The Rise of Ghost Kitchens and Virtual Restaurants

The changing circumstances of a post-COVID world have led restaurateurs to get creative and adapt to stay in business. Even as indoor dining bounces back across the U.S., the popularity of ordering food delivery has skyrocketed. Cue the rise of ghost kitchens (restaurants that sell food through delivery only), popping up all over major cities to rise to the occasion and meet the growing demand.

This article will walk you through why ghost kitchens are reshaping the restaurant industry and share essential statistics that illustrate their revolutionary growth.

Ghost Kitchens and the Digitalization of the Restaurant Industry

To dive deeper, a ghost kitchen, otherwise known as a cloud kitchen, dark kitchen, virtual kitchen, or ghost restaurant, is a food-prep and cooking facility solely for food delivery orders. Ghost kitchens are kitchens built exclusively for delivery and are changing the game for the future of dining. Unlike a traditional restaurant, the customer touchpoints exist online without a brick-and-mortar location. A customer places an order through the company's website or a third-party delivery app, the food is made in the kitchen, and the meal is delivered to the customer.

Some are branded as a singular entity, like fancy hot dog purveyor Dog Haus. Others can serve as a hub for multiple interdependent eateries, like the Cloud Kitchens startup founded by former Uber CEO Travis Kalanick. These establishments can run a lean, tight ship and serve the rapidly growing demand for delivery.

Some characteristics of ghost kitchens include no physical, brick-and-mortar presence, minimal waste, less risk, and a flexible and adaptable menu.

You may have also heard the phrase virtual restaurant or cloud kitchen: they describe similar things. At their core, they're spaces devoted to a restaurant or restaurants set up exclusively for delivery, without an infrastructure for sit-down service. Ghost kitchens specifically work in tandem with a brick-and-mortar restaurant but can either live in the same building as the original restaurant or use different kitchen locations to extend their reach.

20 Ghost Kitchen Statistics You Should Know in 2021

• According to Euromonitor data, the U.S. currently holds 1,500 ghost kitchens, putting it ahead of the U.K. market (750) but behind China (7,500+) and India (3,500+).
• The global cloud kitchen market size was estimated at 43.1 billion U.S. dollars in 2019 and is predicted to reach 71.4 billon U.S. dollars by 2027.
• Ghost kitchens are predicted to hold a 50 percent share of the drive-thru and takeaway foodservice markets worldwide, respectively, by 2030.
• The ghost kitchen company with the most funding in Europe as of 2020 was Karma Kitchen, which raised over 300 million euros in a single round of funding.
• In the United Kingdom, Deliveroo, which is owned by parent company Roo Foods Limited, was the third most used online provider of food delivery in 2020. Deliveroo started working with ghost kitchens in 2017 with the launch of their Deliveroo Editions program, allowing virtual restaurants to launch without the start-up cost and risk involved in opening a physical dining space.
• Travis Kalanick, the co-founder of Uber Eats, which claims over 25 percent of the market share of food delivery companies in the U.S., joined the ghost kitchen market in 2018. Kalanick established a startup called CloudKitchens, which focuses solely on the ghost, or cloud, kitchen market.
• At the beginning of the COVID-19 pandemic, there was a 100 percent decrease in seated restaurant diners worldwide. The growth of the ghost kitchen market has been made possible by the increase in customers ordering food via delivery or takeout as opposed to dining inside restaurants.
• By 2030, ghost kitchens are predicted to hold a 50 percent share of the drive-thru and takeaway foodservice markets, respectively.
• Digital ordering and delivery have grown 300% faster than dine-in traffic since 2014.
• 60% of U.S. consumers order delivery or takeout once a week.
•  52% of global consumers feel comfortable ordering from a delivery-only restaurant with no physical storefront.
• 31% say they use these third-party delivery services at least twice a week.
• 60% of restaurant operators say that offering delivery has generated incremental sales.
• Orders placed via mobile apps will become a $38 billion industry by 2020.
• Working with a third-party delivery service has been found to raise restaurant sales volume by 10 to 20%.
• Ghost kitchens had 59 leading companies at the end of 2020.
• DoorDash opened its first ghost kitchen in Redwood City, California.
• Many small operators are trying out the ghost kitchen concept in markets across the US, with many shared food production kitchens handling delivery orders.
• Venture capital investment in ghost kitchens is said to be on the rise. Forbes reported that ghost kitchens are attracting big investments and becoming an industry unto themselves, built around the internet.
• Investments in the ghost kitchen sector has risen since 2016, with deal values increasing by 2.4 times.
• In 2019, ghost kitchens saw a $1.9 billion investment across 16 deals.
  
  

How Covid Started the Rise of Ghost Kitchens

The COVID-19 pandemic sent the restaurant into a tailspin amidst the restrictions on indoor dining and limited seating capacities. Thus, the situation creates a huge demand for food deliveries, leading to the accelerated growth of ghost kitchens, virtual brands, and delivery-only concepts. These businesses have thrived during the pandemic, and Euromonitor, a market research firm, recently predicted that they could turn into a $1 trillion industry by 2030.

The following factors are critical contributors to the rise in ghost kitchens:

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• The increase of delivery app technology and usage worldwide
• People stuck at home because of the pandemic
• Restaurants closing their indoor dining areas and rethinking their entire business model
• Reduced consumer spending due to a recession

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Just like Zoom has benefited from remote working policies and online retail sales have skyrocketed, the COVID-19 has caused the ghost kitchen trend to flourish. The disparity between restaurant sectors was apparent at the beginning of the pandemic and subsequent closures— in March 2020, fine dining sales dropped by more than 90%, and casual dining was down 75%. Fast-casual dining was down 65%, and quick service and fast food decreased by 50%. Delivery orders, however, surged by 67%, and that's where ghost kitchens found their colossal opportunity.

Strong Brands Mean More Successful Ghost Kitchens

As online concepts flourish, many brick-and-mortar restaurants continue to suffer. They're currently facing near-impossible working conditions, including high rents, staffing shortages, and changing pandemic-related restrictions as they attempt to normalize business again. For example, restaurants in big cities that once served brisk lunches to office workers saw sales fall off a cliff. Some establishments are mitigating losses by adapting through virtual expansion, creating online brand arms with delivery services.

Some restaurants with powerful brands have found success when jumping into the virtual restaurant game. For example, Los Angeles-based Canter's Deli dove deep into the business with three ghost kitchens running across the city. But since Canter's brand is so reliable and well-known, customers don't really care where their sandwich is prepared—as long as it's from Canter's! So when someone orders a Reuben from Canter's, they may assume it's prepared at their West Hollywood brick-and-mortar, but in reality, it's from a separate commissary.

As customers increasingly rely on contactless food delivery, new ways to get food closer and quicker to them have evolved. Ghost kitchens can be moved to where demand is highest and quickly adjust to meet changing customer preferences. Top brands such as Wow Bao, the Halal Guys, and, as previously mentioned, Dog Haus are seeing explosive success with the ghost kitchen model. It allows restaurants to make profits while cutting costs during a (still ongoing) global pandemic.

Where is the Ghost Kitchen Trend Headed?

The global restaurant industry was transformed with third-party delivery expansion from 2010-2015, as restaurants couldn't launch their own delivery services. But 2021 and beyond may be marked by a proliferation of ghost kitchens driving an increase in virtual restaurants or food brands that solely exist online with no physical locations. The U.S. currently has an estimated 1,500 ghost kitchens, placing it ahead of the U.K. market (750) but behind India (3,500+) and China (7,500+), according to Euromonitor data.

In the future, a booming ghost kitchen market could also encourage advanced restaurant automation. In the next 5 to 10 years, this shift could lead to full automation for the production of certain dishes and menu items, like coffee, pizza, and ramen, to promote speedier service and lower food production costs.

Currently, Kitchen United, Cloud Kitchens, Uber Eats, and Kitopi are leading the charge in ghost kitchen development. However, major restaurant chains are tinkering in the space, too. Chick-fil-A is dabbling with kitchen-only locations in Louisville and Nashville that prepare catering and individual orders for delivery through the third-party app DoorDash. McDonald's recently opened a ghost restaurant in London, and Bloomin' Brands is trying out kitchen-only formats for delivery orders and takeout.

Famous chains with deep pockets are certainly dominating restaurant-driven experimentation in the ghost kitchen space. But as more small restaurants close permanently due to the disruption of the pandemic, this strategy could give surviving small establishments the ability to buy new property and continue to serve increased delivery demand, which may further level the playing field.

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