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Ghost Kitchens and the Impact of Virtual Restaurants

an agency using Machine Learning and Artificial Intelligence

In 2010, the rise of fast-casual dining completely changed the face of restaurants. Restaurants like Panera and Chipotle began popping up everywhere to meet changing consumer preferences. But today, we’ve entered a new phase of consumer dining that is less about the place and more about convenience. With food delivery apps continuing to gain market share, restaurants are being forced to adapt. And perhaps one of the most intriguing solutions is virtual restaurants —often referred to as ghost kitchens.

Though definitions can vary, virtual restaurants refer to app-based restaurants that have no actual physical storefront. In other words, these types of restaurants exist primarily in virtual space alone. Virtual restaurants, or ghost kitchens, naturally require kitchens from which deliveries can be made. However, an actual physical place to dine or even place an order doesn’t exist. And for several reasons, these new trends in dining offer many potential advantages from a societal perspective.

quote of Alex Canter in relation the the rise of ghost kitchens or virtual restaurants
Ghost kitchens or virtual restaurants offer many potential advantages from a societal perspective.

Virtual Restaurants – A Potential Solution to a Challenging Situation

It’s no secret that food delivery app services are rapidly becoming a preferred means of dining for consumers. In 2018 alone, consumers spent over $10.2 billion on these types of services. This number represents a 42 percent increase over 2017. As a result, companies like Uber Eats, Grubhub, Door Dash and others have become increasingly popular. And restaurateurs have been forced to adapt in the process. For restaurants who could afford delivery commission fees, getting into the delivery app business has been strongly incentivized.

The Societal Impact of Virtual Restaurants

infographic about virtual restaurants or ghost kitchens

However, many smaller restaurants and those with narrow profit margins have struggled with these changes. Delivery app services charge commission rates anywhere from 15 to 30 percent to restaurants. As a result, restaurants may find themselves caught in between a rock and a hard place. Failing to adjust to changing consumer preferences can result in declining sales. Still, embracing the change may yield to costs that exceed revenues. Fortunately, ghost kitchens and virtual restaurants can offer a potential solution to this problem.

The Lure of Ghost Kitchens and Virtual Restaurants

When it comes to ghost kitchens or virtual restaurants, both offer a tremendous opportunity for restauranteurs. For restaurants that already have a storefront, additional virtual restaurants can be created online. These virtual restaurants utilize the same kitchen, but they only provide meals for delivery services. Ghost kitchens, on the other hand, are completely devoid of any physical restaurant. They simply exist as kitchens where delivery meals are prepared for online orders. In both cases, opportunities to save costs and enjoy greater efficiencies exist. Consequently, these offer advantages for consumers, restauranteurs and even society in the process.

quote of Jim Collins in relation the the rise of ghost kitchens or virtual restaurants
Without a doubt, many see virtual restaurants and ghost kitchens as the future.

In regards to cost savings, several potential benefits exist with ghost kitchens and virtual restaurants. Both require a much smaller space for food preparation services. This situation allows less to be spent on both rent and utilities while also being more environmentally friendly. Likewise, the front-of-the-house staff is altogether eliminated from the picture with ghost kitchens. And both ghost kitchens and virtual restaurants experience less food waste. Ultimately, these solutions can offset delivery commission fees, thus allowing many restaurants to stay in business. And they provide greater efficiencies that are attractive from sustainability perspectives as well.

Increasing Competition for Supplier Demands of Ghost Kitchens

The U.S. restaurant industry is roughly $863 billion in value. Therefore, it’s no surprise many see a great opportunity with the increasing demand for ghost kitchens and virtual restaurants. For example, Kitchen United plans to create 400 kitchen centers across the nation. Another company, Cloud Kitchens—founded by former Uber executive Travis Kalanick—is pursuing similar goals. Similarly, Family Style and Kitchen Podular represent other bold businesses that hope to take advantage of this rising demand.

While these companies hope to create necessary infrastructures for an evolving market, other companies are approaching it from different angles. For example, Uber Eats has already helped existing restaurants generate more than 4,000 virtual restaurants that use Uber eats only. Uber Eats analyzes neighborhood sales and identifies unmet food delivery needs. They then take their findings to potential restaurants and encourage them to open virtual restaurants. Grubhub and Deliveroo have pursued similar strategies to a smaller extent. In either case, many see virtual restaurants and ghost kitchens as the future.

a couple on a dinner date ordering menu via ghost kitchen and virtual restaurant
Ghost kitchens or virtual restaurants refer to app-based restaurants that exist in virtual space alone. Will they do well in the long run?

Virtual Restaurants and Ghost Kitchens — A Fad or a Good Business Strategy?

Currently, the boom of delivery app services—and the consumer demand for them—certainly support these new restaurant concepts. Faster delivery services, more varied selections, and enhanced convenience are all driving these changes. Therefore, ghost kitchens and virtual restaurants are well-supported as a business strategy.

The key is for restauranteurs to maximize efficiency and economies of scale while lowering costs in the process. In truth, with delivery commission fees likely to remain significant, these strategies provide needed solutions. Still, at least for the foreseeable future, ghost kitchens and virtual restaurants look to be a wise business consideration.

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