With services like GrubHub, PostMates, DoorDash, and UberEats offering food delivery at your fingertips, more and more customers are opting for the convenience of takeouts over dine-ins. Based on the online ordering stats for restaurants compiled by Upserve, 60% of consumers in the US get food delivered at least once a week. Since 2014, the number of online orders has increased faster than dine-in traffic by 300%. Restaurants using third-party services for food delivery have reported a 10% to 20% rise in sales. Aided by this transformation in the food delivery business, ghost kitchens have sprung up all over the country to grab a share of the pie.

What Are Ghost Kitchens?

Contrary to what the name might suggest, ghost kitchens are not haunted by the spirits of chefs past. Also known as cloud kitchens or delivery kitchens, they are restaurants without storefronts, dining spaces, and associated staff. They operate in rental premises that host one or more kitchens on a delivery-only model to create virtual brands. These establishments often partner with third-party delivery platforms like UberEats and GrubHub to find customers for their offerings. This model means that, if you’re looking to dine in at these restaurants, you won’t be able to find them on a map.

Emergence

With consumers increasingly preferring to dine in the comfort of their own homes, ghost kitchens became economically viable options for businesses to tap into this base. By not offering a brick-and-mortar dining experience, ghost kitchens save expenses associated with dining room space and decor, front of house staff, and rentals in locations with heavy foot traffic. Ghost kitchens can be up and running in three to four weeks with a startup cost of $10,000 to $50,000, far less than a commercial restaurant. Ghost kitchens also offer businesses a chance to try out new concepts and gauge consumer response before putting in the significant investment required for setting up traditional restaurants. While ghost kitchens are not without their risks, lean operations and lower costs make them more attractive.

With marketing research company Euromonitor putting the estimated value of delivery-only restaurant businesses at $1 trillion by 2030, ghost kitchens are being touted as the future of dining. Uber founder and former-CEO, Travis Kalanick, entering the fray with the startup CloudKitchens offering rental space for ghost kitchens, has only ignited further interest in this space. With DoorDash, Uber Eats, GrubHub, and Deliveroo launching ghost kitchen locations, the buzz surrounding the concept is not likely to die down soon.

The COVID-19 Impact

While ghost kitchens were gaining traction even before the pandemic, the restrictions imposed by the spread of COVID-19 accelerated this trend. Based on an ABC News report, food deliveries from ghost kitchens jumped from 5% in 2019 to 20% in 2020. 

With most businesses forced to down shutters because of regulations, restaurants were hit hard. When the restrictions were lifted, social distancing requirements continued to hamper businesses. To make matters worse, customers preferred to exercise caution and stayed away, forcing over 110,000 restaurants to close down (from survey findings released in December 2020 by the National Restaurant Association). To survive, many established brick-and-mortar restaurants jumped on the bandwagon and launched virtual brands. Partnering with delivery companies provided access to a large customer base and streamlined logistics associated with food delivery.

While restaurants struggled hard to stay afloat, there was an explosion in online delivery orders. In March 2020 alone, foot traffic in restaurants had declined by 22%, while digital restaurant orders and delivery had increased by 63% and 67%, respectively, from the year before. By the third quarter, bookings on UberEats showed a year-on-year increase of 135%, with revenues jumping by 125% to $1.45 billion. GrubHub reported a 41% increase to 30 million active users in the third quarter and a 53% rise in revenues to $493.9 million over the previous year.

Ghost Kitchens And The Gig Economy

The restaurant industry, with an 82% worker turnover rate, struggles with worker retention. With platforms like Pared providing skilled employees to restaurants on-demand, the growth of ghost kitchens might mean more jobs for those working in the back of house operations, such as line cooks and sous chefs.

With the pandemic causing havoc in the economy, the food delivery business has emerged relatively unscathed. Business soared, offering more earning opportunities for gig workers working with food delivery companies. The success of ghost kitchens has been facilitated by a ready supply of gig economy workers working in the food delivery business. The growth of ghost kitchens and food delivery giants venturing into this space is, in turn, likely to fuel demand for delivery gig workers. While this might mean more business, whether this will translate to better pay and working conditions for gig workers is hard to say.

While most traditional restaurants lose revenue on signing up with delivery platforms, ghost kitchens, with their no-frills approach, may prove to be a better fit. While it remains to be seen whether ghost kitchens will prove profitable in the long run, current market data indicates that they are here to stay.