Ghost Kitchen: How Restaurants are Leaving the Storefront Behind

1. Ghost Kitchen: How Restaurants are Leaving the Storefront Behind limetray.com/blog/ghost-kitchen-model June 11, 2019 Retail went online in the late 1990s. Cut to 2019 – online shopping is one of the major segments of the market. There’s no way that the restaurant industry was going to stay away from this trend. In fact, according to Bloomberg, the restaurant industry’s online ordering and food delivery arm is expected to reach $74 billion worldwide by 2020. This proves that consumer preferences for on-demand and convenient eating experiences is huge. What are Ghost Kitchens? A ghost kitchen is a restaurant that exists only online, without an actual storefront for guests to visit. They run on online ordering and delivery. To avoid high real-estate prices and huge overhead costs, ghost restaurants have come up as a rescue for restaurants that want to sell quality food but don’t want huge expenses. For instance, instead of paying anywhere between $200,000-$500,000 upfront for a new restaurant, you pay between $20,000-$24,000 (as 1-month rent and a one-time security deposit). Even the staff costs are reduced as you do not need any customer-facing staff members, just the chefs, operations manager, and cleaners. Find a full cost breakdown of opening up a ghost kitchen further in this blog post. These cost reductions also help in pricing the menu reasonably for customers. Let’s have a look at how the concept of taking your restaurants virtual first emerged. How did Ghost Restaurants emerge? The name Green Summit Group is most commonly associated with the ghost kitchen movement is in the US. Launched in 2013, Green Summit decided to cut out the dining room and tap directly into the restaurant delivery trend. Pioneering the “ghost” restaurant concept, it opened three kitchens in New York and a plethora of online brands. Green Summit has raised $3.6 million since its launch and is projecting about $18 million in sales this year across all of its locations. 1/7

2. Grind – one of Green Summit’s restaurant brand Now platforms like Uber Eats, Deliveroo and companies like Kitchen United are offering different services to make the ghost kitchen model successful. In fact, in an interview, Michael Ronen, managing partner at SoftBank Investment Advisers said – “The success of Uber Eats, DoorDash and others suggests there is a demographic shift towards the consumption of prepared meals at home. The time is now to try and stand up supply that is more efficient against that demand.” Different Ghost Kitchen models The Green Summit Model – Individual restaurant brands, same kitchen, no storefront. This is the original ghost kitchen model which was started by Green Summit in 2013. It covers a variety of cuisines and menus under different brand names but from the same kitchen. This was the first time the concept of a virtual restaurant with no storefront was tested in the US. How it works 1. Orders come from online sources 2. Single kitchen, multiple brands 3. Each brand specialized in a cuisine 4. Delivery only 5. A mix of aggregator dependency and self-reliance for orders and deliveries 2/7

3. The Kitchen United Model – Many restaurants, one roof. Kitchen on rent. In this model, Kitchen United charges a monthly membership fee that includes the premises, back-of-house services such as dishwashing and access to its technology system for processing online orders from a range of delivery apps. So the restaurant should focus on can focus on its food the most. How it works 1. Orders come from online sources 2. Single kitchen, multiple restaurant “partner” brands 3. The Restaurant takes care of the menu 4. Kitchen United does everything else 5. Dependency on third-parties for deliveries. The Kitopi Model – Cooking and delivery fully outsourced. This is a relatively newer concept in the ghost kitchen universe. In this model, Kitopi takes over all your operations, kitchen and delivery. You then just have marketing, finance and product innovation to focus at. This can be helpful for businesses that have a brand presence and want to scale quickly to different locations. How it works 1. Orders come in via a Kitopi owned centre, through your own online platforms and third parties 2. Kitopi buys and stores your raw materials 3. Kitopi then sends over the food to your kitchen for final touches 4. Picks it up and delivers it to your customer The Deliveroo Model – Aggregator owned, co-working kitchens, no storefront. The Deliveroo model is based on the idea of rented kitchens but with support in terms of data know-how. Established (or new) restaurant rent the kitchen space, make use of Deliveroo’s delivery fleet and menu intelligence to set-up. How it works 1. Orders come from Deliveroo 2. Single kitchen, multiple restaurant brands 3. The Restaurant takes care of the menu and cooking 4. Delivery and fulfilment, by Deliveroo The cost of opening a Ghost Kitchen 3/7

4. Let’s look at the cost breakdown of opening a ghost kitchen, which is also known as a ‘dark kitchen’ in the US. Rent: This includes your security deposit and monthly rental fee. For ghost kitchens, it’ll be fairly less as you need less space and also don’t need prominent locations or parking spaces. Licenses: You’ll need different licenses to start a food business. For the US, start with a health permit. This will determine the location, hours, your audience, and other vendors you may partner with. Equipment: Your equipment will range from basic stove and tools to specialized items for making a particular kind of cuisine. #Tip – if you want to save some extra bucks find second- hand equipment sellers that have items in good condition. Staff: You’ll need to hire a few staff members and pay for their uniform (if any), and salaries. This figure can vary with the number of people you rope in. To start with you’ll need a head chef, sous chef, cleaner, and manager. 4/7

5. POS & inventory: Using a POS system is an important part of running a ghost kitchen. It will help you store data that can come in handy while suggesting repeated orders and collecting customer feedback. Packaging: When all your orders are delivery focused, packaging can either make or break the game. It can also act as an addition to your brand value if designed with great interest. Overall, it should be strong enough to avoid any spilling in transit and also keep your food warm. Social media marketing: This will help you in establishing a brand presence and reaching new customers. Especially when online interactions are the only interactions you have with your customers. Customer acquisition: You can list your ghost restaurant with various delivery sites like GrubHub and UberEats. The risk is that if the fees become higher or the relationship is no longer beneficial with a third-party, you can’t necessarily take your customers with you and move somewhere else. They own them. This is why having your own online ordering platform is important and will help you in retaining your customers. Is the Ghost Kitchen concept right for your restaurant? In our online delivery report, we found that 67% of restaurants would prefer opening a cloud- kitchen over a dine-in as their next outlet. Get the full research here. All restaurants are free to try the ghost kitchen model, but it can be especially good for: First-time owners who have great ideas, but less experience operating a restaurant Food trucks or pop-up restaurant owners that want to expand further Existing restaurant owners with a successful concept that don’t want to sustain high operation costs of opening a new location Read more: Why starting a ghost/cloud kitchen is a recipe for success How to open a Ghost Kitchen? Ghost kitchens make the best use of advanced food preparation, underused real estate and data-driven optimization. Once you’ve decided to go on with a model, take these steps to kickstart your business: Rent a space 5/7

6. You can rent the space from companies like Cloud Kitchen/Kitchen United or take the same service from third-parties like Uber Eats or Deliveroo. Look for an area that’s comfortable enough for your staff to work in and has a breathable environment. Partner with delivery services/ third-parties In the US, multiple platforms offer delivery service, see the image below for reference. They take a % commission per order and help you get your food to a larger customer base. Tying up with them is easy and the process is usually all online. Figure out your menu Many platforms like Uber Eats or Deliveroo offers data insights on which area demands what kind of food. Or what is a kind of cuisine lacking in a certain area. With insights like these, you can design a menu that best fits your target customers. Prepare your staff Hiring staff members is another important task. You need to prepare them to work on speed and handle the stress of heavy volumes during certain hours. You can start with 2-3 people, including your head chef. Here are detailed descriptions of restaurant staff roles that’ll help you hire. Get the right technology You’ll need everything from a strong POS and inventory system to online ordering & CRM software to retain customers. Further, if you are setting up the kitchen yourself, you will require a set of kitchen equipment. Here’s a full list to get you ready. Marketing prep Preparing an online marketing strategy is of utmost importance for a ghost kitchen. You can mix it up with a few offline promotion ideas in your target locality. Need a marketing plan? We’ve got you covered here. 6/7

7. With these activities covered, you’re all set to start operations! What’s the future of Ghost Kitchens? The big question is ghost kitchens are a fad, or they are sustainable & profitable enough in the long term? Leaving the hassle of traditional dining is something that’s been on the minds of both consumers and restaurant owners. While the success of it is yet to be truly analyzed, the opportunity is huge. After all, when it comes to the online delivery market, there’s room for everyone! To create, experiment, fail or be successful. Are you ready to get started? 7/7