Ghost Restaurants Are Here and They’re Not Scary at All
As scary as it sounds, ghost restaurants are legit businesses. They have been around for years already. Reports indicated that a few ones were already operating as far back as 2015 [and even earlier].
However, it was only since the pandemic stepped in that ghost restaurants came to light. Expectedly, they will be here to stay as people prefer less interaction with others.
The face of a ghost restaurant
Ghost restaurants, otherwise known as “virtual restaurants” and “cloud kitchens”, have one main difference compared to the traditional restaurant — they are delivery only.
These businesses are food service establishments that don’t have storefronts and dining areas. They are take-out only services and will deliver food directly to doors with their own food service delivery or a third-party one.
Since there’s no need for human contact when ordering on ghost restaurants (except for the part where you get your order from the delivery service), it’s been gaining traction, especially with the pandemic around.
According to Nation’s Restaurant News…
Digital ordering and delivery grew 300% faster compared to dine-in traffic since 2014.
But even if virtual restaurants don’t have waiters to take your orders, the way these entities function in terms of taking orders is quite similar to a traditional restaurant. That is, they will only prepare food once you order it.
Some established companies like Chipotle are turning into hybrid ones that started putting up digital-only restaurants. This is a cloud kitchen business model where a brick-and-mortar restaurant adds a delivery brand to its services.
But a true ghost restaurant is exclusively in the cloud and doesn’t have any physical storefront — a game-changer for anybody who wanted to start a restaurant but can’t afford to rent a big space for the dining area.
Trends that likely brought ghost restaurants to existence
One of the most likely culprits behind the emergence of ghost restaurants is the ongoing digital transformation and innovation. As various means are invented to make life simpler and easier, industries like food and beverages will always face a disruption.
But aside from the obvious changes in technology, here are two primary trends that gave birth to virtual restaurants:
Increase real estate prices especially in urban areas
It’s no secret that the pre-pandemic prices of real estate properties had risen dramatically. In Europe alone, prices had been so high that startups needed a deep pocket to be able to sustain their businesses.
All over Europe, prices had risen from 5% to 20% across different real estate markets, pre-pandemic times (taken from Forbes).
An article from Cazenove Capital indicated that this price increase was brought about by the high performance observed on the commercial real estate since 2015 that was driven by long-term forces like population, sustainability, urbanization, and technology.
Whatever drove the “high performance” observed on commercial real estate, it was clear that prices had gone too high enough to spark a food and beverage concept without the need for a storefront.
High demand for delivery services
As far back as 1995, there were already a few restaurant delivery services. Then, advanced food delivery services like Deliveroo and Food Panda started appearing that definitely made ghost restaurants more accessible to regular consumers.
Now, the demand for delivery services is at an all-time high. By 2025, the food delivery sector will be a $200 billion industry because of the changes in the behavior of the consumers, stated another Forbes article.
As you may know already, many people, even before the pandemic, prefer to eat at home. It’s even more prevalent now that many people are afraid of being in public places due to coronavirus.
How do ghost restaurants work?
The primary asset of a ghost restaurant is its kitchen space. Since there’s no need for a dining area, there’s room for more kitchen space and specialized equipment.
What’s amazing here is that if there’s a large space already available, it’s possible to operate multiple virtual restaurants from the same location. But if kitchen space isn’t available, there are various commissary kitchens available for rent.
If you’re not familiar with “commissary kitchen”, they are basically fully-fledged kitchen spaces that can be rented privately or shared with other commissary users.
As for the order fulfillment, virtual restaurants can employ a regular in-house delivery service that will take care of the orders place through an app.
However, partnering with a food delivery app like Deliveroo is proven to be more beneficial. These apps are able to provide ghost restaurants with craving customers that are already regular users of these apps.
One interesting statistic mentioned by Nation’s Restaurant News was that…
Restaurants that make use of third-party delivery apps make 10 to 20% more.
Another statistic from Statista seemed to explain the reason. People who order online via food delivery apps spend at least $50 per order.
In addition, most people like using food delivery apps. New research from Mintel revealed that people use delivery app services at least twice a week.
That’s why most virtual restaurants partner with a food delivery app — not only will these apps handle the delivery, they will also connect the restaurant with potential buyers.
What advantages can you expect from running a ghost restaurant?
Compared to running a brick-and-mortar restaurant, you can expect ghost restaurants to be far simpler. This makes this business model ideal for those who want to start a restaurant business without dealing with all the hassles you get from a traditional restaurant.
Aside from that, there are three primary benefits you can expect from running a virtual restaurant:
Smaller financial investment
Running a traditional restaurant can be quite costly since you will have to pay for the staff, real estate, insurance, furniture, utilities, and other amenities.
A survey by RestaurantOwner has shed more light on the cost required in starting a traditional restaurant business:
The median cost to open a restaurant is somewhere around $275,000 (the respondents admitted that the costs were 15% of their projected budget).
Ghost restaurants don’t have the same expenses:
- No need for expensive, attractive storefronts since virtual restaurants don’t need any dining area. All you need is the kitchen space to prepare the food.
- Can be located in a cheaper space since there’s no need to worry about visibility and accessibility. The location of the virtual restaurant doesn’t really matter.
- Require less space than a brick-and-mortar restaurant since there’s no dine-in service. No need to pay for more space when all you need is a tiny space to operate the business.
Flexibility and efficiency
Primarily, the business flow starts with an order from a customer via a food delivery app. Then, you prepare the meal as the customer ordered. The food delivery service will then pick up the order and deliver it to the customer.
Because of that, ghost restaurants enjoy more flexibility and efficiency in running the business.
For example, these restaurants have more freedom in swapping out menu items or changing the menu whenever they like. There’s no need to worry about changing the content of printed materials or signages.
Ghost restaurants can adjust the menu right away when an ingredient becomes inaccessible or too expensive.
In addition, cloud kitchens run efficiently since they’re optimized for delivery. Meaning, it’s okay to prepare the ingredients in batches for several different menus.
You can also design the kitchen however you like to increase the speed of preparation and handling the food to the delivery service.
Scalability in operation
If you want to open another ghost restaurant, you don’t need to lease another place or hire additional workers. As you can tell, it’s certainly possible to operate many ghost restaurants from one single space.
A good example of this is the Green Summit Group with nine ghost restaurants and delivers more than 2,000 orders daily.
Because of how fast virtual restaurants can adapt, you can even launch a restaurant for a season to cater to different seasonal demands or try out different demands from different target consumers.
Ghost restaurants will continue to grow its presence
As we transition into a more digitalized world, with many companies incorporating hybrid work, the demand for virtual restaurants will continue to grow.
As more tech-savvy millennials enter the scene, food delivery apps will always be on smartphones and will further increase the food delivery industry, which will put it at $76 billion by 2022 (from CNBC).
In regards to ghost restaurants, Florence Graham-Dixon of JLL’s Foodservice Consulting said:
What’s interesting about ghost kitchens for the restaurants themselves is they offer opportunities to go into areas and make their brand known where the demand doesn’t justify the rent for a full, stand-alone restaurant. This allows them to get their brand known and expand their customer base. They have the opportunity to serve customers that they would otherwise miss.
But will the innovation of the food industry stop here? Or will we start seeing robot kitchen and drone delivery a few months from now?
