As counter-service brands grapple with rising rents and shrinking margins amid a crush of off-premises demand, some are ditching the dining room altogether and buying into the virtual kitchen model.
You can see the appeal. Virtual—also called cloud or ghost—kitchens are stripped-down commercial cooking spaces with no dine-in option. Functioning as hubs for online delivery and catering orders, they circumvent the need for costly buildouts in premium locations. Less prime real estate also means more space to accommodate delivery and catering vehicles that would otherwise jockey with customers for parking space. It’s an ever-more-appealing prospect as the $17 billion U.S. online food delivery market climbs toward a projected $24 billion by 2023, according to data portal Statista.
But does it work for everyone?
“Virtual kitchens reduce the burden on restaurants’ four walls,” says Craig Cochrane, executive vice president of marketing for Pasadena, California–based virtual restaurant facility Kitchen United, which just opened a second location in Chicago. The company’s two-part model comprises shared kitchen space for companies looking to test and launch new products and a multi-kitchen virtual restaurant to help brands expand delivery or cheaply and quickly get into new markets. Securing a $10 million investment last year led by Google Ventures, Kitchen United aggressively aims to open 10-15 facilities by year-end.
Kitchen United charges a monthly membership fee that covers rent, infrastructure and commercial equipment, and services like dishwashing, food receiving, and cold storage. To ease restaurants’ unrelenting labor burden, kitchens are designed to have just one or two cooks running the line. They fire orders from a cloud-based stream that accommodates orders from restaurants’ systems or third-party delivery platforms. Kitchen United employees retrieve food from the line and bring it out to delivery drivers or customers. Customers can also place orders on-site at kiosks and pick them up—a notable difference from most virtual restaurants that lack a consumer-facing element.
Some tech-savvy brands are building cloud kitchens into their own business models as a means to streamline systems and get a jump on unit and off-premises growth. Bay Area fast-casual chain Bamboo Asia opened a 10,000-square-foot cloud kitchen in Oakland in January 2018, largely because its catering arm was growing so fast that its then-two locations couldn’t handle demand.
“As a small business, putting the investment up to build out something that isn’t going to offer a return as quickly as restaurants with revenue on day one was a bit of an investment decision,” says Sebastiaan van de Rijt, cofounder and CEO of Bamboo Asia. “But we’re so happy we did it.”
Cooks prepare all dishes using eight huge sous vide baths before they’re picked up for catering or third-party delivery, or dispatched to Bamboo Asia’s three locations, where they’re finished sous vide. Because stores feature dishes from three cuisines (Vietnamese, Japanese, and Indian), the brand built its own inventory solution software, which tracks hundreds of mostly locally sourced ingredients. It integrates with Bamboo Asia’s POS, which helps track inventory depletion and prep needs based on historical data.
“You can only do that with the cloud, where every process is handled centrally rather than individually at each store, which helps us manage all processes and alleviates work that would be taken care of at the restaurant level,” he says.
It also helps keep his labor cost around 19.5 percent, even as minimum wage has increased 50 percent locally over the last five years. About 90 percent of Bamboo Asia staff are customer-facing. The cloud kitchen also acts as a staging area for new locations, which speeds up construction. Sous vide cooking also eliminates the need for costly ventilation retrofits.
Even chains that have counted on traditional commissaries to support their growth find space perpetually at a premium, leaving room for virtual kitchens to offer clever, if pricey, on-demand solutions.
Chicago café and pie shop Bang Bang Pie & Biscuits opened a centralized kitchen a year after its 2012 debut to support its thriving business. Its two small Windy City shops churned out 5,000 pies over the two-day Thanksgiving holiday alone while still growing retail and wholesale arms that sell whole pies, biscuit mix, hot sauce, and jam. Throw in a smattering of events each year, from James Beard Awards parties to weddings, and owner Michael Ciapciak often finds himself at capacity.
“If I get an opportunity like Lollapalooza, the last thing I want to do is turn it down just because I don’t have the space.”
One option he’s exploring is cloud-kitchen rentals, like that provided by local nonprofit incubator The Hatchery. The 67,000-square-foot facility on Chicago’s Near Northwest Side houses 56 private kitchens leasable by month, as well as dry/cold storage, loading docks, coworking space, and five shared kitchen spaces rentable by the hour. It’s intended to launch local food and beverage startups, but is ideally suited to the Thanksgiving crush.
“When push comes to shove, and I need a high production space for a short amount of time, I could reach out to a friend and bake when their shop is closed, or I could go there and crank it out,” he says, noting that it was surprisingly inexpensive. Rentals typically start at $20 an hour.
“We’re a very small space that can only put out so much food so fast,” he says. Delivery still pales in comparison to Bang Bang’s on-premises performance. Plus, friendly service and buttery aromas of baking biscuits is where the shop’s true magic lies. “On days we would be busy in the shop, why would I jeopardize that and give 30 percent to Caviar for a product that’s degraded?”