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Reef

December 24, 2020

2020: The Year the Ghost Kitchen Got Complicated

As an old saying goes, “Anything can happen, and most usually does.”

And it sure did happen in 2020 for the restaurant industry. Pandemic. Dining room shutdowns. Permanent closures at alarming rates. A seismic shift to takeout and delivery formats. More shutdowns. Complete uncertainty over the state of indoor dining coupled with growing panic over the state of the independent restaurant. 

Personally, I think it’s foolhardy to try and meaningfully condense what happened to restaurants in 2020 into a few hundred words. So as we close out this dumpster-fire of a year and head to 2021, I’ll pinpoint one part of the biz that’s been talked of constantly these last several months: ghost kitchens.

Right around the end of 2019, we were already fixated on the ghost kitchen. In a predictions piece I wrote at the time, I said, “This is part of the restaurant industry that will change rapidly over the next year as it becomes more commonplace among both restaurants and consumers.”

All that wound up being true in 2020, not because I’m some predictions wizard but because a global health crisis forced the restaurant industry into off-premises formats like takeout, delivery, and drive-thru. Because these formats don’t require a dining room to function, they are inherently suited to the ghost kitchen setting. Ghost kitchens, after all, were designed to serve to-go customers, typically those ordering through mobile apps and other digital properties. 

But one thing that was made clear in 2020: ghost kitchens are not the end-all, be-all savior of the restaurant industry. In fact, throughout the year, multiple restaurant industry figures raised questions about the commissary model in particular.  

Back in March, when COVID numbers were initially rising, former Kitchen United CEO Jim Collins cautioned restaurants to think hard about whether their business generated enough demand to justify the cost of a ghost kitchen operation. Similarly, Andy Wiederhorn CEO of Fat Brands, said in July that ghost kitchens “simply work better for brands that have existing fanbases” (a point he repeated at our ghost kitchen event earlier this month).

I bring up these reservations not to further cast a cynical shadow but to illustrate another important takeaway from 2020: that because there are still so many uncertainties for restaurants over the traditional commissary model, other forms of the ghost kitchen concept have emerged that make running an off-premises business more feasible for more types of restaurants. 

Over the last year, we saw the growing popularity of the so-called “dark kitchens.” These are underutilized kitchen spaces restaurants are using to fulfill their delivery and off-premises orders. Fat Brands is one notable example of a company using its own restaurants as dark kitchens for sister brands. Ordermark/NextBite, meanwhile, built out its business this year of pairing restaurants with unused kitchen space in order to deliver (literally and metaphorically) more meals from virtual restaurant concepts. Another great example is Hi Neighbor, a San Francisco restaurant group that had to close because of the pandemic. Its response was to use one of its shuttered kitchens to accept and fulfill delivery orders for its own virtual concepts. Hi Neighbor is just one local example of a trend happening nationwide.

In the second half of 2020 (right after Euromonitor predicted the ghost kitchen market would be worth $1 trillion by 2030), we saw massive amounts of investment dollars flow into the space, from Zuul’s $9 million fundraise to a $120 million investment in the aforementioned Ordermark to the $700 million raised by Reef. There were plenty of other financial milestones in between those figures.

Alongside those investments, even more formats emerged of what a ghost kitchen might look like and how it could become more efficient. ClusterTruck, which has operated a vertically integrated delivery business for years, teamed up with Kroger to turn the latter’s deli counters into a kind of ghost kitchen. More recently, Crave Collective opened in Boise, Idaho to show us what a fine-dining take on a ghost kitchen looks like. And the QSRs, finally got onboard, with everyone from Chipotle to McDonald’s unveiling new store formats that minimize or eradicate the dining room and are in effect their own version of a ghost kitchen.

The most unanimous takeaway of the year was this: the ghost kitchen, in its various forms, is here to stay. We may be inching closer to a widespread vaccine for COVID, but the restaurant industry has already completed the shift to off-premises-centric businesses. There’s no going back at this point.

Even so, we leave 2020 and enter 2021 with plenty more questions when it comes to how one best runs a ghost kitchen. What is the role of the chef — an artist, by rights — in this off-premise-centric new world? How long will ghost kitchen operations be tied to third-party delivery services increasingly bent on calling the shots for restaurants? What about the mounds and mounds of packaging waste being generated by all this innovation?

If 2020 was a year about making the ghost kitchen more efficient, 2021 should be about the role the ghost kitchen plays when it comes to the restaurants, chefs, drivers, and other people whose livelihoods are now tied to it.

December 8, 2019

Spoon Market Map: Ghost Kitchens in 2019

Just half a decade ago, the phrase “ghost kitchen” referred to restaurants that looked legit on Grubhub and Seamless but were actually digital fronts for unregulated kitchens. In other words, chicken tenders from what appeared to be a local restaurant might actually have been cooked in someone’s apartment.

Then the delivery boom went off, thanks largely to the growth of third-party services like Grubhub and DoorDash, and by the many digital channels through which customers could suddenly get food. Order tickets proliferated for restaurants, but so too did the stress around how to fulfill those orders without over-burdening the in-house kitchen staff.

The answer to the problem? Take the restaurant out of the kitchen.

In the last few years, restaurants have been moving many of their operations around delivery and to-go orders to dedicated kitchen spaces outside the main restaurant location. The name “ghost kitchen” has stuck around, but now it’s a health-department-friendly term for these spaces that act as hubs for off-premises orders.

But actually, there are many names nowadays for the concept: ghost kitchen, virtual kitchen, cloud kitchen, the (slightly nauseating) description “kitchen as a service.” All those phrases amount the same thing: a kitchen facility that exists solely for the purpose of helping restaurants cook and fulfill to-go orders and get them into the hands of delivery couriers. There is no dining room or front-of-house staff in a ghost kitchen, the tech-stack is more streamlined than that of a full-service restaurant, and, increasingly, the location is completely separate from a restaurant’s dine-in location(s). Now, too, there are also kitchens on (literal) wheels, which add yet-another piece of mobility to the business model. 

To help you navigate the evolving world of ghost kitchens, we’ve created a market map for your reference. This market map is intended to be a snapshot of the current ghost kitchen landscape in 2019. It’s not comprehensive, and we expect both it and the overall landscape to change drastically over the next 12 months. That means you can expect to see this map updated regularly. As always, we welcome suggestions for additional companies and players in this space.

Have suggestions? Drop us an email.

1. Kitchen Infrastructure Providers

The largest category in ghost kitchens right now, Kitchen Infrastructure Providers can be likened to cloud computing providers: they rent companies the space and tools needed to run a business, either as a flat-fee model for on a pay-as-you-go basis. 

Kitchen United, for example, charges a monthly membership fee that includes rent, equipment, storage, and services like dishwashing. Reef, which originally made a name for itself reinventing the concept of the parking garage, offers these things as well as direct partnerships with major third-party delivery companies like DoorDash and Postmates.   

Normally these facilities are large, warehouse-like buildings that hold multiple “restaurants” under a single roof. For large restaurant operators with multiple chains looking to fulfill extra demand brought on by delivery or test out new concepts without incurring too much risk, these are ideal.

Multi-unit chains can also use these spaces to reach customers in areas where they might not have a brick-and-mortar store. Chick-fil-A is widening its reach in the SF Bay Area by working out of DoorDash’s newly opened facility.

2. Restaurant-operated Kitchens

For some restaurants, running a ghost kitchen operation themselves makes more sense than teaming up with a third-party kitchen provider. This is often the case with smaller, independent restaurants, whose ghost kitchen might consist of nothing more than an area of the restaurant’s existing location(s) dedicated to fulfilling off-premises orders. Or it might apply to multi-unit chains who simply want to expand to new areas and don’t have the capital or inclination to deal with the burden of a full-service restaurant. Colombian chain Muy is one such company, having started as a dine-in restaurant before expanding its ghost kitchens to serve more areas of Latin America.

The most notable of all the companies in this category right now is Starbucks. In addition to building out “to-go” stores that exist solely for the purpose of fulfilling off-premises orders, the company has also partnered with Alibaba to turn parts of the latter’s Hema supermarkets into ghost kitchens in China.

The boundaries around this category are especially fluid. In other words, just because you operate your own ghost kitchen in one part of the country doesn’t mean you can’t team up with a third-party provider in another, as The Halal Guys and Chick-fil-A have done.

3. Virtual Restaurant Providers

This is where the lines really start to blur between restaurant, kitchen provider, and delivery company. Anyone can make a virtual restaurant, and as the category in our map shows, more than just restaurants are trying their hand at food concepts that can only be ordered through digital channels and are prepared in a ghost kitchen. Whole30, for example, is a diet concept better known for its cookbooks than its dealings with the restaurant industry. The folks behind that brand teamed up with Grubhub and restaurant company Lettuce Entertain You to create a virtual restaurant offering meals with Whole30-approved foods. 

On the other hand, a company like Keatz runs a network of virtual restaurants it houses beneath the roof of its own ghost kitchens. Taster, based out of France, creates native restaurant brands for food delivery companies like Uber Eats and Deliveroo. Food is cooked in Taster-run kitchens.

4. Mobile Kitchens

In slightly more its own category, companies like Ono Food Co. and Zume are creating robotic, self-contained kitchens on wheels that offer restaurant experiences that can be tailored to specific neighborhoods in a city and also plug into third-party delivery services.

Restaurants can also partner with these kitchens on wheels to expand their reach into new markets, as &Pizza has done by teaming up with Zume.

What’s Next for Ghost Kitchens

Ghost kitchens will become the norm for multi-unit chains. With off-premises orders expected to drive the majority of restaurant sales growth over the next decade, multi-unit brands (think Panera, Chipotle, etc.) will find ghost kitchens a cost-effective way to meet this demand without overburdening existing restaurants. The majority of them will rent space from kitchen infrastructure providers, as Chick-fil-A is currently doing with DoorDash. 

There will be an explosion of delivery-only brands. Since ghost kitchens provide a cheaper, faster way for food entrepreneurs and small restaurants alike to test-drive new concepts, we will see an influx of delivery- and pickup-only brands come out of these kitchens over the next year. Many will be born inside the walls of facilities like Kitchen United or CloudKitchens. Meanwhile, the number of virtual restaurant networks like that of Keatz will increase. 

Artificial Intelligence will be designed into the kitchen. AI is a really broad term that’s often misused. That fact aside, its presence in the restaurant industry is here to stay, and in ghost kitchens, it will prove itself valuable for everything from tracking ingredients to helping staff curb food waste. On the consumer end, we expect to see the technology more deeply integrated into the apps and websites from which customers order, improving recommendations and upselling opportunities.  

More non-restaurant food brands will launch virtual restaurants. In keeping with a trend recently made popular by Whole30 and Bon Apétit, food brands, diets, celebrity chefs, and other non-restaurant businesses will team up with third parties to launch delivery and pickup concepts. Grubhub and Uber Eats are two such third parties already doing this. Expect many more such partnerships — soon.

Bonus: The tech stack will get pared down. No front of house means no POS, right? Quite possibly. With less (or no) customer-facing technology like digital menu boards, self-order kiosks, and tabletop ordering, much of the restaurant tech on the market today becomes irrelevant in a ghost kitchen setting. As the folks at Reforming Retail noted recently, “under this scenario the POS is just an ordering node in the cloud that outputs your menu to a consumer and sends orders to your kitchen.”

That doesn’t mean restaurant tech is going by the wayside. Some ghost kitchens, like those of Muy, have a walkup option where customers order at kiosks onsite, and there will doubtless be new solutions created that are specifically for the ghost kitchen. But the tools of tomorrow’s ghost kitchen won’t look a thing like today’s bloated restaurant-management tech stack. For everyone involved, that’s a bonus.

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