Ghost kitchens, also known as cloud kitchens, virtual kitchens, and sometimes dark kitchens (we’ll use the terms interchangeably here), come in many forms, but essentially they represent what the restaurant industry looks like in the digital age. They house virtual restaurants which have no storefront and offer a menu of items only available for delivery via digital ordering platforms.

You may have ordered from a virtual restaurant housed in a ghost kitchen without even knowing it. Even fast-food chains are now using ghost kitchens to scale their delivery service to more customers in more locations without having to build new restaurants.  

 

Cloud kitchens and COVID-19

Cloud kitchens are on the up, with mounds of VC money pouring into startups that serve the industry and major delivery platforms setting up their own facilities. At the start of 2020, ghost kitchens were already being talked about widely as the hot new trend in food delivery.

Then COVID-19 struck and suddenly brick-and-mortar restaurants up and down the country were forced into adopting a cloud kitchen-style business model, offering limited menus, grocery boxes, meal kits, and whatever else they could for delivery or curbside pick-up. And turning their empty dining rooms into packaging and storage space.

Courier bagging a delivery or takeout orderWith restaurants starting to open back up for dine-in guests amid new restrictions and stringent hygiene and distancing requirements, don’t expect the ghost kitchen model to go away. The lockdown has demonstrated to those restaurateurs that weren’t already enjoying the benefits, that moving onto a digital platform and offering a more convenient option for diners is a very lucrative model. It has also brought many more consumers onto delivery platforms and shown them the convenience of online ordering.

Cloud kitchens are more relevant than ever and we should expect to see a lot more growth in this already exploding segment of the food business – the cloud kitchen market is forecast to reach $2.63 billion by 2026, four times larger than it was in 2018.

 

Getting started with a cloud kitchen (aka. ghost kitchen or dark kitchen)

That’s the big picture. Now let’s dive into the advantages and drawbacks of cloud kitchens, and look at the practical considerations that you need to know before opening your own digital-age delivery-only kitchen.

 

Advantages of a ghost kitchen

Lower start-up costs and overheads

The most obvious benefit of a ghost kitchen compared to a traditional restaurant is the lower barrier to entry and lower on-going costs. You need less space because you don’t have to accommodate dine-in guests. You don’t need front-of-house staff at all, and with the efficiency of a data-driven approach to creating the menu and organizing the kitchen, when you optimize for delivery-only, you need fewer back-of-house staff too. That also means savings on ingredients, equipment, computer systems, utilities, the list goes on. 

You also don’t have to be in a high footfall area. Many virtual kitchens are located slightly out of town for easier access for suppliers, cheaper rent, and most importantly, proximity to large residential areas that aren’t served so well by the more centrally located restaurants.

Healthy food in to-go containersImprove sales with multiple brands

One of the biggest advantages is the ability to target multiple segments of the market with laser precision simultaneously. Virtual restaurants are driven by data, so they are able to pinpoint the customer need in an area and satisfy it with multiple brands. You could be running a pizzeria, a burger joint, and a healthy salad bar out of the same kitchen, and serving multiple different demographics at the same time, while benefiting from economies of scale across the brands.

Be agile

Building on the benefits of running multiple brands, a ghost kitchen also allows you to be more flexible and adaptive. You have the data, so you can look at what’s working, and what isn’t, and continually optimize and reevaluate to constantly improve your offering. You can even change tack completely if the market changes or a competitor makes a move.

At this time, we’ve all seen the importance of being able to quickly pivot to satisfy demand in the marketplace, and ghost kitchens are uniquely positioned to do so.

All roads lead to better margins

All of this leads to better margins. The small, focused menu means you can improve the efficiency of your production and fulfillment processes, then use the data you gather to predict high and low volume periods and optimize your operations and staff levels accordingly. If you’re not busy you don’t have to open, so overall, the upshot is lower costs, better efficiency, more orders, and less risk.

 

Drawbacks of the ghost kitchen model

As with everything, there is a tradeoff. Along with all these advantages there are some disadvantages that you should be aware of before opening your cloud kitchen. 

Lack of a physical storefront

One of the biggest challenges you will face running a ghost kitchen is the lack of a physical presence. This means you don’t have any walk-in business and you’re not part of a neighborhood in the same way a brick-and-mortar restaurant is. 

This makes it harder to build up a natural fanbase for your brand, although certainly not impossible, and means your digital strategy is paramount to your success. Third-party delivery providers offer you a platform with active users, but it is a very competitive space. You will need to put a plan in place to get ahead of the competition. And if you decide to go it alone, you will have to try extra hard to get those orders coming in. More on that below.

Online food ordering app

Reliance on delivery platforms

A problem many cloud kitchens and virtual restaurants face is being over-reliant on the business coming through the delivery platforms. No business owner wants to find themselves in such a precarious position. Making sure you have an independent digital presence is crucial to countering this problem.

Complicated menu management

Ghost kitchens tend to use a number of delivery partners to maximize the exposure and sales potential of their brands. But with this comes the thankless task of uploading, updating, and managing menus and menu items. This is a big enough job for one busy restaurant, let alone multiple delivery-only brands across many platforms. 

Deliverect’s menu management dashboard allows you to sync menus from your POS. Each time you need to make a change, you only have to update your menus once, and the changes are pushed out to every platform you are using. The tools are built into the platform so once you set up your system, you only have to worry about updating the menu in one place.

 

What you need to know before opening

There are a number of ways to approach opening a ghost kitchen. First, you must choose which business model to go with. Whether you have your own kitchen with multiple brands, share the space with other virtual restaurants, or add a virtual delivery-only offering to your existing kitchen, you need to be aware of the following fundamentals.

Location is key

To take advantage of the benefits of ghost kitchens, you need to be busy. You need that data coming in. Without the regular footfall of a brick-and-mortar location, you are relying entirely on your online presence to generate orders. And all of your customers must be within the delivery zone of around three miles.

So you need to do thorough research on the competition, the demographics in the area, and find out which cuisines are likely to be popular. 

Restaurant POS terminal with receipt printerGet the right tech

As the name suggests, cloud or virtual kitchens rely on the amazing technology platforms available to power their operations and offer the advantages we’ve talked about. So choosing the right solutions is a key decision. 

Firstly, choose whether to offer your own delivery service or use third-party providers. There are pros and cons on both sides in terms of the convenience and reach of delivery partners versus the damage done to your margins. If you choose to go with your own system, you’ll need to invest more in marketing your brand and creating your own ordering and fulfillment systems.  

If you choose to work with multiple delivery partners, as many cloud kitchen operators do, you will improve the efficiency of your processes immensely with a service that aggregates orders from multiple delivery platforms. Rather than having multiple tablets constantly bleeping at your frazzled staff as they re-punch orders into your POS from several different partners, you can invest in one system to consolidate all the orders and deliver them in a clear and consistent format straight to the kitchen. 

This way, you save on staff costs (and reduce anxiety for existing staff) while speeding up delivery times. And with cloud kitchens, faster delivery means happier customers and more repeat orders. 

Person taking pictures of takeout foodMarketing is not optional

Your branding and messaging are all-important with a virtual kitchen because this is all you have. There’s no footfall or signage out the front. Your social media channels, presence on delivery platforms, email marketing, food photography, and brand personality need to be spot-on to stand out in a crowded marketplace.

Luckily the digital world is full of solutions to help you. There are many strategies you can employ including using referral programs, review management, email marketing, creating your own branded ordering app, and most importantly constantly looking at the data to optimize your brand and menu. 

 

Don’t be afraid of ghost kitchens

Ghost kitchens are here to stay. As long as you take the time to plan effectively, get the right tech in place, and properly market your business, there’s a huge amount of opportunity in the marketplace. In a fast-changing, increasingly digital world, the low risk, adaptable nature of ghost kitchens could make them the restaurants of the future. So don’t be scared to jump in or the missed opportunity might just haunt you.

Sam Sinha
June 10, 2020 by Sam Sinha

Freelance B2B Food & Restaurant Tech Writer