Over the last few months, restaurants have made some challenging decisions and adjustments regarding their business model. As takeout and delivery continue to rise in popularity, the concept of ghost kitchens – delivery-only kitchens that exclusively operate as a virtual restaurant – has started gaining traction.

Our Consumer Market Insights team took a deep dive into current trends to shed some light on this emerging operating model.

More off-premise consumption in the future of the industry

At the start of 2020, restaurant operators were already experimenting with off-premise consumption¹. The closure of dining rooms further solidified this model’s importance, as digital ordering traffic doubled in March 2020 compared to year-end figures from December 2019².

Moving forward, full-service and limited-service restaurants are expected to reorganize operations and supply chains to accommodate more off-premise consumption³. The goal: resilience through diversification. On the consumer side, people are likely to be more cost-sensitive, and free delivery will be an expectation⁴. Foodservice operators will need to carefully plan their transition to the new normal, balancing profitability with keeping prices low for their customers.

What are ghost kitchens, and why are they interesting?

Also known as cloud kitchens, they are a new business model that resulted from the delivery revolution initiated by online ordering options. They are used to operate a foodservice business without a brick and mortar dining room, and cook food exclusively for delivery. These virtual restaurants could significantly minimize overhead costs, especially if multiple restaurant brands come together and use the same kitchen to handle various independent menus.

Whether they share their ghost kitchen or not, chefs can still create a unique menu, build an online presence, and market their business. They simply cut all the costs of having a dining room (staff, furniture, serve ware, etc.) Some delivery-only kitchens are as bare-bones as a trailer set up in a parking space! These facilities have already been popping up in major cities as a way to make delivery more profitable – but now, in the wake of COVID-19, our industry experts predict that the delivery-only model will intrigue more and more operators.

There are many ways to run a ghost kitchen

There’s more than one way to incorporate a virtual restaurant into your business model. If you are looking to focus on delivery and minimize operational costs, here’s how you can make this concept work for you.

1. Pool your resources

Different operators can share a space to decrease the cost of running a restaurant. Think of it as another facet of the sharing economy: it’s like a co-working space, but for restaurants. Third-party businesses even offer formulas including kitchen space, equipment and staff.

2. Enjoy freedom of location

If you are operating your own ghost kitchen, you can set it up in a residential or industrial area, or somewhere where rent is significantly lower than the downtown core or main street.

3. Reinvent your business model

If the lockdown proved that you could thrive on a delivery-only model, ghost kitchens could be your ticket to becoming a successful virtual restaurant. You could move to a smaller place without in-house dining space and solidify your online presence to grow your customer base. Skilled workers are hard to find. You could reduce staff needs to a minimum by using third-party apps for your delivery service: since you’ll have decreased rent and labour costs, the cost of using an app will be much easier to absorb.

4. Expand without breaking the bank

Instead of investing in a whole new location, a cloud kitchen could be used to expand your delivery offering without taking away from your in-house experience. Your brick-and-mortar restaurant can offer in-house dining and pickup, and your ghost kitchen can take care of deliveries from a strategic location.

5. Launch a business quickly

If you are launching a new restaurant, this may be the quickest way: there’s no need to decorate, renovate, or train service staff, and there’s also less equipment to buy. All you need to do is set up your kitchen, create your menu, and advertise online. You can also work with a third-party kitchen service, which will charge a monthly fee to cover infrastructure, staff, rent, etc. This is a great way to test out your menu and business model with a smaller risk.

It all starts with a strong online presence

There’s no doubt that brick and mortar restaurants are here to stay, but ghost kitchens are certainly an interesting business model to explore. Whether you’re looking to minimize operational costs or expand your delivery service, one thing is for sure: digital marketing and a strong online presence are essential if you want your virtual restaurant to thrive.

 

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¹ Technomic, COVID-19 Impact on Canadian Foodservice 2020.
² Technomic, The Post Pandemic Playbook, April 2020.
³ Technomic, The Post Pandemic Playbook, April 2020.
⁴ Technomic, Foodservice Impact Monitor Third Edition, April 3, 2020.