Ghost Kitchen Companies & the Virtual Restaurant Rise

Mar 24, 2021

GrubHub. Uber Eats. Doordash. You’ve heard of them. You’ve used them. You think you know what they provide— tasty bites delivered fresh from your favorite restaurants. While this is true, it’s not the complete story. 

In fact, the organic cheeseburger and zesty curly fries you’re enjoying probably does not come from a brick-and-mortar restaurant that you could dine in if you wanted. 

The meal, delivered via a food delivery app, most likely came from a ghost kitchen. A place without a storefront, tucked away in a convenient-for-delivery location that has no place for customers to sit or even enter the establishment. 

By ordering food delivery you’ve just enjoyed a meal from a ghost kitchen company and participated in the virtual restaurant rise.  Still a little unsure about the ghost kitchen business model concept? Let’s unpack it in a little more detail.

Birth Of the Ghost Kitchen

The term ghost kitchen can be confusing. The term is mostly used interchangeably with cloud kitchen, dark kitchen, and virtual restaurant.

In simplest terms, a ghost kitchen is a delivery-only brand without traditional restaurant operations. Ghost kitchens don’t have brick-and-mortar locations but rather exist online or in a food app. But they still serve food you know and love, hot or cold, directly to their customers.

While that is the basic description there are also different types of ghost kitchen models. Their differences lie in how they develop their space, but ultimately all models operate and participate in the new virtual brand revolution. 

Rise of Delivery-only Concept

Restaurant delivery has been around for years. In South Korea, the earliest recorded delivery of food was naengmyeon (cold noodle) in 1768. According to the Thrillist, King Umberto and Queen Margherita, in Naples, Italy, ordered a cheese pie in 1889, and so the Margherita pizza was born. Fast forward to the 90s, and pizza delivery from established restaurants was commonplace across the world. 

But it really wasn’t until the smartphone revolution and delivery apps that food production and food delivery began to really transform. Food delivery in a restaurant business environment, for the most part, was only 10-15% of overall sales. And even then, a lot of customers tended to order take out and pick it up themselves. 

At this point in time the reality was that if a restaurant was delivering food themselves, it was typically a pizza joint or a restaurant catering to a small clientele. Delivery was simply not a common place restaurant strategy.

But then along came the third party delivery companies like UberEats, Doordash, and Grubhub. Suddenly, food delivery was at your fingertips. These apps give you a visual feast with recommendations and reviews. The ease of use makes food delivery fast and simple.

Along with the proliferation of third-party delivery services came the concept of virtual restaurants. Virtual kitchens or delivery-only establishments aren’t necessarily attached to traditional restaurants. You’re no longer ordering food from your favorite Thai restaurant but from delivery-only brands. 

One of the earliest delivery-only brands was the start-up Green Summit Group in New York in 2013. On the other side of the globe, China also began embracing delivery apps to have food delivered from virtual brands. In Europe, the app Deliveroo started experimenting with ghost kitchen facilities. 

While subtle to the average consumer, this shift was beginning to change the restaurant industry in profound ways. 

Pandemic Fueled Surge of Popularity

In March 2020, depending on where you lived in the U.S., life came to a standstill for most. The Covid-19 pandemic affected lives in many ways, particularly in the area of food consumption. 

Even before the pandemic, Gen Z and millennials typically used a food delivery app 1-2 times per week. Grocery delivery was commonplace. But now, people couldn’t physically dine at a restaurant, or if so, the restaurant had to follow new capacity rules. And restaurants could no longer rely on foot traffic to boost sales. 

Restaurants needed a way to stay afloat and had to make the switch to delivery-only and outside dining for survival. The restaurant industry had already been aware of the changing trend towards a delivery-only restaurant, but in 2020 the push towards the virtual delivery market became super-charged. 

The investment firm Cowan predicts that the food delivery industry will increase by 12% annually in five years. This increase will rise from $43 billion in 2017 to $76 billion by 2022. 

Ghost Kitchen Companies

Restaurant brands who were already experimenting with the new virtual food concept had an advantage. Virtual (or ghost) kitchens offer basic kitchen spaces for on-demand food delivery. They are a turn-key operation that provides real estate for delivery only operation. 

Each day more ghost kitchen start-ups emerge as food delivery remains popular. Even after the pandemic is over, delivery-only food brands will remain. Now, it isn’t solely Gen Z and millennials ordering food; it’s baby boomers and families. 

Third-Party vs Native Delivery

The reality is that ghost kitchens and technology are tightly woven. The rise of technology has allowed ghost kitchens to truly emerge and flourish. 

Third-party delivery apps, such as Uber Eats, DoorDash, and Grubhub make up 80% of all food delivery sales. But food delivery apps take a mighty bite out of profits. Depending on the app, you could lose 15-30% of your revenue per delivery a third-party app makes for you. 

Virtual brands can bypass food delivery apps. Cloud kitchens can choose to hire their own delivery driver and create an online presence with tech-savvy customers.

Managing food and delivery can be challenging but ghost kitchen companies and the virtual restaurant rise are here to stay. It will be interesting to see how the ever-changing restaurant industry grows and adapts.