Struggling House of Ghost Kitchens: Sector Faces Setbacks, Yet Remains Resilient in Face of Challenges
Modern-Day Culinary Operations: The Rise and Impact of Ghost Kitchens
Ghost kitchens, or cloud kitchens, have emerged as a significant player in the food industry, serving as delivery-only eateries with no physical storefront. With no dine-in options, these kitchens aim to save costs by eliminating the front-of-house expenses and capitalizing on the escalating demand for food delivery. Brands can manage multiple concepts under the same roof, deceiving consumers into believing they're dealing with multiple, real, brick-and-mortar restaurants.
The coronavirus pandemic gave ghost kitchens a massive boost, as over 70,000 restaurants in the US closed their doors, leaving plenty of vacant spaces behind. In 2020 alone, Uber founder Travis Kalanick started CloudKitchens, purchasing 40 locations in 24 cities for $130 million. Meanwhile, Wendy's planned to open 700 ghost kitchens in collaboration with Reef Technology in 2021. Established chains, such as Applebee's, saw this opportunity to continue their in-dining operations while also launching new, often unrelated, delivery brands from the same kitchen.
Not long ago, Kitchen United, a leading cloud kitchen with $175 million in funding from Kroger, announced its intention to sell or shut down all locations. Kitchen United's delivery-only eateries operated within Kroger stores, malls, and other chains through shared kitchen spaces.
The return of pre-pandemic consumer behavior has proven challenging for these new concepts. Sixty-seven percent of diners value food coming from a publicly accessible, physical location, making it essential for their restaurant experience[CNN]. Consumers complained about not being able to see the preparation process, and some felt deceived, thinking they were ordering from a small, local restaurant but were actually patronizing a major chain offering multiple cuisines from a single kitchen.
Restaurant consultant Stephen Zagor and hospitality professor believe that these virtual restaurants have become less essential with the resurgence of dine-in opportunities. "We care a lot about what my restaurant is about, and how fresh and delicious the food is," states Zagor[CNN].
Although CNN may paint a grim picture of the ghost kitchen industry, calling it "crashing" and "flaming out," the sector is far from collapsing[1]. Wonder Group, a food-delivery startup founded by Marc Lore, recently received a $100 million investment from Nestle, bringing the company's total value to over $850 million[2]. Lore classifies Wonder as a "delivery-first food hall," serving high-end food through partnerships with famous chefs and restaurants, and delivered by in-house couriers. Interestingly, some Wonder kitchens also operate out of food halls that can be visited by customers. Consumers can order dishes from four different "restaurants" in a single order and receive them together, bridging the gap between traditional dining and delivery-centric ghost kitchens.
The traditional third-party food delivery model remains unsustainable for most restaurants, and the industry is still searching for a long-term solution. Although ghost kitchens provided a lifeline to restaurants during the pandemic, consumer preference for tangible food options has surfaced over time. Despite the recent ghost kitchen closures, major corporations like Nestle believe in some hybrid form of this model, signaling the industry's progress towards a sustainable delivery solution.
In the face of resurging pre-pandemic consumer behavior, the future of ghost kitchens seems to be evolving rather than collapsing, with companies like Wonder Group, backed by investments from Nestle, pioneering a 'delivery-first food hall' model that combines elements of traditional dining and delivery-centric ghost kitchens. This new approach bridges the gap between consumers' desire for tangible food options and the convenience of delivery-only eateries, indicating a possible long-term solution for the food industry's ongoing search for a sustainable third-party delivery model.
Despite some ghost kitchens closing down, such as Kitchen United, the finance sector continues to show interest, with investments like the $100 million received by Wonder Group, signaling the industry's progress towards a hybrid business model that caters to both consumer preferences and the need for cost-effective culinary operations in the technology-driven food industry.
