GHOST KITCHENS: The Evolution of Dining
With people forced to stay home during the pandemic, delivery-only restaurants have cropped up in droves. Who will survive in a post-pandemic world?
HISTORICALLY, THE CONCEPT OF FOOD-ON-DEMAND has gained strength in the wake of socioeconomic upheaval – from the first dine-in restaurants and ala carte menus that appeared in post-revolutionary France, to the proliferation of frozen meals and fast food restaurants that emerged in post-war America.
Now, we find ourselves in the midst of another watershed moment in history that is re-shaping the way we work, live, and interact with others. Sure enough, the Covid-19 pandemic has also given rise to the next level in food-on-demand: ghost kitchens.
Alternatively known as virtual kitchens, cloud kitchens, and dark kitchens, ghost kitchens prepare delivery-only meals that are ordered exclusively online and through apps such as Uber Eats, and delivered directly to the customer. By operating out of underutilized real estate in less expensive neighbourhoods, ghost kitchens can lower or eliminate the typical overhead costs associated with bricks and mortar restaurants, such as rent and front of house staff, while expanding customer reach through the apps.
The earliest ghost kitchen concepts first emerged around 2013, coinciding with the appearance of meal delivery apps, and ghost kitchens have been popping up around the globe since. But as pandemic-induced lockdowns have forced restaurants all over the world to shutter their dining rooms, the industry has gone parabolic. Ghost kitchens are now attracting major investment from some of the world’s most reputable venture capital firms, including Sequoia Capital, Softbank, and Google Ventures. According to Pitchbook, an estimated US $5.5 billion was invested into ghost kitchens between October 2019 and October 2020. Euromonitor, a market research firm, estimated in 2020 that ghost kitchens are on track to become a $1 trillion industry by 2030.
It’s not surprising that investors are excited about this burgeoning new industry – food delivery apps including Doordash, Uber Eats and Grubhub are reporting their business has doubled during the pandemic. Dine-in restaurants remain closed in many parts of the world and the previously simple task of going to the grocery store has become a health risk that many would prefer to avoid. All of this begs the question: are ghost kitchens just a Covid fad?
Canadian entrepreneur Jason Chen, Co-founder & CEO of Taiwan-based ghost kitchen company Justkitchen, which listed publicly earlier this month in Canada (TSX-V: JK), doesn’t think so. Chen, who spearheaded the launch and expansion of several American restaurant franchises in Taiwan including Smith & Wollensky, Dan Ryan’s Chicago Grill, and TGI Friday’s, has seen remarkable growth in Justkitchen’s sales volumes, despite Taiwan having remained uniquely lockdown-free during the pandemic.
“Justkitchen was created before the pandemic because consumer preferences were already shifting toward a delivery-only model,” Chen says. “People don’t want to battle traffic and wait in line at the grocery store anymore, they want to click a button and have a meal show up at their doorstep. That shift was happening beforethe pandemic, and it is going to continue beyond it.”
Chen believes that ghost kitchens are still an emerging industry with plenty of room to grow. But he adds that it will be the companies that continue to innovate and adapt to shifting market conditions beyond the pandemic that will outpace the competition, which includes former Uber co-founder and CEO Travis Kalanick’s ghost kitchen behemoth Cloud Kitchens, currently valued at US$5.3 billion.
“Justkitchen isn’t just kitchens, ironically,” Chen laughs. “We’re not just offering ghost kitchen facilities, we’ve evolved into way more than that.”
Justkitchen was initially launched in 2019 to address several issues Chen and his team had identified within the meal delivery industry, chiefly that restaurants and even ghost kitchens were limited by a ‘delivery radius’ – a boundary outside of which meal deliveries were no longer cost-effective.
The solution was to launch a new ghost kitchen concept with a hub-and-spoke operating model, with early food preparation taking place at larger hub kitchens, and smaller spoke kitchens completing final meal preparation. When an order is received via Justkitchen’s app or website, it is assembled, cooked and packaged at the spoke nearest to the customer – often in less than 5 minutes. This model allows Justkitchen to significantly reduce meal preparation and delivery time, and penetrate high density urban areas at a fraction of the cost. Chen says meals typically arrive at the customer’s doorstep within 20 minutes or less from the time of order, compared to the industry standard of 30 to 60 minutes.
Justkitchen has experienced rapid growth since its inception, opening 13 spoke kitchens across Taiwan in less than a year, with plans to grow to 35 spokes in Taiwan and expand into North America and the rest of Asia, beginning with Hong Kong and the Philippines. The company has also recently launched a grocery delivery platform, Justmarket, which allows customers to add grocery items to meal orders.
“Our model is extremely efficient, but more importantly it’s focused on giving customers what they want, when they want it,” says Justkitchen’s COO Kent Wu, a Silicon Valley entrepreneur whose previous venture, grocery e-commerce platform Milk & Eggs, was acquired by Grubhub. “We’ve partnered with popular, established chains like Smith & Wollensky and TGI Friday’s, as well as several Michelin-star restaurants. We’ve also developed 14 of our own delivery-only food brands that cover a variety of price points. The high-end brands allow us to prove our ability to execute, while the broad-based brands will allow us to scale up. Plus, we retain a higher profit margin on the in-house concepts, and we will be able to franchise them as we expand.”
In the US, which has been heavily affected by lockdowns, the pandemic has inspired restaurants to get creative with the idea of delivery-only. For some established chains, incorporating an additional delivery-only brand alongside their existing customer-facing facilities is proving to be very lucrative.
Chili’s recently launched a delivery-only concept, It’s Just Wings, featuring a menu of chicken wings prepared in existing Chili’s facilities and delivered via Doordash. The Company says It’s Just Wings is generating an average of $3 million in sales per week and will soon be a $150 million dollar brand. Denny’s, Applebee’s, and Chuck E. Cheese have also launched successful delivery-only concepts, typically focusing on a limited menu, out of their existing kitchens.
Wendy’s Canada recently partnered with the ghost kitchen operator REEF Technology, which will prepare Wendy’s menu items out of its parking lot-based ghost kitchens to help the fast food company reach new target markets in dense urban areas.
But while major chains often have the financial cushioning and existing infrastructure to do well in a primarily delivery-only marketplace, many independent restaurants are discovering their model doesn’t necessarily translate. Although some have been able to sustain themselves during the pandemic by partnering with delivery apps, many are reporting they are actually losing money by adopting a delivery-only model, due to the fees charged by third-party apps.
It’s for this reason that Chen expects more ghost kitchens to bring delivery services at least partially in-house in the future, thus removing the need to rely solely on third-party delivery providers.
“Gaining a competitive advantage in this space means capturing and retaining a larger market share – and that means giving the customers more choices, and keeping them engaged with the brands you’re offering. Moving forward, ghost kitchens that are offering their customers benefits like exclusive menus and competitive delivery fees, will emerge as the leaders in the industry.”
“For a ghost kitchen to become a dominant player in the industry, it has to ensure it can offer its customers the highest quality products, the fastest delivery, and a variety of food choices and price points.” —Justkitchen CEO, Jason Chen
“Listening to what our partner restaurants and our own customers want has really driven our innovation. We’re not just cooking food for existing restaurants, we’re also helping them deliver a better product.”