Perspectives

Ghost Kitchens—Flash in the Pan or New Business Model?

  • November 05, 2019

The latest trend in the restaurant industry isn’t a physical restaurant at all. In a world where convenience is king, food delivery has become the fastest-growing source of sales for restaurants. As fewer customers choose the dine-in experience, a change in the restaurant model seems inevitable. That’s why restaurateurs are turning to ghost kitchens (aka virtual or cloud kitchens) and virtual food halls to serve their customers.

Ghost Kitchens vs. Virtual Food Halls

Ghost kitchens are essentially virtual restaurants designed to serve customers through delivery services. For example, at Manhattan-based Zoku Sushi, customers place their orders online through the restaurant’s website and wait for their food to be delivered to their door. There’s no need for a dining room or wait staff, which helps lower overhead costs.

Virtual food halls follow a slightly different model that’s more like a mall food court. Manhattan eatery, Sous Vide Kitchen offers guests a selection of menus from different restaurants located within the hall. They order at a kiosk, receive a text message when it’s ready for pick-up, and then eat with their party, all together in the same space. No one in the group has to compromise when choosing a restaurant and everyone gets to eat together.

Takeaways for Commercial Real Estate Interests

These changes in the restaurant industry have implications for commercial real estate (CRE). For example, owners, brokers, and investors can utilize underused spaces, like those with limited parking. Since ghost kitchens don’t rely on walk-in traffic, they don’t need buildings with ample parking spaces for customers. They only need enough for their kitchen and delivery staff. These virtual restaurant models also work in non-traditional dining venues like warehouses, expanding the range of potential lessees.

This also presents interesting opportunities for investors willing to invest in distressed properties. One prominent example is CloudKitchens, started by former Uber CEO Travis Kalanick. This company is a unit of City Storage Systems, which buys and renovates distressed properties specifically for use as ghost kitchens. It then leases kitchen space to restaurant and food truck owners.

Profiting Beyond CRE Rental Income

Virtual restaurants rely on websites and apps to process orders. CloudKitchens not only leases space, it also provides restaurateurs additional tools like software and marketing through online ordering platforms. In return, the company gets data on both customer and employee behavior patterns. This includes the average amount of time customers spend reviewing menus, how long it takes to complete an order, which locations have the greatest (or least) demand for food delivery services, distances from the kitchen to the delivery location, and the length of time it takes to prepare orders. This business model positions them to gather key industry data that help predict trends, project outlooks, and scale businesses.

Some other major players are exploring the potential of ghost kitchens as well. Google Ventures has invested in California-based Kitchen United, which operates ghost kitchens across the United States. Delivery platforms and service providers, including Uber Eats and Rebel Foods, have their own ghost kitchens overseas. And London-based Deliveroo is testing mobile kitchens to bring restaurants to underserved areas.

Current projections for food delivery services show no signs of slowing down, with analysts predicting delivery app usage to nearly double by 2023. The restaurants feeding these trends still need space to prepare and package their food, so the demand for suitable space remains high.

 

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