HOW GHOST KITCHENS ARE DISRUPTING FRANCHISE RESTAURANTS

Ghost kitchens, otherwise known as delivery-only restaurants, have thrived during the COVID-19 pandemic. Going out to eat still seems like a risk — depending on where you live — and delivery has always been a popular option, even before the pandemic. This type of eatery may be enticing, but it’s important to weigh the options.

WHAT IS A ‘GHOST KITCHEN,’ ANYWAY?

A “ghost kitchen” is a restaurant without the dine-in space. These restaurants only provide delivery orders and typically use a third-party app, such as DoorDash, Grubhub, or Uber Eats, to deliver their food. Some ghost kitchens may have their own delivery system. Often, these restaurants don’t have a discernable storefront.
Also known as “virtual restaurants,” ghost kitchens can be set up in different ways:
• Through a ghost kitchen company: organizations like Reef and CloudKitchens partner with chefs, and even national brands, to open a new restaurant. These companies will help find the space, develop a concept, and provide technology to report on the performance of each delivery app.
• Shared kitchen spaces: several restaurants will use the same kitchen facility for delivery only orders.
• Starting an offshoot virtual restaurant: Dine-in restaurants are using their current kitchens to create delivery-only eateries. Allowing them to increase their revenue without inflating operating costs.
• Rent-a-restaurant: Restaurants are renting out their kitchens to assist ghost kitchens that need a space to operate. This creates additional income for the brick-and-mortar business that may be struggling due to the pandemic.
2020 caused ghost kitchens to grow rapidly in popularity, but are there downsides? Let’s discuss the advantages and disadvantages.

PROS AND CONS TO GHOST KITCHENS

Like with any investment, there are risks and rewards.

PROS

• Fast turnaround: Ghost kitchens are able to start almost immediately. Restauranteurs rent out an existing space already furnished with equipment. Even some of the fastest-growing franchises aren’t able to be up and running in a month’s time.
• Lower startup costs: Similar to the above, owners do not have to purchase equipment, nor do they have to make room for dine-in space. This allows for restauranteurs to rent out more economical spaces.
• Convenience: Delivery-only establishments are most convenient for customers — especially during COVID-19.
• Extra revenue stream: Established restaurants have the option to start a “virtual kitchen” out of their existing one, giving them the opportunity for increased revenue.

CONS

• Customer service challenges: When using a third-party app, you are relinquishing control of the delivery process. Once the food leaves your restaurant, it’s up to the delivery driver to meet the customers’ expectations. The restaurant won’t know if the food was delivered with care until the customer provides feedback. This leaves the restaurant on the hook for mistakes they may not have made.
• Marketing obstacles: Without a prominent storefront, it can be difficult to get the word out about your brand. Sure, social media is a great tool, but a blend of tactics is always best when starting a new business.
• Customer volume: Related to the above point, ghost kitchens do not have the advantage of passerby traffic. Potential customers cannot walk into your restaurant and, instead, make their purchasing decisions on the third-party app.
• Stiff competition: There are dozens of food options to choose from on delivery apps. Every restaurant listed is competing for the customer’s attention — and dollars.

WHAT DOES ALL THIS MEAN FOR FRANCHISING?

Ghost kitchens have definitely changed the restaurant industry, but franchises are taking advantage. Wendy’s, one of the biggest fast-food chains, opened ghost kitchens across the country during the COVID-19 pandemic. Their strategy was not to increase their presence but to expedite their delivery times. More locations meant more customers got their food sooner.
A new concept, Combo Kitchens, embraces the ghost kitchen craze while combining it with the steadiness of franchising. Entrepreneurs can have multiple brands operating out of one kitchen with the benefit of having a well-known name above their door.
It may seem like ghost kitchens are the way of the future, but as the world begins to “return to normal,” people are going to eat in restaurants again. But delivery will always be a staple in people’s lives — the convenience of placing an order, tracking the delivery, and opening the front door to their food all from their phone will never go out style. However, the experience of getting dressed up, going out to a restaurant, and eating food that does not come in a carton is on the horizon as more vaccines are rolled out.
When trying to decide the best business option for you, consider seeking the guidance of experts. Franocity is a member of the International Franchise Professionals Group (IFPG) and has the know-how to help you search for the perfect business opportunity for you and your family. Contact us today.