The End of an Era? Ghost Kitchens Go Bust

During the pandemic, ghost kitchens were as hot as kitchens get. Serving up and delivering food became big when restaurants were forced to shut down and millions of people felt unsafe in the company of others.

Things were going to be big — Ghostbusters big. Lower operating costs per delivered meal, no need for servers, and the ability to use cheaper real estate to further contain expenses while raking in the orders.

“Market surveys indicate that half of enterprise brands will launch some form of ghost, host or cloud kitchen concept in 2021, and that the global cloud kitchen market size, estimated at $43.1B in 2019, is forecasted to reach $71.4B by 2027,” wrote Hospital Technology in 2021.

Yeah, about that projection, the Ghostbuster phase has shifted into gear. In 2023, the industry had already been taken a drubbing, says Restaurant Dive. Kitchen United — which raised $150 million through 2022 from the likes of Kroger and Burger King’s parent, according to Restaurant Business — has already closed all its Kroger locations. Those were 44% of their 18 locations. The others were on their way out and the company decided to focus on licensing its proprietary software.

“In May, Reef lost its deal with Wendy’s, which at one time planned to open 700 Reef kitchens; CloudKitchens laid off staff in September; Wonder abandoned its initial van-based ghost kitchen model in January; C3 closed at least one of its foodhalls at the start of the year; and hotel ghost kitchen firm Butler Hospitality folded last spring,” Restaurant Dive wrote in 2023.

The underlying concept wasn’t new. Even back in the 1980s, some small regional chains ran central commissaries with production facilities to serve all their eating places. The term ghost kitchen didn’t appear in Google searches until January 2019, according to Google Trends.

It never really set in with consumers, as the New York Times just reported. Customers getting delivery from app-based services wanted to see where the restaurants were and they couldn’t find them, creating wariness. “Uber Eats removed 8,000 ‘storefronts’ from its listings last year over complaints of poor quality, inaccurate orders or duplication, meaning multiple, nearly identical restaurants were operating out of the same location,” they wrote.

The industry implosion has continued since. “Consumers are going out to eat at restaurants again and craving that relationship with the brands themselves,” Dorothy Calba, a senior research analyst for food service at Euromonitor International, told the New York Times. “Virtual brands just did not have that connection with consumers.”

The implications for net lease are mixed. Those big spaces in lower-demand areas either have gone or might be on their way out. But it should be good for dine-in restaurant spaces, which will likely command higher per-square-foot rates.