The term ‘ghost kitchen’ traditionally refers to a foodservice facility that houses a delivery-only restaurant,” says Alex Canter, CEO of Nextbite, a Denver-based virtual restaurant organization.

A ghost kitchen can go by other names, such as dark kitchen, cloud kitchen or virtual kitchen, and there are a variety of strategies for operating this type of business. Multiple restaurants can rent and share the same food preparation facility—or not. They can operate out of a brick-and-mortar restaurant—or not. What they all have in common is that the food prepared in the kitchen is delivered directly to the people who order it and is consumed off premises.

During the pandemic, the Nextbite team concluded that there were about 800,000 foodservice facilities across the United States with underutilized kitchens and that Nextbite could profit while helping those businesses generate more sales.

"Every restaurant has slow parts of the day or the week,” Canter said. “And Nextbite has created a portfolio of new restaurant brands that we can offer any foodservice kitchen, restaurant, gas station, c-store or any facility with kitchen equipment. They can sign up with Nextbite, and we’ll pay them to make food for the brands we offer.” 

Nextbite has 25 different menus. “Our clients carry specified ingredients and make the food to our specifications,” Canter explained. “Then, they put this [brand] sticker on the bag and sell the new brand on delivery apps like DoorDash and Uber Eats from the kitchen they’re already using.” 

There were about 800,000 foodservice facilities across the United States with underutilized kitchens.

People Want Food

Canter knows something about restaurants. He is a fourth-generation owner of Canter’s Deli, one of the last traditional Jewish delis in Los Angeles. It was founded by his great-grandfather in 1931 and is still operated by family members. He also knows technology. In 2017, he developed Ordermark, software that helps restaurants manage several different delivery apps on a single device. 

“Ordermark is used in a lot of kitchens today,” Canter said. “If you’re going to be taking orders from multiple sources, it’s important to have an underlying technology to manage all the complexities that come with that.”

Ordermark morphed into Nextbite, which today partners with thousands of eateries, including the 1,200-plus IHOP restaurants nationwide. The pancake chain uses its kitchens to prepare three Nextbite virtual brands: one featuring grilled cheese sandwiches, another offering quesadillas and a third presenting plant-based chicken meals.

“Basically, we are paying IHOP to make food and deliver it to the customer in a different bag,” Canter said. 

This is not unusual in a large urban area with plenty of restaurants and a large customer base. A recent news report by a Chicago television station found that some local restaurants serve as the ghost kitchen for as many as 20 virtual brands.

Currently, Nextbite is expanding its reach to nontraditional foodservice operators. “We started with restaurants and then realized there are a lot of idle kitchens that could benefit from more orders,” Canter said. “Churches, hotels, nightclubs, hospitals, bowling alleys and convenience stores have kitchens and the ability to cook food. Any food facility that has a TurboChef oven or the capability to do pizzas, wings or hotdogs is a potential client.” 

What about smaller facilities that don’t have a grill or fryer? “They can do dessert brands,” he said. “Like ice cream and cookies and light concepts that we have in our portfolio.”

Basically, we are paying IHOP to make food and deliver it to the customer in a different bag.

To-Go Meets the Smartphone

Busy people crave good food they don’t have to cook themselves, but that doesn’t mean they want to sit down in a restaurant. 

Take-out and pickup food orders, including drive-through, have increased between 10% and 15% from pre-pandemic norms for full- and limited-service restaurants, respectively, according to Rich Shank, senior principal and vice president of innovation for Technomic. That should mean good things for ghost kitchens. According to predictions from CBRE Group, a commercial real estate services and investment firm, by 2025 ghost kitchens will account for 21% of the total U.S. restaurant market. 

“Amazon and all these businesses have created a new expectation—that you can have anything you want delivered,” Canter said. “There is an explosive trend where people who are at home can open an app or a smartphone and have food brought to them. And it’s not just young people using these apps. People of all ages use them.”

He’s convinced that in the next 10 years, the generation growing up with smartphones will have a new relationship with restaurants. “Instead of getting in their cars and going to restaurants, they’ll have the option to have whatever food they like brought to them at their house,” he said. “Not only fast food, but high-end food, fast casual.”

Currently, Nextbite has no convenience store partners, although c-stores have shown an interest in the ghost kitchen idea. In 2022, Couche-Tard/Circle K invested in Kitchen United, a California-based ghost kitchen company that concentrates on major urban markets. 

“We see many commercial opportunities in partnering with Kitchen United,” said Kevin Lewis, chief marketing officer of Alimentation Couche-Tard, when the announcement was made. “We believe this business stands apart from other industry players with its centralized locations, multiformat offerings, experienced management team and mature technology stack—all of which align with Circle K’s mission to make our customers’ lives a little easier every day as we work together to shape the future of convenience.” 

Other c-store retailers with their own successful foodservice programs think the concept is compelling.

The generation growing up with smartphones will have a different relationship with restaurants.

“I think ghost kitchens are the new food truck,” said Elise Babey, senior manager of product development and supply chain for Neon Marketplace, a Massachusetts retailer that opened during the pandemic. “But as a new business, we want to focus on our brand before growing another brand under a ghost kitchen name.”

“We’ve discussed it, but we have never pursued it,” said Jimmy Crowder, director of food innovation at TXB, based in Texas. “We’re focused on basic operations and efficiency—being fast, friendly, clean. Could we go down that road in the future? Potentially.” 

Future of Ghost Kitchens

Not everyone is sold on the idea that ghost kitchens will continue to proliferate. Shank sees a role for ghost kitchens in the foodservice industry, “But they will not have the runway early adopters assumed.”

I think ghost kitchens are the new food truck.

He said that the ratio of on-premise dining to off-premise dining seems to have settled. “Delivery will be primarily a traffic stealer between competitors versus a general traffic builder for the market. Wendy’s backed off a pretty aggressive ghost kitchen plan, and moves like that are indicative that the market had over-corrected on the ghost kitchen front. I expect them to settle into a niche in the market that helps foodservice operators with adequate resources fill service gaps.” Examples include filling holes in delivery zones or outsourcing delivery instead of remodeling a store. 

According to proponents, one big benefit of ghost kitchens is that they’re a less expensive startup than a bricks-and-mortar restaurant. But critics say that those real estate costs are simply being replaced by the price of technology, which is mandatory for order tracking, customer-facing applications and other management tasks. Those costs and the importance of a smooth-operating virtual kitchen make the right technology solution one of the first things to investigate when considering a ghost kitchen partnership, said Andrea G. Mulligan, chief customer officer for Paytronix, a technology provider for restaurants and retailers.

“You can find someone with a kitchen infrastructure who can support you. You can find people you can train to produce your product in a high-quality way. But with a ghost kitchen, you have no storefront where a customer can walk in and complain to a manager,” said Mulligan.

“A ghost kitchen needs that end-to-end program where guests can provide feedback and reviews you can respond to,” Mulligan explained. “You can use artificial intelligence to get to know them and bring them back in based on their buying preferences. You can link their loyalty to their online ordering and ensure that you’re providing products that are relevant to them.” At the end of the day, the purpose of technology infrastructure is to bring customers back.

Shank thinks convenience retailers are in a unique position to consider beneficial uses for ghost kitchens, but he cautions that consumers are more likely to respond to an established brand than a virtual brand that is relatively unknown.

When a c-store is exploring a new model or stepping up its offerings to compete with other foodservice providers, “Ghost kitchens can be a source of experimentation to determine if that’s worth doing,” he said. “Maybe a c-store can sell elevated food under its flagship brand for off-premise consumption or potentially use [ghost kitchens] in the same way they leverage a commissary to prepare on-site purchases off-site.” 

In Shank’s view, ghost kitchens are less a long-term growth opportunity and more a low-risk way to experiment with new models and new foods. “As I understand it,” he added, “c-stores of the future are heavily focused on developing culinary capabilities in-store and they may not need this type of experiment. For those with less confidence, ghost kitchens may be a way of dipping their toes into the fresh-prepared foods market as they seek ways to compete with QSRs.”