There’s a Ghost in your Neighbourhood
But it’s only the kitchen where you’re dinner is coming from.
There’s one thing this pandemic has altered in my home and that’s the amount of take-out food coming in the front door.
I am a cook, and I love to play with food and recipes. The pandemic has provided ample opportunity for me to stretch my cooking capabilities in many different directions. No, I didn’t slave over that sourdough starter. But I did learn how to air dry a steak in my fridge, brine a chicken that came out absolutely fabulous after roasting and I can now whip up a mean Hummus made with garlic confit and made fluffier and silkier with the addition of a bit of cold water near the end of the processing time.
That said, 14 months into this new normal, and I do get tired from time to time. So, enter the take-out food options for a Friday and/or a Saturday evening. And our local restaurants have responded. Oh, how they’ve responded! Choice has never been better as former dine-in only places have slimmed down their menus to focus on a few key items to respond the demand for both delivery and take-out.
But as they do so, and the pandemic continues to drag on with formal dining room openings still a ways off (in Canada, at least), restaurant owners are realizing that there’s a lot of real estate that’s sitting around not doing much. And people are getting used to have a greater variety of delivery and take-out options they never had before.
It was the Fall of 2020 that I began to see reports of restaurants re-purposing their kitchens for use by other chefs. Hotels — basically with no revenue stream — also began to rent out their ample kitchen spaces. It was all very informal and seemed like a good idea to leverage the kitchen facilities for chefs to try out new dishes or concepts, and provide a much-needed revenue stream for struggling restaurants and hotels.
Ghost kitchens, AKA off-site meal preparation facilities, are not new. Catering is the most obvious example of a business that uses a non-restaurant kitchen to prepare food items delivered to a particular event. But caterers are a specialized business and they rarely rent their kitchen facilities to restaurants or chefs because, well, the chefs have access to their own facilities.
Enter the pandemic. Restaurants closed during the first wave, then, timidly, re-opened in the summer of 2020, only to be closed again as the second wave ramped up. Restaurants have been the neglected in this pandemic, used by government as an obvious lever to pull to limit social contact, and then marginally supported with programs that were not adequately adapted to their particular business model. A restaurant cannot open and close with the rapidity of opening and closing a light switch. A restaurant owner needs to ramp up for an opening, by ordering food in advance, re-hiring its staff, and hoping that the demand will be there for all that food before it spoils. Similarly, when you’re ordered to close, what is to be done with the inventory on hand?
It’s been a brutal 14 months for restaurants. According to Statistics Canada, 50% of restaurants in Quebec saw their revenue decline by 40% or more. Nationally, half of all restaurants do not know how much longer they can continue before closing and declaring bankruptcy. The same number report that their capacity to carry debt as been maximized. The future is going to be difficult for in-dining restaurants that survive as they try to convince patrons to brave sitting in a crowded space to enjoy a meal.
Take-out and delivery, on the other hand, is booming. Forced to work with the public health rules that closed in-person dining, but allowed restaurants to continue to offer take-out and delivery, many invested in online menu and payment platforms to make it easier for clientele to get the food they wanted. eMarketer magazine noted that dine-in restaurants pivoted substantially over the course of the year. Pre-pandemic, delivery represented 9% of sales, while take-out represented 15% of sales. The same figures one year later had risen to 28% through delivery, and 68% take-out.
Online food services of all kinds saw a spike in demand during 2020, with fully 63% of all Canadians ordering food of some kind (prepared meals, meal kits, groceries, etc.) through online platforms. That same survey also found that a marked increase between before the pandemic and after: 4.2 million more Canadians were getting food products through online platforms than before the pandemic and fully half of those surveyed indicated that they would continue to order through online platforms after the pandemic is behind us.
With the majority of their business being sourced through delivery or take-out, restaurants and other food brands began to ask themselves if the pivot was temporary, or part of a more permanent trend. Given the survey results above, it seems the latter theory is going to win out. And if that’s the case, then why bother having to pay the rent on a dine-in establishment, if maybe all you want to do is move online completely?
Enter the ghost kitchen.
In September, 2020, the New York Times ran an article about ghost kitchens, and highlighted such companies/concepts as Zevv (which runs a fleet of mobile kitchens, AKA, large food trucks), C3, Cloudkitchens (with Uber co-founder Travis Kalanick helming it), Kitchens Without Borders (DoorDash) — which is designed to encourage immigrant and refugee-owned businesses — and others that were beginning to raise their profile and flooding the market with different business models, ranging from fully autonomous kitchens for established restaurateurs and brands, to turn-key operations that include the branding, menu items and marketing concepts.
Reef Kitchens— originally started as an operator of parking lots — now uses those parking lot spaces to tow in a shipping container that is a self-contained kitchen to support the delivery options of a large number of food brands. The brands are ‘internal’ to Reef, with their own chefs concocting menus and concepts that are then populated to delivery apps.
The market for ghost kitchens has been a bit sleepier in Canada, but there some players out there beginning to flex their muscle.
Coho Commissary is a company operating since about 2018 in the BC lower mainland, with three locations currently, and a fourth opening soon on the Sunshine Coast. MALGAM, La Centrale Bouffe is operated by the Saint Hubert chain (AKA, Recipe Unlimited) to stimulate the growth of their own, in-house brands. GhostKitchens, based in Toronto, has partnered with well-known brands such as Quiznos and Walmart, to produce their branded items — in-store for Walmart and out of store for Quiznos.
Q-ZN is a Montreal-based company that grew out of a need to pivot an existing business when the government-ordered lockdowns were imposed at the beginning of the first wave of the pandemic. Their business model is a bit different and that helps to differentiate themselves in a market with an increasing number of players.
Two of the four partners — who had a thriving events business — suddenly went from significant and growing revenue to nothing in a matter of weeks. They had just signed a lease on a new building to support their growing business, and were now faced with how to pay the landlord for the space with no revenue coming in. Given their experience in providing food items for events, they already had one kitchen in their new premises. It didn’t take long for them to figure out that they could cut up the rest of the space in the building and outfit them as kitchens for rent. Q-ZN was born.
Eschewing the idea of aligning with existing brands, Q-ZN has gone the route of being a more neutral player. They don’t operate kitchens, like some of the other players. Rather, they equip each of their 250 square foot kitchens with basic gear, and then provide a budget up to $16K for each tenant to outfit the space with additional items. They provide a range of common services, such as dishwashing, Lightspeed-powered Point of Sale and access to the Deliverect platform that amalgamates various delivery apps onto one screen, simplifying the operations experience at the kitchen level. Centralized walk-in fridges, on-campus WiFi, ample parking for employees and managed utility services round out the common services offer. If needed, Q-ZN can introduce tenants to other service providers for assistance in marketing, branding and strategy, but its not core to their business model.
They recently soft-launched their first location in Montreal, with an official opening planned for the beginning of June, and are scouting out a couple of other locations in the region before turning their sights to Quebec City and other urban centres in Canada. As of writing, 80% of their kitchen spaces in their inaugural location were booked with one-year leases.
Ghost kitchens is a business model that has grown out of necessity. If restaurants are going to survive, they’re going to need all the help they can get, and ghost kitchens — for some — is a much-need lifeline that helps them to keep their costs low, while at the same time, providing variety for their customers. It accelerates the pivot many of them have made into delivery and take-out, and helps them plot a path to longer-term survival — not to mention the ability to greatly expand their customer base — as restrictions are eased later this year.
It’s a shame that governments haven’t jumped into the fray with dollars to support the industry. It’d be an easy win for them to provide start-up capital, in the form of forgivable loans, to accelerate this model as a way of ensuring the survival of our coveted restaurants and food culture. So far, they’ve been rather mute on the topic of how they’ll support restaurants and bars going forward, other than to rely on Federal programs that, according to some restaurateurs, are difficult to navigate and are fraught with delays in getting money into their hands, and increase the amount of debt each of them has to carry.
Of all the options that I’ve seen, Q-ZN’s model is the one that provides the greatest freedom to independent restaurateurs, a key characteristic of the Montreal food scene, and for many neighbourhoods across the country. I’m thinking, for example, of King & Queen West in Toronto, Kitsalano in Vancouver and Beltline in Calgary. Q-ZN provides access to much-needed infrastructure and online payment and delivery platforms that allow a chef to experiment, refine and deliver their creations to a willing public quickly, efficiently and without having to carry the heavy costs of leasing a larger space to support in-house dining.
So don’t worry about the ghosts in your neighbourhood. No need to call in the Ghostbusters. Just enjoy the meal you’ve just received via your preferred delivery app, knowing that it probably came out of a kitchen where the chef-owner was pretty happy with how things are going. And that’s worth savouring.
