COVID-19 has devastated the restaurant industry. The pandemic closed thousands of U.S. dining rooms—everything from swanky eateries to casual coffee shops—and it remains a threat heading into fall.
Even in restaurants currently open, the dining experience has changed. On top of guests worrying about strangers and sanitation, they are forced to “social distance” and deal with servers attired like medical technicians. “It’s not the same experience,” said Phil Lempert, author and food trends editor for NBC’s Today show.
The National Restaurant Association says the U.S. restaurant industry lost $120 billion in sales from March through May 2020. The organization’s mid-May survey found that U.S. foodservice operators expect that number to be $240 billion by year-end.
But people still need to eat, and there’s one business that’s picking up: food delivery. That service—along with the fact that everyone has a smartphone—has given ghost kitchens a big boost.
Ghost kitchens began popping up with zero fanfare in 2017. A ghost kitchen (aka virtual kitchen or dark kitchen) is a commercial foodservice operation with no dining room or wait staff. It can be located most anywhere—in a warehouse, office building or under-used hotel kitchen. Customers order food via a smartphone app, the staff prepares the order and the finished product goes directly to the customer via a delivery platform, such as Grubhub.
This is something c-stores could get involved in easily and add to their bottom line.
Ghost kitchens function in various ways. For example, several food brands can be produced in a single kitchen by one or more foodservice operators, who may choose to share ingredients, equipment and staff members or manage those resources individually.
These no-seat food operations are “much more economical than running a [brick-and-mortar] restaurant, and you can focus more on the food,” said Lempert. “They’re usually in lower rent districts because they don’t have to rely on passersby on the street or having a nice destination. You don’t have to invest $1 million to make it look great.”
With a ghost kitchen and a reliable delivery platform, your restaurant isn’t a single building. It’s your entire neighborhood or city, Lempert said. “A ghost kitchen is a more profitable venture for a restaurateur, and we’re going to see more ghost kitchens doing their own delivery.”
“The trend toward off-site dining experiences via delivery and pickup is shaking up the entire restaurant industry,” said Hagop Giragossian, a partner in Dog Haus, franchiser of gourmet hot dog and burger restaurants. The chain has 130-plus locations but also has partnered with Kitchen United and CloudKitchens, two ghost kitchen companies that provide professional kitchen space for the preparation of delivery-only meals.
Dog Haus opened its first ghost kitchen in 2019, but “with the current pandemic, our timeline has accelerated, and we’re working diligently to open as many as possible in the coming months,” Giragossian said.
Ghost kitchens offer flexibility. “Companies like Kitchen United and CloudKitchens provide substantial data, allowing us to optimize our offerings within key markets, creating tailored menus to satisfy the demand in each community,” said Giragossian. “We can expand our geographic footprint through off-premise centers with little overhead required and double our delivery sales, plus simplify our marketing efforts.”
The concept also could work for c-stores wanting to generate more revenue, he said, and “owners would need to strategize on how to get the word out about their additional services. Targeting local media and influencers would also be a new idea for convenience and corner stores, but it sounds like a runway that has yet to have been walked.”
Kitchen United based in Pasadena, California, provides fully equipped professional kitchen space to restaurants that prepare delivery-only meals. Each has its own dedicated space, equipment and employees. Its staffers manage the pickup center, deal with delivery providers and handle cleaning and maintenance. “Our model offers a cost-effective way to grow off-premise reach,” said Jim Collins, CEO. “Startup costs in a Kitchen United are significantly lower than building a stand-alone brick-and-mortar location, and a significantly reduced staff allows greater profitability for delivery/pickup-only operations and a more easily managed location.”
Today, Kitchen United facilities offer several brands in densely populated areas of Pasadena; Chicago; Scottsdale, Arizona; and Austin, Texas. “The consumer cares about their food being delivered fast, and that means the location has to be central and accessible,” he said.
Currently, the company has no c-store partners, but “we see synergies, and we are having discussions with industry operators,” Collins said. “C-stores have begun to operate similarly to restaurants in that their consumers are increasingly demanding freshly prepared food options. While our focus to date has been on partnering with restaurants, we believe there’s a good fit for the right kind of c-stores as we move forward.”
Denver-based Nextbite operates differently by partnering with existing restaurants and commercial kitchens. “Most restaurant operators are good at procuring and preparing food, but they may not be as good at marketing, driving awareness or creating concepts beyond what they already have,” said Geoff Madding, CEO of Nextbite.
To help drive business, Nextbite has developed several brands with proprietary menus. The restaurant partners determine which brand(s) they’ll offer and team with Nextbite through a revenue-sharing arrangement. “They provide their existing staff, existing occupancy and utility costs. We are responsible for the third-party delivery platforms, the technology and the marketing expenses to drive the business,” he said. “The restaurants get additional revenue. On average, our restaurant partners have four of our brands, in addition to their own.”
A big challenge of food delivery is managing the individual technology from the various delivery platforms. Nextbite provides technology from Ordermark, which allows restaurants to manage all online orders and delivery platforms through a single printer and tablet instead of juggling separate tablets for each delivery provider. Madding describes the operation as “a virtual restaurant in a box that can be up and running in as fast as a week.”
Currently, Nextbite operates more than 140 virtual restaurants in 30 states and expects to have 500 to 1,000 by year-end. The company offers more than 10 brands and continues to research new concepts. “There is no upfront or ongoing cost [to the foodservice operator],” Madding said. “Everyone has a month-to-month contract. If they don’t make money, we don’t make money.”
Madding said he has talked to some convenience retailers about the opportunity, but so far, no agreements have been finalized.
If you want to capture frequency, you’ve got to create excitement. And the excitement won’t be in the restaurant—it will be with the food.
If any U.S. convenience stores are running a ghost kitchen, they’re keeping that news under wraps. However, c-stores have been quick to adapt to on-demand delivery prior to the pandemic and saw interest surge during the lockdown. A ghost kitchen operation is not an unreasonable next step.
Two Northeast c-store chains, Sheetz and Wawa, partner with national delivery providers Grubhub, Uber Eats and DoorDash. 7-Eleven works with Postmates, DoorDash and Google, as well as Flavor, a Texas delivery service, to serve customers who don’t want to leave their sofa.
Kyle Lore, corporate executive chef for Maverik stores, based in Salt Lake City, sees potential in the ghost kitchen concept. Currently, a couple of Maverik stores are testing online ordering and third-party delivery, and “then we’ll see how far we want to go,” said Lore.
Kwik Chek, based in Spicewood, Texas, near Austin, offers food delivery in several areas and has seen mixed results. “We’re in rural or suburban markets, and I think there’s a different mindset in those markets compared to the Dallas or Austins of the world,” said Kevin Smartt, president and CEO, Kwik Chek. “It will be interesting to see the impact this has on QSRs and fast casual in general.”
Mike Lawshe, owner of Paragon Solutions, the retail design consultancy in Fort Worth, sees a growing interest in food pickup, delivery and drive-thru. “Some is COVID-related, but people are becoming accustomed to the wonderful convenience of not having to get out of their car,” he said.
“This is something c-stores could get involved in easily and add to their bottom line,” said Lempert of NBC's Today show. But one red flag he sees is establishing a set menu. “Keep it simple. Have one or two items per day and change daily,” he said. “If you want regular customers who used to come to your restaurant once a week, change it up. Have barbecue one night, Italian another night and seafood another. If you want to capture frequency, you’ve got to create excitement. And the excitement won’t be in the restaurant. The excitement will be with the food.”
Collins of Kitchen United predicts strong growth in remote kitchen operations moving forward. “However, to say this is the future for restaurants probably goes too far,” he said. “We believe strong demand for in-house dining will also re-emerge. So, this is a new growth area as opposed to something that will ‘replace’ restaurants.”