The Ghost Kitchen Model: Low Cost & Profitable

Apr 5, 2021

chef inside virtual ghost kitchen cooking for customers

The Ghost kitchen definition (sometimes called cloud kitchens or virtual kitchens) describes a space that allows an existing restaurant or startup to produce food in a commercial kitchen for delivery only. The ghost kitchen concept helps boost revenue for struggling restaurants and is a fantastic way to experiment with and launch a successful restaurant brand in. 

One week before the Covid-19 pandemic lockdowns began, 60% of adults surveyed by the National Restaurant Association were found to be ordering food delivery and takeout for dinner at least once a week. For lunch meals alone, 37% of adults used a food delivery app every week. 

Fast forward to 2021, 65% ordered dinner for delivery, and 46% ordered takeout or delivery for lunch. The need for virtual restaurants is in the numbers. The result is low cost and profitable. 

Post-pandemic, people are still going to desire a brick-and-mortar restaurant experience and want a restaurant-quality meal at home. All that’s required is to choose your ghost restaurant business model. 

Low Cost

On average, starting a new restaurant can cost $275,000, depending on location. But this is for a traditional restaurant business model with a physical restaurant. Ghost kitchens have a much lower startup cost. 

Saying goodbye to a dining room means no interior designer budget. Plunking down cash for dishes, tables, napkins, and all the other stuff you need when serving food to customers is no longer required. 

Diners enjoying creations on the couch watching Netflix don’t need an artfully created ambiance. The experience entails hot food delivered fast with the same restaurant quality people have grown to expect. 

Nor do you need to rent space in a trendy area with tons of foot traffic. Expensive rent can take up a significant portion of your profits. Ghost kitchens work best in locations convenient for delivery, not for people. 

Not only are your fixed overhead costs lower, so are your staffing needs. You can say goodby to front-of-the-house staff like servers, bussers, and hosts. 

You may not even need a restaurant manager when the chef can play both roles. The elimination of crucial restaurant jobs needed for in-house dining significantly lowers staffing costs.

Ghost kitchens also have lower food costs. Delivery-only brands need to create a simple menu that travels well, and this usually means offering a smaller menu with overlapping ingredients. Ghost kitchens have fewer components and less food waste. 

Profitable

Thanks to minimal startup costs, ghost kitchens have incredible margins from the get-go. Plus, ghost kitchens are faster to build, have unlimited growth potential, and less risk overall. 

Traditional restaurants can take months or even years from concept creation to placing the final piece of silverware for a soft opening. Yet can disappear in days.  

Ghost kitchens can rise up overnight and be ready to deliver tasty bites in a few weeks. The initial investment is lower, the rented kitchen space is already outfitted, and connecting to native delivery is as easy as signing up with ShiftPixy. 

Ghost kitchens can house multiple food brands under one stove, making food production uncomplicated and diverse. All the regular expenses besides food costs and packaging aren’t key players for ghost kitchens. The ghost kitchen operator can focus on food quality, revenue streams, and fast delivery. 

Ghost Kitchen Models

Ghost hunters will tell you that no one ghost is alike. The same can be said about ghost kitchen models. And how you use them to lower costs and increase profits. 

Restaurant operations come in different forms to suit any type of restaurateur, from a food truck to a restaurant chain.

Rent the Commissary Kitchen For An Independent Model

In this Independent model, there’s a single brand, single kitchen, and no storefront. The restaurant brand rents a commissary ghost kitchen space from a larger operator. Think of it as an ample shared space divided into smaller kitchen spaces, each fitted with essential equipment for whipping up delivery food. 

The cloud kitchen business is entirely independent of the other kitchens with two exceptions; they work in the same building and there is not a dining room to be found. 

Multi Brand Ghost Kitchen

This configuration operates the same as the independent model but whips up food for multiple brands in the same kitchen. The existing restaurant may offer gourmet burgers and fries for one order and chicken teriyaki for the next. 

The Multi Brand Ghost Kitchen has diversified revenue streams and a broader customer base by cooking up different cuisines.

Mid Ground Model

In a recent survey, the National Restaurant Association discovered that people still want to know where their food is made and the ability to visit the established restaurant. 

The need for food transparency is met in the Mid Ground Model. Customers can order food online or pick it up from the kitchen in a limited capacity. The Mid Ground Model can be challenging for ghost entrepreneurs because one of the biggest benefits of a ghost kitchen is operating off the beaten track and not dealing with customers face-to-face at all.

Brand Owned Kitchen

In this model, the ghost kitchen becomes an exclusive brand for a food delivery platform like Uber Eats or GrubHub. The nice thing is that your company is promoted by the third-party delivery app, and their success equals yours. 

Yet the third-party delivery app has most of the say over your food business and can charge super-high fees for that partnership. And you pretty much have to take it.

Hub and Spoke Model

This ghost kitchen business model works best for more established restaurant brands. Imagine, if you will, the hub and spokes of a bicycle wheel. The center is the central hub and where the restaurant makes all the food for all locations. 

Like other similar distribution models, the premade meals travel down the spokes to other smaller locations for warming up and delivery. The benefit is that the established restaurant has a more extensive reach in areas they don’t have a physical location.

Outsourcing Model

The thing about this model is its simplicity. The ghost kitchen takes a product, cooks it, and puts its label on it. The repackaged food with new branding is delivered to the customer as if it’s original. 

Okay, this can work some of the time. Not everyone’s taste buds can notice the similarities between brands. But say you chose something widely recognized like Bush’s Baked Beans, you may be found out. 

Rent Your Kitchen

Got kitchen space? Then why not rent it out to another brand or chef to use. It’s a new twist on shared kitchens that can be a lucrative side gig. Or a way to cut down on costs without having to make any tough decisions. 

Things to consider

The ghost kitchen market has lower cost and profit margins, but an existing kitchen needs to strategically plan to be successful. 

Food Delivery Apps

Ghost kitchens need a food delivery company to whisk away food. Yes, it’s possible to hire your own delivery drivers trained in your brand. But food businesses find it hard to manage quality food and delivery at the same time.

The delivery driver is the first and last real connection your customer has with your brand. If the food is cold or takes years to arrive, the person probably isn’t ordering again. This is so true if you don’t have a physical location.

But not all third-party apps are equal. Some charge exorbitant delivery fees and make inflexible demands on how you operate. And, this is key; you don’t have access to customer data. How are you supposed to track who’s buying your food? How can you offer reward points or build customer loyalty?

You need native delivery. 

Native delivery allows customers to choose delivery through the brand’s own app and website. You can offer an exclusive brand experience not possible with typical on-demand delivery apps. 

When you choose a delivery business, look for one that offers lower fees, more flexibility, and native delivery. 

Competitive

Food production of any sort (ghost or not) is competitive. Ghost kitchens need to keep it simple, change and adapt, and devise a killer business plan.

The first step is choosing an ideal location for delivery. At the same time you will also need to design a delivery-only menu that includes dishes you can make with a smaller crew. 

Remember that your online presence is as important as the food and craft a marketing plan with strategic outreach efforts on social media platforms. 

The Covid-19 pandemic almost made a ghost town out of the restaurant industry, but one thing that helped them stay alive was cloud kitchens. The cloud kitchen business model is simple and has a magic word (no, not ghostbusters)— low cost and profitable. Okay, that’s two magic words, but you get the idea.