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Ghost Kitchens, Virtual Restaurants Enter Next Stage of Evolution

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A version of this article originally appeared in the online issue of Nation’s Restaurant News.

Ghost kitchens and virtual restaurants have been the buzzwords in the U.S. (and global) restaurant industry over the last two years. The pandemic has driven an explosion in new business models, as the industry grapples with building a delivery-centric future that is financially sustainable for all stakeholders.

Eat-in traffic has fallen steadily in the U.S. for at least the last decade, reaching 50% of spending in 2019, according to Euromonitor International estimates. Not surprisingly, this number collapsed in 2020, falling to less than one-quarter of total spending. While delivery gained significant share, more than doubling to over 15% of U.S. restaurant spending, both drive-through and takeaway surged with eat-in service shut down and consumers searching for low-contact options. Though the eat-in share of restaurant spending is expected to bounce back in the second half of 2021 and into 2022, we have entered an era where eat-in traffic could potentially fall below 40% of total spending over the next five years. Going forward, most new restaurant concepts — and certainly most new multi-unit concepts — will be built from the ground up, with delivery as a major part of the business model. Ghost kitchens, whether third-party or in-house, will be central to those strategies.

While third-party ghost kitchen facilities operated by companies like CloudKitchens or Kitchen United dominated much of the discussion in 2019, 2020 and 2021 have placed more of the spotlight on companies such as Ordermark. With its Nextbite program, Ordermark connects a stable of virtual brands to restaurants with spare kitchen capacity — i.e, most restaurants. These new models are likely to benefit from a permanent lift in delivery spending post-COVID. While eat-in traffic will recover throughout 2021, the nature of eat-in traffic is likely to shift going forward, as faster delivery (facilitated by ghost kitchens) captures a larger portion of daily commodity “refueling” occasions.

Yet the expansion of ghost kitchens goes beyond delivery-only production facilities for a restaurant’s own menu. 2020 saw an explosion in virtual concepts, many of them partnering with existing restaurants to fulfill delivery orders from brands which only exist online. This points to a future where restaurants could routinely prepare both their own orders and various partner brands as capacity permits. This separation of brands and preparation represents a further evolution of the franchising model that dominated the 20th century, in theory allowing a brand to reach a large regional or national market with relatively little capital investment. It could also bring a surge in investment into the foodservice industry, as packaged food and drink brands partner with various producers to create new meal and snack brands ordered via third-party delivery services.

Looking ahead, the future for eating in restaurants is likely brighter than it currently appears — the pandemic will subside, and our need to socialize in person will likely drive a surge in visits to restaurants and bars. However, a more delivery-optimized food system is here to stay. Over time, the restaurant industry will mirror developments in the retail industry — luxury fine dining restaurants will remain largely eat-in concepts, while the number of large, 100% virtual concepts will likely be limited. New chain concepts will combine a host of formats, from eat-in only locations to takeout kiosks to third-party ghost kitchens and production partnerships with other restaurants, all (ideally) knit together in a single app. Likewise, cheaper, faster delivery via a handful of third-party apps will blur the lines between retail and foodservice, prepared foods and packaged foods, likely bringing a host of new occasions in play for foodservice operators.

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