Ghost Kitchens

July 10, 2020

Euromonitor: Ghost Kitchens Poised to Become a $1T Market by 2030

Ghost kitchens could become a $1 trillion market by 2030, according to a Euromonitor webinar from this week (h/t Restaurant Dive).

The webinar was led by Michael Schaefer, the Global Lead for Food & Beverage at Euromonitor International. During the webinar, he noted that “we’re going to see a lot of new operators looking to fill the void with cheaper concepts . . . more delivery-friendly concepts that require less capital up front.”

Via a series of slides and commentary, Schaefer notes that “global foodservice delivery sales more than doubled from 2014 to 2019” and that 52 percent of global consumers are “comfortable ordering from a delivery-only restaurant (no physical outlet).” The pandemic, too, has made the market for ghost kitchens even more lucrative than it was at the beginning of 2020.

With most restaurants having now been more or less forced into building out off-premises strategies, ghost kitchens provide in many cases a faster, cheaper way to fulfill things like delivery orders. An accompanying slide the webinar breaks down just how much of the restaurant segment ghost kitchens could potentially capture:

50 percent of drive-thru ($75 billion)
50 percent of takeout ($250 billion)
25 percent of dine-in ($450 billion)

That said, ghost kitchens are “one step” in an ongoing evolution, according to Schaefer. “As more and more of the foodservice environment becomes optimized for delivery, a generation of consumers growing up with smartphones becomes accustomed and habituated to being able to order literally anything from their smartphone. That is going to drive ever-more innovation,” he said.

That innovation will in all likelihood touch every aspect of the restaurant experience, from how food gets from kitchen to customer to the types of foods prepared to the underlying technology powering operations. Ghost kitchens are getting a ton of press right now because of the role they could play in helping restaurants keep the lights on as the pandemic wreaks havoc on traditional dining rooms. But, as this week’s webinar suggests, it’s important to remember that things are just getting started as far as ghost kitchens are concerned.

June 24, 2020

Singapore’s TiffinLabs Will Launch Its Tech-Driven Virtual Restaurant Network in the U.S. in 2020

Singapore-based food tech company TiffinLabs announced this week it has acquired access to kitchen space in 1,000 locations in the U.S., Europe, and Asia to create a global network of virtual restaurant brands.

The company, which was founded in 2019, is known for the nine different virtual restaurant brands it operates out of its kitchens in Singapore. According to a press release, TiffinLabs will bring five of these brands to the U.S., starting in San Francisco, Chicago, Los Angeles, Houston, and Austin in the fourth quarter of 2020. It also has plans to bring its restaurants to London, Manchester, and Birmingham in the U.K.

TiffinLabs uses what it calls an “AI-driven kitchen operating and management system” to “identify food trends and consumer preferences.” In other words, the company identifies food trends and demands in specific areas and plans its locations and cuisine types around those factors. The company also uses this data-driven model to improve improve its ingredient supply chain and research and develop the best packaging for delivery meals.

It is one of several restaurant chains that is currently focused on creating global virtual brands and ghost kitchens. Fat Brands recently partnered with Epic Kitchens to open 20 ghost kitchens across the U.S. And Phillipenes-based Jollibee just opened its first ghost kitchen in Chicago. Other big-name brands — Chick-fil-A and the Halal Guys among them — have partnered with the likes of Kitchen United and DoorDash to get their food into areas where they do not necessarily have standalone locations.

TiffinLabs’ founder and chairman Kishin RK said in a statement that over the next three years, we’ll see two types of winners in the ghost kitchen/virtual restaurant space: local niche players creating specialty cuisine and global delivery players that serve all parts of the globe. TiffinLabs looks to be aiming for the latter category with its forthcoming expansion.

June 8, 2020

Report: Restaurant Transactions are Inching Towards Improvement for Major Chains

Restaurant transactions are improving — for some. Today, the NPD Group said customer transactions at major U.S. restaurant chains saw a slight uptick for the week ending May 31. Transactions at these chains declined by 18 percent compared to the same period one year ago. That’s a 3 percent week-over-week improvement.

NPD has been providing regular updates on restaurant transactions for a number of weeks now as dining rooms slowly reopen and the restaurant industry as a whole continues to grapple with the unprecedented disruptions caused by the COVID-19 pandemic.

Other notable numbers from this latest report include:

Restaurants in states where dining rooms are still closed had the steepest declines [—DECLINES OF WHAT?—]. For New York and California, that was negative 34 and negative 27 percent, respectively.
By contrast, transactions in Kentucky, which was allowed to reopen on May 11, saw a 2 percent decline.
Full-service restaurant chains saw a negative 37 percent decline, which is a 15 percent increase from the prior week.
QSR chains saw a 16 percent decline in transactions versus 18 percent in the previous week.

David Portalatin, NPD food industry advisor noted in the release that the foodservice industry is “solidly in the re-start phase,” and that it will only be in a true recovery phase when all states reopen their dining rooms. Only then can we start to make “a detailed assessment of how many permanent restaurant closures there are and how that will affect what the industry will look like as it re-emerges.”

At least 3 percent of restaurants have already permanently shuttered due to the pandemic. Many of those have been independent restaurants, though some chains have also had to shut down locations.

And while we may not know exactly what the future restaurant industry looks like, one thing we can count on is more off-premises orders. Pretty much everyone, from family sit-down chains to fine-dining restaurants, are encouraged to continue offering to-go options to customers. Some chains are even launching to-go-focused concepts, while others are turning to the ghost kitchen concept to fulfill more delivery orders.

How big a role off-premises will play remains to be seen, and we likely won’t have a clear idea of that until more states reopen dining rooms. For now, delivery, ghost kitchens, virtual restaurant concepts, and other off-premises strategies have yet to prove themselves as real lifelines for businesses.

May 29, 2020

ChefReady to Launch Ghost Kitchens With a Mom-and-Pop Mentality

Denver, CO-based ChefReady will launch its first ghost kitchen later this summer, in part to help keep restaurants alive that have been impacted by the COVID-19 crisis. According to a press release sent to The Spoon, the facility will open in July in Denver and provide space for 10 restaurants or restaurant concepts wanting to focus specifically on delivery.

Speaking in today’s press release, ChefReady cofounder Nili Malach Poynter said that when the company first examined the ghost kitchen concept, they found that “operate with a ‘churn and burn’ mentality, resulting in an unprofitably high tenant turnover. We decided to create a company that offers the convenience of a ghost kitchen, but with more of a ‘mom and pop’ personalized level of customer service, as well as greater efficiency, and a ‘greener’ footprint.”

Which is something a lot of restaurants are going to need soon.

That the pandemic is wrecking havoc on the restaurant industry is a point that’s starting to become old-hat. Many restaurants, especially independents, have already closed permanently. Many more will in the coming months thanks to the metaphorical train wreck of lost revenue, reduced capacity, upset business models, high rents, and many other factors converging at once on the industry.

Ghost kitchens, meanwhile, have so far been an obvious solution for larger chains that already generate the kind of demand needed to justify the expense of an off-premises-only location. But as restaurants close their doors forever, the concept might also be a way for them to save their business without the extra expense of running a brick-and-mortar location.

For ChefReady, the idea is to provide restaurants a way to keep their doors open without actually having to reopen any actual doors.

ChefReady will provide restaurants with fully equipped kitchen space they can customize to some degree, as well as guidance on marketing, permits, and other areas of operations. Membership includes integration with third-party delivery providers. As with other ghost kitchens, there is also the benefit of lower overhead costs, since equipment is provided and rent is typically lower due to restaurants using less space. And for any restaurant trying to operate in this pandemic era, ghost kitchens provide the added benefit of not having to worry about the social distance guidelines and crowd control that comes with operating a front of house.

In all likelihood, the pandemic will accelerate the adoption of ghost kitchens, which were already getting popular beforehand. Kitchen United just announced a new facility in Austin, TX. Zuul Kitchens, which opened its first facility in 2019 in SoHo, NYC, recently teamed up with Figure 8 to start a ghost kitchen consulting firm. Equipment manufacturer Middleby is selling out-of-the-box ghost kitchen solutions, and there are plenty others in the space.

While ChefReady didn’t say it was targeting a specific type of restaurant with its facility, one area that could benefit would be family dining. Those are your full-service restaurants like Applebee’s, Denny’s or the independent equivalents. Full-service restaurants have taken the hardest hit over the last few months in terms of sales declines, and that isn’t likely to change anytime soon. A recent survey found that 66 percent of consumers would not immediately eat in a restaurant dining room once it reopened.

As to whether fine dining restaurants could benefit from ghost kitchens remains to be seen. Food is just one part of the experience of many upscale establishments, and that experience is tough to replicate in a to-go box. For smaller fast causals, family dining joints, and other indies, though, ChefReady’s approach to ghost kitchens might be just what they need to keep the lights on another day.

May 24, 2020

Hold the Phone. Soon it Will Be Your Restaurant’s Menu

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A couple of years ago I came across a restaurant in Dallas, Texas that featured a menu written entirely in emojis. It was unexpected and creative, yet clear enough that a server didn’t have to come over and re-explain everything on the page.

I’m not (necessarily) advocating we battle the current restaurant industry fallout with emoji menus, but maybe we could use some of that outside-the-box thinking when it comes to revising menu formats to fit the new reality we live in.

Since reusable menus are basically germ repositories, it’s no surprise they’re out now that dining rooms are reopening. The CDC’s recently released guidelines for reopening suggest restaurants “avoid using or sharing items such as menus” and to “instead use disposable or digital menus. . .” The National Restaurant Association’s guidelines tell restaurants to “make technology your friend” and suggest mobile ordering, and every other restaurant tech company that contacts me these days is offering up some form of digital menu for restaurants to integrate into their operations.

A lot of restaurants will definitely start out by offering simple disposable menus. Paper is cheaper than software most of the time, and typing up and printing out a menu is faster than onboarding your business to a new tech solution.

Over time, though, that could change. As more emphasis gets placed on digital ordering for everyone, we’ll access more restaurant menus through our own phones and mobile devices. That opens up a whole world of possibilities in terms of what restaurants could one day offer on their menus beyond just the food items themselves.

Just a few examples: Menus could provide in-depth information the ingredients in a dish, like where that cilantro came from and how many months the apple traveled before it hit your plate. Menus might also include ratings from other customers, and Amazon-esque “you might also like” recommendations could show up on the screen. Maybe you could dictate the portion size you want, thereby reducing food waste.

With AI making its way into restaurant tech more and and more, restaurants could also build dynamic pricing into menus, based on time of day, foot traffic, weather, and offer coupons and promotional offers in real time. And sure, if someone really wanted to, an emoji menu would probably fly right now in more than a few places.

Most of these things exist already, though they’re not widespread and some are still in conceptual stages. The massive overhaul of the restaurant menu is a chance to start bringing those disparate pieces together to revamp the way we order our food.

Kitchen United Is Open for Business in Austin

One effect of this whole pandemic is that we’ve seen an uptick in to-go orders, and that trend won’t subside anytime soon. That makes now a good time for restaurants — some of them, at least — to consider adding a ghost kitchen to their operations.

Those in Austin, TX can add Kitchen United to their list of choices when it comes to choosing a facility. The company, which provides ghost kitchen infrastructure (space, equipment, etc.) to restaurants announced this week its new location near the University of Texas is open for business.

A number of restaurant chains have either already moved into the space or plan to do so in the coming weeks. Kitchen United has also allocated one of the kitchens in the new space to Keep Austin Fed, a nonprofit that gathers surplus food from commercial kitchens and distributes it to charities. As part of the deal, Keep Austin Fed will be able to “rescue” food from restaurants with kitchen operations inside the new KU facility.

A press released emailed to The Spoon notes that “additional kitchen space is currently available” for restaurants that want to expand their off-premises operations. On that note, a word of advice for restaurants: make sure your restaurant is actually in need of a ghost kitchen before signing up with one. Kitchen United’s own CEO, Jim Collins, told me recently that restaurants need a certain amount of customer demand in order for the economics of a ghost kitchen to make sense. It’s not a small demand, either. In times like these, where the future of all restaurants is uncertain and what little money there is needs to be spent carefully, it pays to exercise some caution, even when it comes to an enticing new trend like ghost kitchens.

Los Angeles Moves to Cap Third-Party Delivery Commission Fees

Behold, more fee caps for third-party delivery companies. This week, the Los Angeles City Council voted 14–0 to ask attorneys to draft a law that caps the commission fees delivery services charge restaurants at 15 percent. “Why should restaurants, and their customers, be put in a position to subsidize delivery app companies? We need to level the playing field,” Councilman Mitch O’Farrell told the Los Angeles Times.

This week’s proposal would also require that 100 percent of the tips customers leave on delivery orders through these apps go directly to the driver, which is pretty standard nowadays but caused some ruckus in the not-so-distant past. The fee caps would end 90 days after Los Angeles lifts its dining room closures.

Needless to say, the move — which several other cities have already made — is not popular with delivery companies. Postmates, which is LA’s most popular third-party food delivery service, said governments setting a price on fees threatens jobs and creates “a false choice between local restaurants and the delivery network companies that support them.” The service wants instead to have a fee charged in delivery orders that would assist restaurants. That in turn would translate to yet-another fee for the customer, and be yet-another way in which restaurant food delivery services will suggest/try anything to avoid having to shoulder some of the burden the pandemic has brought on the restaurant industry.

As restaurants slowly reopen and the industry starts to adjust to its new normal, now we’ll begin to see if fee caps actually make a difference for struggling restaurants, and if they are here to stay for the long run.

May 7, 2020

Zuul Kitchens and Figure 8 Team Up for Ghost Kitchen Consulting Firm

Ghost kitchen provider Zuul Kitchens and delivery consulting firm Figure 8 Logistics announced via email today the launch of Zuul Studios. The initiative combines Zuul’s operational chops when it comes to ghost kitchens with Figure 8’s expertise around delivery strategy and logistics for restaurants.

Zuul launched its first ghost kitchen facility in NYC last year for restaurants needing more space to fulfill off-premises orders. Like other major ghost kitchen networks, Zuul provides members with kitchen infrastructure, labor support, delivery fulfillment, and consultations about menu and POS integrations.

Meanwhile, Figure 8 is a consulting firm for food delivery businesses that works with restaurant operators to analyze their existing strategies and improve upon them. Helping restaurants launch native delivery — that is, delivery orders that originate on the restaurant’s digital properties, not those of third parties — is a key offering Figure 8 pushes.

With Zuul Studios, it seems the two companies have put the best of their respective capabilities together to offer restaurants both the physical space to fulfill more delivery orders and the strategic know-how to build a stronger business around off-premises offerings. Zuul Studios says will help restaurants design, build, and launch ghost kitchen operations, configure an affordable tech stack for off-premises models, and launch virtual restaurant brands.

According to the press release, “Zuul Studios acts as a catalyst for helping restaurants and real estate owners remain competitive and develop sustainable food delivery business models. Combining Zuul’s expertise operating ghost kitchens and Figure 8’s experience in food delivery consulting, Zuul Studios is able to create innovative delivery strategies for their clients.”

Of course right now, the pandemic has turned most restaurants into ghost kitchens that can only serve delivery and takeout orders. And though restaurants are slowly reopening, by and large they won’t return to the pre-coronavirus days of packed dining rooms. For QSRs and fast-casual spots that survive, off-premises will be an important element of the overall restaurant business model of the future.

Ages ago, Chowly’s Sterling Douglass mentioned that when it comes to ghost kitchens, it’s “a tough business, in some ways tougher than running a traditional restaurant.” That’s still true. A lot of the methodology, whether around operations or financials, that would apply to a dine-in restaurant isn’t relevant in a ghost kitchen setting. Plus, many restaurants aren’t even sure of how to determine whether they have the demand to even warrant a ghost kitchen operation. As businesses shift into this new and very off-premises-focused normal, many of these questions will need to be addressed.

That makes a consulting firm for ghost kitchens a potentially attractive sell right now. Zuul Studios hasn’t publicly released numbers on how much they charge for consulting fees or kitchen space. To be honest, it’s probably out of reach for many small restaurants, though they probably won’t have the customer demand anyway. For bigger chains now looking to make delivery a bigger part of their business, teaming up with Zuul Studios might be a way to ensure smoother operations and a better off-premises strategy overall going forward.

April 26, 2020

‘Make Technology Your Friend’ and Other Advice on Reopening a Restaurant

One of the big discussion topics this week at The Spoon has been around the reopening of restaurant dining rooms. When will it happen? How will it happen? Will anyone even want to go out to eat?

Answers will be ongoing and, like everything else in the last six weeks, will probably change regularly. And here’s one more to add to the mix: What do restaurants need to do to prepare for as smooth a reopening as they can possibly accomplish?

I’ll answer that with a line from The National Restaurant Association’s newly released “Reopening Guidance” report: “Make technology your friend.”

Fear not. This isn’t the part where I tell you to hedge all your bets on a piece of software (or hardware) and pile on a bunch of extra solutions your already trimmed-down staff will have to learn. Instead, consider which tools will help your business communicate as directly and efficiently as possible with guests about what to expect at a reopening.

As The Association says:

“Contactless payment systems, automated ordering systems, mobile ordering apps, website updates and simple texts can help you to communicate and conduct business with reduced need for close contact. As you begin to reopen, keep communicating with customers (your hours, menu items, reservations, etc.), and help promote your social distancing and safety efforts.”

Some of these will be easier to implement than others. I was just talking to a family member of mine who is as we speak trying to set up contactless payments for her hospitality company, and she is definitely losing sleep over it. In a separate conversation, someone on the task force in charge of Georgia’s restaurant reopenings admitted that contactless payments will be one of the more difficult things to put in place for restaurants.

But this task force person also said restaurants should be “embracing technology wherever [they] can.” Looking again at The Association’s guidelines, there are simpler tech tools restaurants can use to communicate reopen dates and any accompanying changes. Consider email updates or social media posts to tell folks about adjusted hours, new policies (e.g., “make a reservation”), and safety protocols. Use the humble text message to notify guests when their table is ready. And talk to your existing restaurant tech providers, like your POS vendor, to see if they can help you set up some of the more complicated tools like contactless payments and mobile ordering.

At the end of the day, tech should be the means to the end, not the end itself. Bear that in mind as you explore ways to integrate it into your reopen strategy, whenever that happens to be.

Maybe We Should All Look to Fat Brands to Figure Out a Ghost Kitchen Strategy

Ghost kitchens are not top of the priority list for restaurants right now, but as demand for off-premises orders goes up, they will be. As we’ve discussed before, restaurants need a certain (and rather high) level of demand to justify using a full-on ghost kitchen facility. Otherwise the economics don’t make sense.

That said, a good ghost kitchen strategy can actually start right in your own kitchen before growing into the kind that needs a dedicated facility to function.

Look at Fat Brands. This week, the company, which owns Fatburger, Hurricane Grill & Wings, Elevation Burger, and other chains, announced its first-ever ghost kitchen facility in Chicago. The location, done in partnership with Epic Kitchens, will be for delivery-only orders, and will house a number of virtual restaurants.

Fat Brands was doing ghost kitchens before they inked a deal with Epic, though. Last year, the company started using Fat Burger locations to double as mini-ghost kitchens for the company’s sister brands. Customers on one side of the country could suddenly order from the menu of Fat Brand restaurants historically only available on the other side. Doing so let the company test the waters, so to speak, with virtual restaurants and ghost kitchens before signing a more official deal with a dedicated space.

Starting small and in the confines of your own restaurants’ kitchens is definitely a lower-risk way of trying out a ghost kitchen. Restaurants can test and learn about some of the operational differences between off-premises and in-dining-room models, and they’re not locked into a long-term contract if the plan proves unfruitful. Speaking of which, in-house ghost kitchens are also a way to gauge just how much off-premises demand you really have from your customers and project whether that will grow enough to warrant a bigger operation, as Fat Brands has done.

The pandemic’s effect on the restaurant industry will almost certainly ensure demand for off-premises orders keeps rising, even after dining rooms reopen. Even as you’re trying to keep the lights on, consider whether you’re on the path towards using a ghost kitchen, and if taking the first small steps in your own kitchen makes sense as a starting point.

More Notable Restaurant News

Low-tech drive-thru innovation: Today, Taco Bell’s Southern California HQ is doubling as a giant drive-thru for large trucks carrying essential items across the supply chain. The chain is giving away free meals to truckers, firefighters, emergency medical technicians, and others driving vehicles that wouldn’t fit through a normal drive-thru lane.

QSR, meet the sewing machine: Employees of quick-service chain Raising Cane are now sewing masks to donate to hospitals while dining rooms remain closed. While the chain’s drive-thrus remain open, at sit-down locations, it is paying its staff to learn how to sew these masks instead of just furloughing people. Raising Cane donated 600 masks after the first week of production and said it expects to crank out even more “as Crewmembers get more proficient.”

Big chains aren’t necessarily reopening. States like Georgia and South Carolina are set to reopen their economies next week, but not everyone is on board. Among restaurant brands, TGI Fridays and Starbucks are not necessarily ready to fling back their doors immediately. Instead, their reopening plans will factor in not just state/local laws but also infection rates and their own market analysis. So while all this talk of reopening is exciting, it realistically will be a long while yet before many food businesses turn the lights back on in the dining room.

April 22, 2020

Indian Delivery Service Swiggy Will Cut Jobs and Scale Back Its Ghost Kitchen Division

Swiggy, one of India’s largest food delivery services, says it plans to cut about 1,000 jobs as the COVID-19 pandemic continues to wreck havoc on the global economy, according to Indian news outlet Entrackr. The layoffs are set to happen next month and will mostly impact the company’s ghost kitchen division.

The announcement comes just weeks after Swiggy announced a $43 million fundraise as part of an ongoing Series I round. The company is currently valued at $1.42 billion.

But unicorn status is no match for a pandemic, which has put India’s population of 1.3 billion on lockdown and gravely impacted businesses. Swiggy as well as its chief rival Zomato have both seen a drop in the number of daily orders they fulfill. Some cities in India — namely Telangana — have outright banned food delivery for the time in order to prevent further spread of the coronavirus. Entracker also noted that the Indian government is advising ghost kitchens to operate with half their workforce.

A Swiggy spokesperson said measures to deal with all these factors include renegotiating contracts with landlords, relocating some kitchens, and shutting down others. “As the lockdown gets further extended, we are evaluating various means to stay nimble and focused on growth and profitability across our kitchens.”

Delivery services, restaurant tech companies, and restaurants themselves are all feeling the economic strain imposed by country-wide lockdowns, and layoffs are becoming more commonplace each week. In the last week alone, Yelp laid off 1,000 staff and furloughed others, Sweetgreen cut 10 percent of its HQ staff, and restaurants left and right have laid off or furloughed employees as dining rooms remain closed all over the world.

You would think ghost kitchens, which cater specifically to off-premises orders, would be a booming business right now. But Swiggy’s layoffs also underscore an important point: that ghost kitchens are superfluous to operations unless you have the customer demand to justify them. At last check, Swiggy had ghost kitchens in 14 cities across India.

The company is currently in the process of shutting down around half its ghost kitchens. Meanwhile, the company expects more layoffs — possibly up to 40 percent of staff — in this division to follow in the future.

April 10, 2020

Rebel Foods Raises $50M for Its India-based Cloud Kitchen Network

India-based ghost kitchen operator Rebel Foods announced this week it has raised $50 million in fresh funding from NY-based hedge fund Coatue Management. The new investment is part of an ongoing Series E round, according to AgFunder News.

As cloud kitchen networks go, Rebel Foods is Old Guard compared to newer entrants like Kitchen United and Travis Kalanick’s CloudKitchens. Rebel was founded in 2010 and launched as quick-service chain kebab chain Faasos in 2011, and as of last check was targeting a $1 billion valuation.

Rebel currently operates over 300 cloud kitchens across 35 Indian Cities and says it processes over 2 million orders per month. Faasos still operates as a restaurant brand within those kitchens, alongside other Rebel-owned virtual restaurants. Customers can order and pay for food through Rebel’s own app, and all meals are prepared in Rebel kitchens and delivered straight to customers.

In the Indian food delivery market, Rebel competes with both Swiggy and Zomato, the latter of which also operates its own ghost kitchens. Until recently, Uber Eats was also a competitor, and its exit from the Indian market has left the landscape even more consolidated and competitive.

India’s entire population of 1.3 billion people is currently on lockdown in an effort to stem the spread of COVID-19, and demand for food delivery has skyrocketed in response. Rebel’s network of virtual restaurants is well suited to meet that demand. Since Rebel doesn’t operate any brick-and-mortar with actual sit-down space, the company isn’t taking a hit from forced business closures happening across the country, either.

In August, the company raised $125 million in funding from Coatue Management, Goldman Sachs, Indonesian delivery service Gojek and other investors. With Gojek, it plans to open cloud kitchens in Indonesia over the next 18 months. The company is also expanding to the United Arab Emirates.

April 2, 2020

Wow Bao Launches an Off-Premises Platform for Other Restaurants

Chicago-based Wow Bao is expanding its presence across the U.S. by opening ghost kitchens inside other restaurant brands’ stores. The fast-casual chain just launched an off-premises platform that allows other restaurants to make and serve Wow Bao’s products via third-party delivery channels and keep the revenue from those sales, according to a press release sent to The Spoon. In exchange, restaurants pay a product fee to Wow Bao to use the platform.

While it might at first sound odd to add a sales channel to your business by selling another restaurant’s menu, but Wow Bao President Geoff Alexander thinks this strategy could work for just about anyone. “We believe any restaurant can be a ghost kitchen serving Wow Bao,” he told me this week over the phone.

Once a restaurant is onboarded to Wow Bao’s off-premises platform, they are sent their first food shipment and can start selling the chain’s menu items online via third-party delivery channels like DoorDash, Uber Eats, and Postmates. Items are sold via an entirely separate menu Wow Bao provides and manages; the Wow Bao name appears in those delivery apps, and restaurants only have to prep the food in their kitchens and hand it over to a delivery courier.

Using a hypothetical Italian restaurant as an example, Alexander explained that kitchen staff might be cooking their usual pasta fare when a Wow Bao order comes through the ticket system. Without really interrupting the flow of the regular work, a chef or staff person could quickly put the item on the stove to cook or steam and continue going about their usual tasks.

Nor is it a lengthy, complex process for a restaurant to get set up on the platform. Businesses pay a startup fee of $2,000 to get set up with reference books, a supply chain, digital marketing, and any necessary equipment. Wow Bao will also help restaurants get set up on third-party delivery platforms if they aren’t already, and the flat fee also includes the first order of to-go packaging supplies.

Versions of this concept exist in the restaurant industry. In 2019, Fatburger turned some of its stores into ghost kitchens selling food from the chain’s sister brands. However, that operation remains within the Fat Brands family. Wow Bao, on the other hand, wants to make its off-premises concept available to anyone — chain restaurants and independents alike — in the hopes that it might be able to increase sales.

Restaurants need all the help they can get in terms of improving their bottom lines. Right now, 3 percent of restaurants have already shuttered permanently, according to the National Restaurant Association, and another 11 percent anticipate doing the same within the next 30 days. Those hanging on are struggling to quickly pivot to a delivery/takeout model in the hopes that those off-premises sales will be enough to keep business going during dining room closures and social distancing.

Alexander told me this concept isn’t actually a response to pandemic or subsequent restaurant industry fallout that’s currently happening, it just happens to line up timing-wise with current events. “We think we found a way to grow our brand and more importantly help restaurants at this time,” he said.

There aren’t yet numbers to show if this concept will indeed be profitable for other restaurants, though Alexander told me restaurants could make as much as a 40 percent bottom line profit with little extra labor and almost no disruption to daily operations. “We believe we have created something restaurants can survive with,” he said.

At the moment, Wow Bao is operating one of these ghost kitchens in the San Francisco Bay Area. Miami is next, followed by several other cities over the next few weeks.

March 26, 2020

Do You Have Enough Demand? Kitchen United CEO Discusses Pivoting To Ghost Kitchens Too Soon

Pre-pandemic, ghost kitchens looked to be the “it” trend of 2020. So you would think a global health crisis that’s forced dining room closures around the world and seemingly increased demand for delivery would have many restaurants rushing to embrace the concept. Ghost kitchens, after all, are restaurant facilities that operate solely to fulfill off-premises orders and require no front of house. If you wanna get technical about it, most restaurants are running ghost kitchens right out of their own stores right now.

But after an email exchange with Jim Collins, co-founder and CEO of ghost kitchen network Kitchen United, I’m led to believe that restaurants shouldn’t necessarily go all in on a ghost kitchen strategy right now just because delivery happens to be one of the few order channels they can work with. “I think right now the industry is honestly in a state of shock,” Collins says. “As many restaurants work hard at this moment in time to remain operational, it’s nearly impossible to consider different models.”

Instead, businesses should focus on strengthening their delivery strategies in-house, thereby laying foundations for off-premises orders that might one day warrant using large-scale ghost kitchen facilities.

Restaurants first need to understand if they even have that level of customer following and demand for off-premises orders. “Prior to the current situation we are in, we have always told operators that we are a good fit for them if they have an existing fan base, smart marketing in place and are looking to expand their market reach. The virtual kitchen model works best when there’s existing brand demand,” explains Collins.

The widespread shutdown of dining rooms may mean restaurants are pivoting to off-premises models faster, but we don’t yet have the numbers to tell us if demand for delivery is equally as widespread. A Technomic report from earlier this month found that only 13 percent of people think they will order more restaurant delivery because of coronavirus. Granted, that number was released before dining rooms closed down. Still, it suggests that until we see more numbers, we can’t really determine if restaurants will see the kinds of spikes in demand for delivery that warrant the use of a ghost kitchen facility like those of Kitchen United, DoorDash Kitchens, Kitopi, and others. Collins told me that even in a pre-pandemic world, Kitchen United won’t consider opening a facility “in a market with current delivery revenue less than $60 million.” He added that the company’s current locations are working towards significantly larger numbers than that. “You just need a lot of demand to make a delivery/take out only model work.”

Smaller chains without the deep pockets of, say, Chick-fil-A or Sweetgreen, should instead focus on making their in-house delivery strategy as efficient as possible. If you haven’t already (and I’m sure you have), take Collins’ advice and “get moving now.” He suggests opening as many channels as you can with third-party delivery providers like DoorDash, Postmates, and Uber Eats. However, instead of striking independent deals with each, go through yet-another third-party platform like ChowNow, which streamlines the setup and management of delivery orders. (Olo, Ordermark and Chowly are similar options.)

For those who’ve already used reservation and guest-management platforms like OpenTable and Resy, Collins suggests downloading the customer email lists and reaching out to those who’ve opted into marketing. “Make sure they know you’re open and available to serve them,” he says.

Another common piece of advice: optimize your menu for “people stuck at home.” Pare down your menu to only include food that travels well, and consider family-style options that can feed large groups of people. This is something Southern California-based chain Wahoo’s Fish Tacos has been utilizing over the last several days to generate more off-premises orders.

Since no one can foresee the future, especially when it comes to COVID-19, it’s impossible to say how long we’ll have to operate in this off-premises-only world. It could be that restaurants who survive this time will come out with a stronger delivery brand, so much so that when the dining rooms open up again and people are willing to sit in crowds, they’ll have the delivery demand Collins mentions to warrant looking into a ghost kitchen. Until then, getting the strongest delivery strategy possible remains the top priority for restaurants.

Ghost Kitchens

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