The Growth of Ghost Kitchens, and What Makes Them Work

    COVID didn't create the movement, but it didn't slow it down, either.

    Outside Insights | February 17, 2022 | Tim Murphy
    Nathan's Famous and Wings of New York menu Items
    Nathan's Famous
    Nathan's has scaled up in a hurry via ghost kitchens.

    “Slammed” is one term that is commonly used to describe how the COVID-19 pandemic affected the restaurant industry. Lockdowns, social distancing, and shelter-in-place orders made it all but impossible for restaurants to keep their doors open. To survive, many turned to innovative business models that found ways to get their food to customers who could no longer sit and eat in a restaurant dining room. One of those models, which is commonly known as the ghost kitchen, looks like it might stick around even after COVID protocols are relaxed.

    COVID did not create the ghost kitchen. While they have probably been around for decades in one form or another, the term “ghost kitchen” was coined in 2015 to describe delivery-only restaurants operating from addresses not associated with any restaurant known to food service regulators.

    However, when COVID struck, the ghost kitchen model provided a solution for many of the problems that restaurants were facing. With less overhead, smaller staff demands, and a high degree of efficiency for getting diners the food that they want, when they want it, where they want it, ghost kitchens have been growing in the COVID environment.

    What do you need to set up a ghost kitchen

    The most obvious difference between ghost kitchens and a traditional restaurant is the lack of a dining room. In most cases, ghost kitchens are delivery only; customers cannot stop in to pick up a “take-out” order. Because of these differences, ghost kitchens do not require the type of real estate that traditional restaurants need. Not only is less square footage needed, but ghost kitchens do not need the high traffic real estate that helps traditional restaurants to thrive. They can be set up in low rent areas, they do not need parking, and ambience definitely is not a concern. In some cases, renting a commissary kitchen, which is set up and maintained according to applicable health regulations by a third-party provider, are the best options for ghost kitchens.

    While doing away with the dining room takes away a lot of a restaurant’s overhead and staffing needs, it also takes away one tool that restaurants use to establish their concept and brand. Businesses using a ghost kitchen model will still need to develop a concept to stand out. The good news for ghost kitchens is that concepts can be quickly adjusted as restaurants learn about their customers’ likes and dislikes. Menus are digital, meaning they do not need to be reprinted as offerings change. Diners can be provided with a QR code that is linked to a digital menu page that can be updated with new items and prices as often as possible. The ease with which menus can be changed can also be helpful when supply chain issues affect the availability of ingredients. 

    Ghost kitchens also require a system for receiving, managing, and fulfilling orders. To assist with those processes, a whole new category of business has appeared to provide third-party support systems. From websites and apps for promoting and ordering to internal systems for managing workflow to delivery services like Uber Eats, those looking to establish ghost kitchens will find plenty of third party providers with which they can partner.

    What regulations apply to ghost kitchens

    While established restaurants should already be familiar with the host of regulations that apply to preparing and providing food, pivoting to a ghost kitchen model could mean engaging with some other legal and regulatory issues.

    State and local authorities typically will be responsible for overseeing ghost kitchen operations from a health and safety perspective. Often licenses and certifications related to food handling and storage need to be obtained just as in a normal restaurant setting. Regulators in some big cities are still wrestling with how to define ghost kitchens within the restaurant world and, consequently, establish effective regulatory oversight.

    Businesses that are getting their start as ghost kitchens will need to consider the raft of requirements associated with establishing a new business, including several that are unique to “online only” businesses, such as contracts related to software providers and delivery companies. To assist in these areas, law offices have begun to promote departments that specialize in handling the concerns associated with opening and operating ghost kitchens for restaurants and those providing facilities and services to restaurants.

    How do ghost kitchens get food to customers

    The rise in popularity of ghost kitchens is due in large part to the growth in demand for delivery or take-out options made necessary by COVID protocols. Ghost kitchens that cannot ensure efficient, effective, and reliable delivery options will not survive.

    Thankfully, third party delivery providers like DoorDash, Grubhub, and Uber Eats provide ghost kitchens with a resource that facilitates ordering and delivery. However, proper preparation and packaging also must be considered when developing effective delivery systems. Ghost kitchens must ensure that the ordering process allows for and effectively communicates order modifications and add-ons. Packaging that ensures food arrives fresh, and hot, when that is appropriate, must be considered.

    Overall, it may be best to think of ghost kitchens as being adjacent to the restaurant industry. While ghost kitchens, like any restaurant, must be able to prepare and provide quality food, the challenges associated with acquiring and satisfying customers can be very different from what traditional restaurants face. Ghost kitchens, much more than traditional restaurants, allow businesses to take advantage of digital tools for serving and understanding customer needs. Building a successful ghost kitchen relies in large part on leveraging those tools effectively. 

    Tim Murphy, CEO of Boomers Parks, has successfully served as CEO, president, COO, CFO, consulting advisor, and Advisory and Board Members to more than 150 brands with more than 10,000 locations. His specialties include improving the performance of entertainment, food and beverages, restaurants, hospitality, retail, and other industries for public, private, startups and private equity firms.