The Long-Term Viability of Ghost Kitchens

While the pandemic created more delivery-only foodservice models, the sustainability of the concepts is in question. 

February 03, 2021

NEW YORK—Consumer appetite for delivery, especially for restaurant-quality food, has been fueled by ghost kitchens and eateries that are delivery-only locations. But are these foodservice models sustainable?

CNBC reports that the proliferation of ghost kitchens and virtual brands—seen as ways for restaurants to cope with indoor seating restrictions—might have created an oversaturated market. Many of these virtual restaurants rely on third-party delivery apps to connect with customers. In December, third-party delivery sales surged 138%, according to Second Measure data.

Ghost kitchens let restaurants prepare food for delivery or pickup only. The setup also allowed for more than one restaurant brand at the same location, potentially lowering rent and labor costs. For example, Mighty Quinn’s Barbeque inked a deal with Otto’s Tacos, which had permanently closed all locations at the end of 2020, to turn the taco restaurant into a virtual brand. “We decided, rather than bringing on additional kitchen capacity, to utilize what we already had at Mighty Quinn’s to execute their menus,” said Mighty Quinn’s co-founder Micha Magid.

Over the summer, Brinker International, parent company of Chili’s, launched It’s Just Wings virtual, delivery-only brand with food coming from Chili’s kitchens and delivery by third parties. The chicken brand brought in sales at a rate of $150 million annually. The success of It’s Just Wings and other virtual only brands has persuaded other chains to dip their toes into operating ghost kitchens, including Bloomin’ Brands and Applebee’s.

“You can’t keep just throwing up virtual brands—at some point, there’s saturation,” said Dan Fleischmann, vice president of Kitchen Fund. “From what I’m hearing, the demand for those [ghost kitchens] is skyrocketing, and so are the prices,” said Peter Saleh, BTIG analyst.

Fleischmann expressed skepticism that many restaurants would be able to make ghost kitchens work in the long run. “It’s still such a low-margin business to begin with, the owner taking 30% out and then having to go through an aggregator like DoorDash or UberEats is really difficult,” he said.

Last month, Glovo, a food delivery service, announced its partnership with Stoneweg real-estate firm to enlarge its number of ghost convenience stores. For more on this trend, read “Ghost Kitchens” in the September 2020 issue of NACS Magazine.

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