and] validate the type of opportunity and the market dynamic we were expecting."

How can your kitchen layout support your operational requirements?

In addition to designing your commercial kitchen with the same principles of workflow, storage, cooking capacity, and efficiency that guide the layout of a traditional commercial kitchen, you'll need to think about the access in-house and third-party delivery employees will have to the space.

"I think one of the things that makes ghost kitchens unique is that you've got a lot of outside people coming in to get food," said Schumaker. "Thinking through where they're going to park, how long they're going to be waiting, [and] where they're going to be waiting are all big considerations."

Will your location have sufficient parking for delivery cars?

Location considerations extend beyond what's inside your kitchen, as the size and accessibility of your parking lot can play a big part in how efficiently your employees deliver food. Having a dedicated parking lot may also enable you to pursue other avenues of profit.

Will you need to invest in additional technology?

To help kitchen employees and delivery drivers coordinate to make and deliver accurate orders, a ghost kitchen will likely require new or different technology than a traditional restaurant. This operational consideration may involve purchasing order processing software as well as televisions and other hardware.

Do you have the supplies and delivery methods necessary to maintain a strong brand reputation?

Having your own fleet of delivery cars can be a big investment, but partnering with a third-party delivery service often comes with its own high price. Once your food leaves your kitchen, the customer's final impression of your brand will be based on the condition it's in when it arrives. Training in-house delivery drivers can be a valuable aspect of your operation if you can spare the additional expense and time.

How many employees do you need?

For many operators, being able to deliver food to customers with a smaller staff is part of the appeal of ghost kitchens.

"Because they're commanding a smaller footprint, staffing is going to be lower," said Mock. "By the sheer fact that you don’t have to clean the front-of-house, you don't have to worry about the customers, the bathrooms, the drink stations, and all these other things, you're going to naturally have a smaller staff. That allows us to focus more of our time on the quality of the food than the experience of the food."