Are Ghost Kitchens The Future?
Food delivery providers have been steering the restaurant industry towards the ghost kitchen model for years. The demand for delivery has been growing steadily since 2014, and COVID-19 made this an even more lucrative business. During the time when restrictions loosened, customers continued to increasingly take advantage of the convenience of food delivery. This shift in consumer preferences could define a new future for the restaurant industry. In particular, the past few months have been sizzling with news on the ghost kitchen front. Let’s dive into discussing some of the big names behind the ghost kitchens industry growth in North America.
Wendy’s x REEF’s Neighbourhood Kitchens
Wendy’s just opened a new location in Toronto. But this is not the real news, this is: it is their first Canadian ghost kitchen! They have partnered with Reef’s Neighbourhood Kitchens, a company that has been setting up ghost kitchens in parking lots. Ghost kitchens have become an important component of the fast food chain's non-traditional growth strategy. REEF’s model enables Wendy’s to access densely-populated areas and meet the evolving needs of urban Canadian consumers. According to Restaurant Business, Wendy’s view this move as an opportunity to access areas where it did not have near-term plans to open a brick-and-mortar. The company is not new to the use of ghost kitchens. Currently, they have ghost kitchens in Los Angeles, Chicago, the Dominican Republic and the Philippines.
From Parking Spots to Ghost Kitchens
REEF’s Neighbourhood Kitchens already operates more than 100 kitchens across North America, but where did they come from? They are part of REEF Technologies, a company that started off as a Miami-based parking revenue and access control business, providing management services for parking lots. They used their core asset — access to parking lots — to create a revolutionizing model within the ghost kitchen industry. Their Neighbourhood Kitchens consist of pods that are strategically placed on parking lots in busy urban hubs. They operate with local brands as well as national chains. By doing so, REEF helps restaurants expand delivery through a revenue share partnership.
The company described their offering as a “turnkey, zero capital investment solution”. This month, REEF secured $700 million from SoftBank and Mubadala Corp. The funding will support their mission to redesign parking lots across the US. Some of the brands they have been operating include BurgerFi, Nathan’s Famous, and Saladworks. According to QSR Magazine, the company aims to establish a “proximity-as-a-service platform” to help business owners reach their customers locally and at scale. Additionally, REEF allocated $10,000 marketing grants and support for as many as 100 women and minority-owned restaurants.
FatBurger opens Ghost Kitchen in Dallas
FAT Brands Inc., the parent company of renowned restaurant chain FatBurger and multiple other food concepts, announced the opening of a ghost kitchen for delivery and takeout in Dallas, Texas in November.
“Ghost kitchens provide us with the opportunity to introduce multiple restaurant concepts with new audiences at a much faster rate than if we opened individual restaurants for each, allowing us to efficiently develop brand loyalty for continued expansion in various formats,” said Andy Wiederhorn, CEO of FAT Brands. The beauty of this concept is that customers will be able to order simultaneously from FatBurger and their other brands, including Buffalo’s Express and Hurricane Grill & Wings.
Only a few days later in the same month, FAT Brands also announced the opening of another ghost kitchen in Philadelphia where customers will be able to order from Elevation Burger and Hurricane Grill & Wings concepts. They will also be opening another one in San Francisco featuring FatBurger, Buffalo’s Express, and Hurricane Grill & Wings.
FAT Brands is not new to the ghost kitchen world. Already in 2019, they were using 15 of their FatBurger locations in California to offer Hurricane Grill & Wings as a delivery-only concept. This enabled them to test this brand in a new market at low risk. In fact, they were able to share their existing resources, labour and infrastructure, before investing in opening new storefronts. However, Hurricane operated as a ghost restaurant by remaining available only on delivery platforms. In April 2020, Fat Brands also partnered with Epic Kitchens to expand into a ghost kitchen in Chicago.
Chick-fil-A ‘s Ghost Kitchens
Chick-fil-A has been staying ahead of the ghost kitchen game and joined DoorDash Kitchens in the fall of 2019. The food delivery aggregator’s new ghost kitchen serves customers ordering pickup and delivery from the DoorDash app in Redwood City, California. The restaurant brands operating from the facility can reach six nearby markets including Palo Alto, Menlo Park, and Atherton.
DoorDash Kitchens
DoorDash opened DoorDash Kitchens in October of 2019. They learnt from restaurant partners that “launching brick and mortar locations can be a costly and time-intensive endeavour”. Through DoorDash Kitchens, they decided to provide restaurants with a turn-key solution to rapidly establish themselves in a new market. This option presents a lower risk and does not require signing lengthy leases. From a consumer point of view, DoorDash Kitchens gives customers access to popular local restaurants previously not available in their exact area. Their ghost kitchen is filling the gap between supply and demand for the foods they deliver.
Kitchen United
Chick-fil-A and food chains such as The Halal Guys and Sweetgreen have also partnered with ghost-kitchen company Kitchen United. In September 2019, Kitchen United closed on a $40 million Series B funding round led by Google Ventures and real estate company RXR Realty. The company, whose first facility opened in Pasadena, California aims to ultimately open 400 locations over the next four years. Chick-fil-A currently operates from Kitchen United’s ghost kitchen in Chicago.
According to Kitchen United’s CEO Jim Collins, “In a nutshell, consumer demand will only grow. Restaurants have learned that they don’t need more dining rooms to meet that demand,” Collins explained. He highlighted that “active, digital connections with their consumers” are fundamental to succeed in a ghost kitchen environment.
Sweetgreen x Zuul Kitchens
Sweetgreen has opened 110 locations across the US since its founding 13 years ago. While working with Kitchen United, the company has also begun operating as a ghost kitchen from Zuul Kitchens in Soho, New York. During an interview with Nation’s Restaurant News, Chief Concept Officer Nicolas Jammet explained that Sweetgreen is testing working as a ghost kitchen. He shared that the company is open to learning about new methods to operate, grow and reach new customers. Pre-pandemic, they were already planning on changing the format of upcoming stores. COVID-19 accelerated the need for new ways of expanding the number of their locations, including the use of ghost kitchens. At the current stage, Sweetgreen is testing the ghost kitchen model “to provide a better delivery experience for their customers”.
While Zuul has been operating from their Soho facility, they secured $9 million in funding to expand ghost kitchen operations throughout New York City. Sean Fitzgibbons, Co-Founder and CBO of Zuul, noted that “Zuul’s physical and digital infrastructure provides the differentiated value layer in the tech-enabled food delivery evolution”. This is reflected by the waiting list of brands who have already requested to partner with Zuul at future locations across New York City.
Zuul Market: a Platform for Ghost Kitchens
At the end of September, Zuul also announced the launch of their new virtual food hall: Zuul Market. Zuul Market is both an online marketplace and a white-label delivery platform. The initiative is part of their effort to support New Yorkers returning to work. Zuul Market offers scheduled food deliveries to specific drop points, enabling customers to order from multiple restaurants on one bill. For this purpose, Zuul Market partnered with Silverstein Properties. The marketplace integrates with Silverstein’s Inspire app, which provides several amenities for their tenants. By delivering multiple orders at once, Zuul Market reduces the number of drivers interacting with the building and the use of elevators.
Zuul Marketplace sells items from restaurants that are members of Zuul’s ghost kitchen facility, as well as virtual-only brands. These were developed by Zuul together with their restaurant partners. By adding a virtual brand, restaurants can maximize the efficiency of their ghost kitchen and increase sales. The concept is similar to what FatBurger did in California: utilizing existing staff and infrastructure while increasing output.
OrderMark’s $120M Funding Round
It was only a month ago when LA-based online order management provider and virtual restaurant operator OrderMark received $120M in funding from SoftBank. The Japanese private equity firm’s move comes with no surprise considering their experience in food industry investments. In fact, they are among the major backers of DoorDash, Uber, Reef Technology, and the Latin-American delivery app Rappi. According to Jeff Housenbold, managing partner at SoftBank Investment Advisors “Ordermark’s leading technology platform and innovative virtual restaurant concepts are transforming the restaurant industry.” OrderMark’s mission is to help independent restaurants optimize online ordering and generate incremental revenue from their under-utilized kitchens. For this purpose, they have developed Nextbite, a restaurant company featuring a portfolio of delivery-only brands.
OrderMark’s CEO, Alexander Canter has been in the restaurant industry since he was a child, as the family owns the eponymous Canter Delicatessen in Los Angeles. As told on TechCrunch, Canter would always pitch new ideas to upgrade their business. When he found himself surrounded by multiple tablets, laptops and fax machines to take delivery orders in their restaurant, the idea of a software that would allow aggregating all of a restaurant’s online orders in a single hardware device was born. Now, he is rolling out new virtual restaurant concepts that have been developed internally, in addition to OrderMark’s core business. Nextbite’s service has also partnered with celebrity Wiz Khalifa to develop a delivery-only restaurant called HotBox by Wiz, featuring “stoner-friendly munchies.”
Chipotle Digital-Only Restaurants
Chipotle just announced the opening of their first Chipotle Digital Kitchen in Highland Falls, N.Y.. With online orders booming during the pandemic this year, the company developed a ghost kitchen model featuring pick-ups and deliveries only. This format will boost their effort to ramp up online sales in “nontraditional locations”. Guests have to order via the Chipotle app, Chipotle.com, or third-party delivery partners. Customers and drivers will pick up orders from the Digital Kitchen’s lobby. To remind of a traditional Chipotle, this retail space will feature all of the sounds, smells and kitchen views of a regular Chipotle restaurant. The Digital Kitchen will also service large catering orders available for pick up in a separate lobby with its own dedicated entrance.
According to Adweek, Chipotle’s global chief development officer Tabassum Zalotrawala expressed that “as part of our objective to make Chipotle more accessible and convenient, the digital kitchen has been an integral part of our innovation pipeline prior to the pandemic”. He also added that they “expect pandemic-inspired behaviours like increased reliance on digital will stick post-pandemic”. A downsized Chipotle will generate location possibilities that would have not been feasible for a brick and mortar restaurant. This will expand the company’s reach into regions where they are yet to meet the demand for their offerings.
Food Entrepreneurs x CloudKitchens
There are certainly many big restaurant names in the ghost kitchen industry. But many food entrepreneurs are creating new brands while operating as delivery-only concepts. As reported on Eater, chefs Shawn Clendening and Will Schlaeger opened their virtual restaurant Cat-Su Sando in September 2020. They are located within a CloudKitchens’ facility in Chicago. “It was the only way we could start something up with no capital” Schlaeger said. The duo intends to open a brick and mortar once their brand is established.
Shannen Tune, owner of Craft Burger, started his brand from a food truck in 2016. His initial goal was to open a brick and mortar restaurant. However, the risk was too high for the small business owner, so he decided to join CloudKitchens in Houston. Through his experience working as a ghost restaurant, Shannen is confident that this is the future. Another success story is Chef Dolores Allen’s, who also started her concept Build a Pizza in CloudKitchens Houston. She claims that she is planning to continue working with the company when expanding into new locations.
CloudKitchens was founded by former Uber founder and CEO Travis Kalanick. Since their inception in 2018, they have spent more than $130 million on real estate for their kitchens. This comes as no surprise considering the $400 million in funding they received from Saudi Arabia’s Public Investment Fund. They have purchased former restaurant facilities, auto body shops, and warehouses to prepare for their expansion. CloudKitchens has been working with food entrepreneurs and renowned franchises. Interestingly, their facilities only rely on delivery, without even offering pickups.
What We Can Expect in the Future
Ghost kitchens started appearing in North America prior to the pandemic because they allow restaurateurs to reduce their overhead. This is made possible by eliminating the need for large square footage on a high-foot traffic street. Restaurant owners can benefit from additional savings by reducing the number of staff required. Ghost kitchens lower the risk for food entrepreneurs and support the growing demand for deliveries and takeout. They allow restaurateurs to avoid investing large capital to open a brick and mortar location and committing to a lengthy lease. According to Restaurant Dive, experts predict that the rapid rise of ghost kitchens amid this unprecedented pandemic and the following restaurant crisis is additionally increasing diners’ delivery demand for the long-term. Furthermore, ghost kitchen facilities could provide the only solution for restaurants that would otherwise be forced to close.
Several renowned restaurant brands such as Chipotle, Wendy’s and FatBurger have invested in operating as a ghost restaurant. Meanwhile, venture-backed start-ups such as Kitchen United and Cloud Kitchens are rapidly expanding in the United States to take advantage of this growing opportunity. Additionally, food aggregator DoorDash has stepped in by opening a ghost kitchen to add value to their existing services. Interesting models such as REEF’s Neighbourhood Kitchens are emerging to cater to off-premise dining. These companies' involvement, together with the shift in consumer preferences provides compelling evidence suggesting that this is not just a temporary trend, but it is the future of the restaurant industry.
NextGen’s Ghost Kitchens Canadian Solution
If you are a brand owner, franchisee, or a food entrepreneur in Canada, at NextGen Kitchens, we have the best turnkey solution for you! We have developed our ghost kitchens to cater to your business’s needs so that you can take advantage of the growing food delivery market while cutting operating costs. Our services are tailored to enable you to adapt to the changes and trends in the Canadian restaurant industry. Our mission is to grow together with our restaurant partners, because your success is our success. We are rapidly expanding and planning to open 100 facilities across Canada to drive the restaurant industry’s growth.
To learn more about our services and how they could be a great fit for your business schedule a free phone consultation here.
