Are Ghost Kitchens Out?

Many dark restaurants are quietly shutting their doors as consumers opt for cheaper options, like fast food.

May 18, 2023

ALEXANDRIA, Va.—Ghost kitchens—or at least one version of them—may be tapping out of the foodservice industry, reports Bloomberg.

So-called dark restaurants that only offer delivery boomed during the pandemic, as it was a way for restaurants to launch on a tight budget and with minimal staff. They also allowed existing eateries to earn more revenue. Restaurants, investors and entrepreneurs were excited about the ghost kitchen concept. Back in 2021, Wendy’s announced plans to open 700 ghost kitchens across the U.S., Canada and the UK. Rego Restaurant Group said its Quiznos and Taco Del Mar brands planned to open 100 ghost kitchens the following year.

There were also millions of investment dollars poured into dark restaurant startups. Kitchen United, a ghost kitchen and restaurant hub technology company, raised $100 million in its Series C funding round last July, counting Alimentation Couche-Tard/Circle K, The Kroger Co. and Restaurant Brands International as investors.

But the ghost kitchen business has began to fizzle out. Last week, Wendy’s said it would permanently close its entire U.S. ghost kitchen business. Butler Hospitality, which operated ghost kitchens for hotels, quietly shut down last year, leaving clients without food services and vendors without payment, according to Bloomberg. CloudKitchens has lost restaurant partners. (Uber Technologies Inc.’s co-founder Travis Kalanick invested in the company.)

The reason for the ghost kitchen bust may be because consumers never stopped going through the drive-thru and missed going out to eat during the pandemic. QSR traffic is back to pre-pandemic levels, while dine-in restaurants are recovering but are still behind 2019 numbers.

More expensive groceries are also driving people to choose fast food, and these types of restaurants are also investing in the late-night diner. Wendy’s is doubling down on its late-night menu, anticipating a rise in this daypart. Late-night customers are already back to pre-pandemic levels, and a lighter labor model has the potential to drive a lot in sales, Wendy’s Chief Executive Officer Todd Penegor told investors last week.

Also, because dark restaurants expanded rapidly during the pandemic, not all the kinks were worked out, leading to issues that ultimately turned off customers. For example, food-delivery app customers seeing two different restaurants with the same menu, but one with higher prices, could be suspicious. Earlier this year, Uber Eats announced it was getting rid of restaurants if they list multiple delivery options under different names but offer the same menu. Restaurant ghost kitchens on the app must ensure their virtual menu is at least 50% different from their parent menu.

“Of course, ghost kitchens do some good and fill a void in the restaurant industry. They typically operate out of undesirable retail spaces and they help restaurants keep the lights on. But as we emerge from the pandemic, their place in the recovery is precarious,” writes Bloomberg. “The convenience and speed of a good burger delivered to your home isn’t always worth more than a night at a sports bar with friends or family.”

The May issue of NACS Magazine explored ghost kitchens. “I expect them to settle into a niche in the market that helps foodservice operators with adequate resources fill service gaps,” said Rich Shank, senior principal and vice president of innovation for Technomic. Examples include filling holes in delivery zones or outsourcing delivery instead of remodeling a store.