The connotation of the word “ghost” often incites fear within many people. However, some restaurateurs are learning to embrace this word as a part of their daily operations, leveraging a new business model that creates virtual-style restaurants that provide direct delivery to patrons. Ghost kitchens take the concept of traditional eateries and then eliminate the role of servers, bartenders, and all other front-of-house staff, operating with only chefs, line and prep cooks, dishwashers, managers, and delivery drivers. Thus, the birth of the term “ghost kitchen” (also called virtual or delivery-only restaurants).
In the United States, it is predicted that the online food delivery market will hit $30 billion in 2022. Ghost kitchen operators specialize in one specific area and offer more convenience to customers, giving them an upper-hand against traditional restaurants.
An oxymoron to its name, ghost kitchens could be the future of the restaurant industry. Keep reading to find out why restaurateurs are boldly embracing this trend.
The Development of Ghost Kitchens
The development of ghost kitchens is noticeably different than that of their traditional counterparts. These virtual restaurants are able to spend less on the cost of real estate because there is no need to be located in an extremely expensive area with heavy foot traffic or to have an overly-impressive curb appeal since the majority of patrons will never actually see the restaurant. The difference in the development of these establishments is most easily recognized by the smaller building size.
In contrast to traditional restaurants, for virtual kitchens square footage is not as much of a concern when selecting a location. The square footage of these types of restaurants is maximized by being completely dedicated to the kitchen. The sizes of virtual kitchens vary greatly but have been reported to be able to successfully operate with even as little as 200 square feet, while leaving a minimal footprint.
The Maximization of Restaurant Efficiency
According to a Statista survey, 70% of consumers order food delivery from quick-service restaurants and 44% of consumers order food delivery at least once a month, meaning that ghost kitchen restaurants are likely inundated with orders. While traditional restaurants must effectively cater to both dine-in and carry-out patrons, virtual restaurants can allot 100% of their time and energy to providing delicious cuisine and adapting to the fast-evolving consumer preferences of one specific group: delivery-only diners.
Virtual restaurants are also able to be more efficient in the items that they serve. Making a shift in terms of menu items involves less effort because they are able to directly update the menu online versus having to reprint physical copies. If one item is underperforming or has become uneconomical to serve, adaptations to the menu can be made sooner rather than later.
The Minimization of Overhead and Operating Costs
A recent report by Limetray, a restaurant marketing and software company, revealed that 67% of restaurants would prefer to open a ghost kitchen as their next business venture, and with valid reasoning. Traditional restaurant business models are usually impacted by high upfront investments, large overhead costs, and an oversaturation of competition. The ghost kitchen alternative to dining allows restaurants to enter the market with less of a risk because the investments and overhead costs are usually significantly lower.
Ghost kitchens have increasingly become an attractive alternative for restaurateurs who want to offer quality dishes without having excessive expenses. While overhead and operating costs remain factors that must be considered for virtual restaurants, these costs are minimized because of the elimination of traditional restaurant components, including wait staff, dining area equipment, and decor.
Traditional restaurants are estimated to have almost double the overhead costs of ghost kitchens. Overall, leaner operations are made possible as a result of these lower overhead costs. Labor costs, which usually account for 50-70% of a restaurant’s monthly revenue, are also significantly reduced for ghost kitchens due to the elimination of a large staff. As consumer interest in “on-demand dining” continues to rise, the idea of paying less overhead while still attracting patrons is an appealing option for many restaurant owners.
The Impact on Future CRE Developments
Before the rise of online food-delivery, restaurants were unaffected by the growth of the Internet. However, the trend of ordering and enjoying meals from home has expanded, causing more competition for traditional restaurants that are unwilling to adapt. But because the e-commerce segment of the restaurant industry is predicted to be worth over $76 billion within the next five years, more and more restaurants are attempting to take their share of this growth. As a result, there is expected to be an influx of ghost kitchens. Undoubtedly, the rise of delivery-only restaurants will impact the future of commercial real estate developments.
The location of future CRE developments will be impacted by the growth of ghost kitchens. CRE developers whose goal is to attract virtual restaurants as tenants will need to gravitate towards locations with convenient parking options for delivery vehicles.
Unlike traditional restaurant developments, virtual restaurants are not as heavily impacted by location and foot-traffic. Although it may be ideal for ghost kitchens to be situated in higher-volume areas, they are more likely to receive a lot of orders from inconvenient or unexpected locations than traditional eateries, resulting in an opportunity to receive more consistent business. As more restaurants transition into delivery-only facilities, CRE developments will be forced to reflect these changes.
To learn more about how the restaurant industry is impacting commercial real estate, read Food Halls Driving CRE Demand for Mixed-Use Spaces.