Pros and cons of booming Virtual Ghost Kitchen models

Published March 12, 2021

When COVID-19 forced restaurants into a third-party delivery frenzy, delivery services like GrubHub and UberEats became a mainstay for many people. But these services’ associated fees can account for up to 40% of a restaurant’s sales.

“Underneath the water we’re pedaling as fast as we are possibly can, and it’s gotten to the point where a lot of us feel like we’re going to get sucked under,” said Karen LuKanic, owner of local diner Chef Zorbas, in an interview with CBS Denver.

To maintain profits, small-business owners have had to become creative. 

Ghost kitchens are one solution. No, they don't offer the friendliness or artistry of your favorite dine-in restaurant. In fact, you’ll never visit one. But for restaurants in the midst of a pandemic, they're proving to be a cost-effective, efficient work-around.

What is a ghost kitchen?


A ghost kitchen is a non-customer-facing restaurant that’s dedicated solely to delivery service. Also known as virtual kitchens or dark kitchens, ghost kitchens allow a restaurant to run without ever offering dine-in service—effectively lowering operational costs and economic footprint. Restaurants that choose to forgo dining rooms and pivot to a delivery-only business model can significantly increase the efficiency of their operations. 

By shutting down indoor dining, COVID-19 has triggered a widespread pivot. Ghost kitchens have the potential to become a $1 trillion global market, according to a webinar hosted by market research company Euromonitor International. Currently, China leads the pack with 7,500 ghost kitchen locations, followed by India with 3,500, then the U.S. and U.K. with 1,500 and 750, respectively.

Many restaurants that venture off-premises via ghost kitchens partner with third-party delivery aggregators—like Uber Eats, Grubhub and DoorDash—because they simply don’t have the bandwidth to launch their own delivery service. Without the upkeep and cost of front-of-house service, third-party delivery fees become a bit more manageable.

Different types of successful ghost kitchens


Ghost kitchens can take several different forms, from commissary-style kitchens to mobile operations (similar to a food truck) and beyond.

Denver’s ChefReady equips restaurant owners with everything they need in one of 10 250-square-foot spaces to help them keep overhead costs low. “We also offer technology to consolidate third-party apps, and we'll have food runners to expedite orders to waiting drivers,” said Nili Poynter, co-owner of ChefReady, in an interview with Westword.

Reef Kitchens turns unused parking lots into thriving ghost kitchens. In an article in The New Yorker, writer Anna Wiener describes stumbling upon one of Reef’s Neighborhood Kitchens in San Francisco. “I could see two men moving around what appeared to be a kitchen. The generator hummed; the air carried the comforting smell of fryer oil; the toilets were padlocked. One of the men came to the window and apologized: I couldn’t order food directly, he told me—I would have to order through the apps.” Reef is just one example that an all-digital experience is well within reach for many restaurants (and their patrons).

Bigger chains are joining in, as well. Wingstop opened its first ghost kitchen in June 2020, with 65 percent of sales coming from digital channels—up from 47 percent before COVID. McDonald’s launched their first ghost-kitchen concept in the U.K. (in 2019, no less). Restaurant Business Online reports that “brands such as Famous Dave’s, Dog Haus and others have accelerated plans for ghost kitchens since the pandemic began.”

Pros and cons of running a ghost kitchen in 2021


Ghost kitchens are shaping up to last well beyond shelter-in-place orders. According to Technomic data, as reported by Restaurant Business Online, “sales via ghost restaurants from 300 facilities in the United States will rise by a projected 25% each year for the next 5 years.” As with any business pivot, the notion that it will work isn’t necessarily a sweeping one. Along with a list of pros, there are drawbacks to consider.

Cons:

With every pro comes a potential con, and the best business owners face those up front:

  • Third-party delivery services can be expensive. Even with COVID-19-related caps on fees, restaurants can pay delivery partners between 20–40 percent of a restaurant’s revenue.
  • There’s less connection with customers. If a restaurant owner’s dream is to open a restaurant and build a community there, ghost kitchens won’t fulfill that dream. There are no regulars to share meals with, or even restaurant staff to nurture.
  • Meals must be tailored for delivery. Restaurants have much less control over the presentation of their meals. Sauces must be on the side, garnishes get misplaced, and the food may arrive in less-than-desirable condition.

One major con for many restaurant owners is that the ghost-kitchen model makes them unable to control the customer experience once an order leaves the kitchen. Online reviews are a critical component of a business’s reputation, and without control over the level of customer service given by third-party delivery employees, giving away that power is a risky move.

All things considered, however, the pros are proving to outweigh the cons.

Pros:

There are a number of reasons a restauranteur or chef might launch a ghost kitchen in 2021, including:

  • They allow for menu flexibility. Many people opt for this model because it allows for greater experimentation. And since more and more customers prefer delivery over dine-in, removing overhead costs while still being able to grow a business (complete with trial and error) is a major upside. On the flip side, ghost kitchens can also allow for a more simplified menu, which can also help to streamline costs. 
  • They appeal to earth-conscious consumers. Ghost kitchens are inherently smaller and thus have a smaller environmental footprint than a full-blown customer-facing concept. Removing front-of-house operations (e.g., fewer dishes to wash, fewer plastic straws) naturally increases sustainability. And earth-friendliness is a key buying factor with the majority of today’s consumers, especially Generation Z.
  • They meet modern customer expectations. Customers demand pickup and delivery. And studies show that even after stay-at-home orders lift, that behavior will continue. According to a recent survey by Raydiant, “28% of surveyed restaurants expect to close their dine-in spaces to become exclusively delivery and pick-up locations.” 
  • They’re cost-effective. Opening a traditional brick-and-mortar restaurant requires a whole slew of permits, inspections, licenses, equipment and more. Ghost kitchens have none of the overhead associated with customer-facing operations—and many aren’t even owned by the restaurant themselves, eliminating many of the costs of opening and maintaining a restaurant, like permits, inspections, furniture, equipment and more.

At the end of the day, consumers love delivery. In the webinar, Euromonitor stated that “food delivery could account for up to a third of consumers’ $3 trillion food spend globally” by 2030. On top of that, 53 percent of consumers surveyed said they felt “comfortable ordering from a delivery-only restaurant,” demonstrating a lasting shifting preference.

With NCR Aloha Essentials, JINYA Ramen Bar has a POS and restaurant management platform that supports online ordering and mobile payments and delivery. 

Ghost kitchens are a silver lining, not a setback


Ghost kitchens are one example of the resiliency of restaurant owners worldwide in the face of a global pandemic. 

Instead of shutting down their business entirely, restauranteurs can meet consumers’ high demand for delivery with a ghost kitchen. These virtual kitchens are also a way to empower chefs with little financial backing and encourage experimentation.

In this sense, ghost kitchens are helping to bring the artistry of cooking back to where it all started: the kitchen—perhaps with a family recipe—making meals for the people you care about.

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