Ghost Kitchens Are Very Popular Now. But Are They a Permanent Trend?

This week Phillips Edison & Company released its industry insights on trending retail themes as part of ICSC’s virtual RECon event. Its most interesting theme heading into 2021—Ghost Kitchens. 

Phillips Edison & Company noted that there has been an increase in national brands, such as Fatburger, Nathan’s Famous Hot Dogs, Shake Shack, Fazoli’s and Bloomin’ Brands, using ghost kitchens to provide takeout and delivery service without opening a storefront. It also pointed to DoorDash has gotten in on the ghost kitchen trend with the introduction of DoorDash Kitchens. This concept provides customized kitchen space for five restaurant operators offering delivery and takeout service through the DoorDash app.

The Case for Ghost Kitchens

Indeed, ghost kitchens are proliferating amid the pandemic as people cut back on restaurant dining in favor of takeout. There are other drivers behind this trend as well, explains Safi Aziz, senior associate of Innovation Services at PropTech VC firm MetaProp.

As COVID-19 accelerates experimentation in retail, Aziz says that shopping mall owners see ghost kitchens as an opportunity to buttress the significant losses their food courts are suffering. He spoke with one shopping mall owner in Canada that is digitizing its physical food courts and serving delivery and takeout orders from different restaurants — all from one kitchen with a method called “basketing.” 

If the mall owner is successful, it could potentially boost existing restaurants’ revenue and consolidate costs from having to keep all restaurants open. Aziz believes this strategy will carry over into a post-vaccine world.

Ghost kitchens should become another sales channel for restaurants just like catering, drive-through windows and takeout, according to Aziz. But not all restaurants are approaching this channel the same way.

While some restaurants are opting to rent a ghost kitchen space from a vendor, others are rethinking their physical footprint to favor a larger kitchen with more workstations. Larger restaurants that have scale, like Chiptole, are experimenting with virtual kitchens that will only serve delivery orders, according to Aziz. 

The 80/20 Rule

While Aziz thinks ghost kitchens are here to stay, other observers believe they may be a flash in the pan. Dan Rowe, founder and CEO of Fransmart, believes that ghost kitchens will likely follow the 80/20 rule. “Eighty percent will fail, and 20 percent will succeed — but only those that enlist a brand with a soul to join their facility,” he writes in Entrepreneur.  “There will be too many ghost kitchens — and too many without a reputation backing them — to make it.”

For franchisors, leasing space in a ghost kitchen is a short-term solution to a long-term problem, he continues. “Delivery will still be a priority in a post-Covid world, so restaurants should avoid third-party ghost kitchens and instead consider investing in their own off-premise operations,” Rowe wrote.

Uber Eats also serves as a cautionary tale for this model. This past summer, it abandoned a plan to run its own food delivery kitchens, according to the Financial Times. It dropped it in favor of a desire to cut costs and focus on profitability.