It’s 2019, and the restaurant landscape is changing as we know it. Factors like technology, millennials changing and consumer preferences have created a shift in how food is ordered and consumed. With the explosive growth of delivery aggregators such as Uber Eats and Door Dash, restaurants are shifting to accommodate increased delivery options by creating delivery-only business models known as ghost kitchens, cloud kitchens or virtual kitchens.
A traditional ghost kitchen is a restaurant space optimized for delivery-only sales, usually through aggregators such as Uber Eats and Door Dash or through in-house delivery drivers. With this model, customers typically do not enter the space and can only order for delivery. Thus, the operator can focus on fulfilling delivery tickets. There are also hybrid models, which allow customers to come into the space to order food, and for pickup.
A ghost kitchen operator may house anywhere from one to 10 or more restaurant brands in one space. Multiple brands allows for multiple listings across different delivery aggregators, increasing overall sales. Efficient operators will house several brands in spaces under 1,000 square feet, which can produce high-profit margins due to low rent, lower labor and multiple revenue channels.
So, how can restaurants take advantage of an increasing delivery market with ghost kitchen models?
For starters, restaurants should optimize their own locations to gain a deeper understanding. Explore what services are available in the area, with enough adequate drivers to fulfill orders. I recommend starting with the big four — Uber Eats, Door Dash, GrubHub and Postmates.
Next, make sure that you have a dedicated account rep to help you get set up. When you are ready to share your menu, make sure that you have appealing photos. Some services will include free photo shoots for you. And since delivery aggregators take approximately 30% in commissions from your gross sales, price your menu accordingly. I recommend increasing your prices by at least 30% to slightly offset costs. Surprisingly, customers are still willing to pay a bit extra for the convenience of delivery. Lastly, discuss marketing campaigns with your account rep to drive traffic to your listings.
The 3 ghosts
Once you understand how the delivery aggregators work, take some time to explore the ghost kitchen models that may be available to you.
- For example, Model 1 calls for creating new restaurant brands internally, to fulfill orders out of your existing restaurant. Let’s say that you own “Tom’s Pizza” restaurant. You can create a new concept called “Tom’s Calzones” to list across different delivery aggregators, creating a new menu that utilizes your existing ingredients. This is a great way to test new ideas and items for your brick-and-mortar location as well. You can even create completely unrelated concepts such as an ice cream shop. You would simply fulfill orders in your kitchen and bag them up for the delivery drivers. Every new brand you create should bring you additional revenue streams.
- Model 2 calls for setting up partnerships or licensing agreements with third-party operators. My concept, Sweetberry Bowls, has 17 restaurant units across four states. In order to expand our footprint within Chicago, for example, we partnered with Dine Hive LLC, a ghost kitchen operator with 12 existing brands under one kitchen. By setting up an agreement that allows them to create and sell Sweetberry products in their ghost kitchen, we’ve expanded our footprint in a major city we weren’t previously in. The partnership allows us to grow, test the market, and increase our revenue through royalties.
- The third and last model requires expansion through building ghost kitchens on your own, similar to a brick-and-mortar location, or renting space from an existing kitchen as a service model. We are expanding throughout New Jersey, for example, by building pure ghost kitchens. You can also expand your footprint by taking over a previous restaurant with low rent, or by partnering with an operator such as Kitchen United. Kitchen United offers 200 SF plus, which are built out to your specs, along with storage and labor services such as maintenance, cleaning and scullery that is shared with other brands. This is a great option if you do not have the capital to build out a space, and you are looking for a ready-to-go kitchen.
With all of the growth and innovation taking place in the on-demand and delivery markets, ghost kitchens seems to be the model that is attracting both big brands and investors. Time will tell if ghost kitchens are truly sustainable and here to stay, but if you are a restaurant owner, it’s worth taking a look at the various models available to see if they can be profitable to your brand.