Ghost Kitchens: Path to Success or Just an Illusion?

Aug 29, 2019

Operating out of a ghost kitchen can save thousands in operating costs, but without marketing, your customers may not know you’re there

The spiraling costs of opening a brick-and-mortar restaurant has served as the catalyst for a number of foodservice trends, including food trucks, food halls, and container restaurants. Food entrepreneurs are now looking at ghost kitchens as the next step in this evolution. Ghost kitchens — rentable kitchen space for professional food production — provide a place for restaurants to prepare their menu items for pick-up by third-party delivery services like GrubHub and DoorDash. For cash-strapped restaurant concepts and small operators looking to expand their market reach, ghost kitchens offer the opportunity to set up shop without the expense of a full-blown restaurant to build and staff.

Despite the allure of drastically reduced facility and labor costs, ghost kitchens are not a cure-all for the single-unit operator. “Ghost kitchens are an amazing alternative for well-known restaurant brands since they have already established a high level of name recognition,” said Monica Challingsworth, catering and off-premise sales consultant for Synergy. “They typically incorporate a high level of marketing spend in their operating costs, so they’re less reliant on foot traffic for promotional purposes. For the small operator, ghost kitchens are a really challenging business model when trying to build brand exposure.”

Do the lower costs of the ghost kitchen model make it easier to break into the competitive restaurant landscape? Not according to Challingsworth. “When you’re operating without the visibility of a  physical location, all you have is your own marketing efforts and the third-party delivery services. You can’t completely rely on delivery companies to be your only promotional channel because the bigger brands are paying to have their restaurant featured at the top of the list of customer choices. Yes, you’re spending less on a location, but you must significantly increase your marketing and social media spend to gain any kind of market share,” says Challingsworth.

Ghost kitchens can provide expanded capacity and efficiency for operators with significant catering and third-party order volume.  As a former Catering Director for both Seasons 52 and Lemonade, Ms. Challingsworth says, “ghost kitchens are a great addition to a restaurant chain that does high-volume catering or delivery since it takes the food production and packaging responsibilities out of the hands of the restaurant locations. But you still must have a catering salesforce pounding the pavement to promote your services. Just having a production facility is not enough to ensure success.”

Despite the challenges of operating in a ghost kitchen, specific food concepts can benefit from this operating model. “Concepts who specialize in pre-packed ice cream or individually packaged frozen goods are great candidates for using ghost kitchens that specialize in frozen packaging and delivery, typically a big headache for a restaurant,” according to Ms. Challingsworth.

For single-unit operators considering a ghost kitchen to enter a new market without the brick-and-mortar costs, Ms. Challingsworth offers the following advice. “If you want to bump your restaurant higher on the third-party delivery lists, offer free delivery. Their algorithms favor restaurants who don’t charge delivery fees. You can slightly increase your menu prices to compensate but be careful not to price yourself out of the market. Your biggest consideration is your marketing spend and promotional efforts. Yes, you save money on operating costs, but you can’t cut corners on marketing. There really is no free lunch.”