What Is a Ghost Kitchen? Types, Strategies, and Stats
With more than a decade of hospitality experience, Mary has worked in some of the most celebrated restaurants in the world. Her expertise is featured across Fit Small Business in restaurant, retail, and starting a business content.
A ghost kitchen is a food service business that prepares food for delivery only. Ghost kitchens—sometimes called cloud kitchens, virtual restaurants, or dark kitchens—can be free-standing commercial kitchens or operate as a “virtual brand” that shares kitchen space in a traditional, brick-and-mortar restaurant. Ghost kitchens tend to have a shorter development timeframe and lower upfront costs than full-service restaurants. Market research firm Euromonitor predicts that the global market for ghost kitchens will reach $1 trillion by 2030.
Types of Ghost Kitchens
Just as there are various types of restaurants, there are different types of ghost kitchens. Businesses as diverse as food truck brands and massive national restaurant chains are experimenting with the ghost format. Each brings unique ideas to the virtual restaurant concept.
Ghost kitchens tend to fall into three major categories:
The ghost kitchen concept is still actively evolving, so these categories are not set in stone. Some ghost operations blend aspects of all three kitchen types. And while most ghost kitchens sell their food exclusively on third-party delivery platforms like Grubhub and DoorDash, others opt to deliver their food themselves.
Ghost kitchens are not a new phenomenon; they emerged during the late 2010s when third-party delivery companies became popular. Early ghost concepts were launched by large restaurant chains that hoped to meet consumer demand for delivery without overwhelming their busy restaurant kitchens. Those ghost kitchens tended to be freestanding commercial kitchens where large brands like The Halal Guys routed all their delivery and to-go orders. As the COVID-19 pandemic forced restaurants across the United States to close, ghost kitchens took off on a whole new level.
Why Are Ghost Kitchens So Popular?
Ghost kitchens are popular for two main reasons: they are less expensive to open than a traditional restaurant, and major companies are investing major dollars in them. Ever since the Euromonitor report announced that staggering $1 trillion market forecast, investment dollars have poured into ghost kitchen concepts.
By the end of 2020, there were approximately 1,500 ghost kitchens in the United States. Considering that third-party delivery sales grew by 116% year-over-year, and C3 Kitchen claimed to have opened 200 ghost kitchens themselves, there could be hundreds more ghost concepts that figure failed to count.
In the News:
- Ordermark Raises $120M to Help independent Restaurants Thrive
- Bay Area-based Virtual Kitchen Raises $20M
- ZUUL Secures $9M to Operate Ghost Kitchens Throughout NYC
- REEF Technology raises $700M to Remake Parking Lots
How Ghost Kitchens Make Money
Like all restaurant businesses, ghost kitchens make money by closely managing their costs and profit margins; ghost kitchens just have slightly different costs to wrangle. For example, a ghost kitchen’s labor costs are lower than a traditional restaurant, but they have the added costs of delivery fees and take out containers to contend with. Depending on the style of online ordering and delivery a ghost kitchen chooses, the cost can vary from 15% to more than 30% of every order.
To turn a profit, successful ghost concepts must:
- Attract a high volume of orders: Most ghost restaurants rely on the visibility boost that third-party platforms provide. Though some free-standing ghosts deploy an extensive social media marketing strategy instead of paying commission fees. The desire to attract orders is why comfort food (such as crispy chicken, pizza, and burgers) appears on many ghost menus.
- Price their menus competitively: Customers pay delivery fees for ghost kitchen food, so a menu that is priced too high can give customers sticker shock.
- Count their costs correctly: In addition to rent, the cost of food, and delivery fees, ghost kitchens need to budget for takeout supplies and storage space. Marketing tends to be a bigger expense when your business cannot rely on foot traffic. And while ghost restaurants have smaller staffs than traditional restaurants, they still have some labor and payroll costs to manage.
Ghost Kitchen Pros and Cons
There are a lot of benefits to opening a ghost kitchen versus a traditional restaurant. The most attractive reason to open a ghost kitchen versus a traditional restaurant is the lower upfront cost. Ghost kitchen platform CloudKitchens claims the upfront investment is around $30,000. Compare that to the $100,000 to $2M that it costs to open a full-service restaurant, and it’s easy to see why restaurant owners are excited.
Other pros of opening a ghost kitchen include:
Of course, there are cons to ghost kitchen ownership, as well. They include:
Ghost Kitchen Outlook
So, are ghost kitchens the future of restaurants? Well, they’ll definitely be a part of it. The same report that forecast $1 trillion in ghost kitchen sales by 2030 projects that ghost kitchens will account for 50% of worldwide takeaway food service.
Additional research from the National Restaurant Association found that 77% of adults plan to order takeout or delivery in the coming months. And from January to December 2020, 33% to 52% of consumers said that they weren’t ordering takeout or delivery as often as they’d like. So there is a lot of pent-up demand, especially for independent restaurant concepts; 64% of diners prefer to order delivery directly from a restaurant rather than a third-party platform.
However, new ghost kitchen operators should also be aware of some risks. For example, that same National Restaurant Association study found that 72% of adults feel it is important to order delivery from restaurants they can visit in person. And some market analysts expect ghost kitchens to be even more competitive than traditional restaurants, estimating that up to 80% of the ghost brands will fail.
The most sustainable future for ghost kitchens may be institutional settings like college campuses and airports. Large-scale hospitality operations like hotel chains and co-working spaces are also promising prospects.
In the news:
- Universities Test Ghost Kitchens
- Sam Nazarian’s C3 Ghost Kitchen Concept to Set Up Shop in Hotels
Bottom Line
Whether you call them dark kitchens, cloud kitchens, or virtual brands, ghost kitchens are an exciting opportunity for small restaurants to test new concepts and expand to new markets. Ghost kitchens also provide a low-cost way for new restaurant businesses to get off the ground. If you hope to open a ghost concept, you should take note of the risks, however. The market is expanding rapidly, which can lead to inflated lease prices and increased competition. But if you control your costs and actively market your brand, you’ll be well on your way to running a profitable ghost restaurant.
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- See our recommendations for the best online ordering systems for restaurants
- Choose a delivery software or POS system with integrated delivery management for your ghost kitchen
