Should You Consider a Ghost Kitchen for Your Restaurant?

Should You Consider a Ghost Kitchen for Your Restaurant?

by | Sep 29, 2020 | Blog, For Franchisors

Ghost kitchens are getting more attention by restaurant owners thanks to COVID. The concept predates the pandemic, but with restaurants struggling to survive, the potential for lower costs and more revenue is particularly attractive. Ghost kitchens are off-site facilities that prepare delivery orders and are typically shared by multiple restaurants. The details of the models vary but they enable a restaurant to handle more orders without the investment in a second kitchen. 

According to an NPD Group survey, “foodservice delivery posted sizable gains in both visits and sales over the last five years” with digital ordering a major contributor to the growth. However, there are added costs associated with delivery. Third-party delivery services (Grubhub, Uber Eats, etc.) typically charge restaurants 12%-40% of the menu price for each food order delivered. As a result, some restaurants are reluctant to grow their delivery business. However, ghost kitchens provide a way to take advantage of the growth in delivery services (particularly during COVID) but reduce costs in other areas by sharing a kitchen with other restaurants. The costs of rent, construction, utilities, and staffing are reduced which increases profits. In addition, ghost kitchens can give a restaurant access to new markets since the shared kitchen may be located in a different neighborhood or even a different state allowing delivery in these other regions. 

Some companies are in the business of providing ghost kitchens. They may provide space for restaurants to use their own cooks or restaurants can opt to use cooks provided by the company. The company may also handle taking orders via phone or apps and coordinate deliveries for multiple restaurants. However, an individual restaurant owner can also look to offer their own restaurant space and staff to help other restaurant owners expand their business while also making extra money. This is also a good option for hotels and catering facilities that may have underused space because of COVID. 

Ghost kitchens have even been used in conjunction with food trucks. The truck is the kitchen and can park in designated areas allowing people to pick up the order locally as well as get delivery. 

Payment for a ghost kitchen may consist of a rental fee, a revenue share or royalty, membership fee, or other option. The provider makes available the physical space and shared equipment (refrigerators, freezers, stoves, dishwashers, etc.) and in some cases, may provide cooks and/or other staff. 

Food delivery is likely to keep growing no matter what happens with COVID and restaurant owners always have to contend with low profit margins. For some restaurants, ghost kitchens may provide a possible option to make their business more successful. 

If you are considering a ghost kitchen, an attorney should review all contracts. Contact Lusthaus Law for a consultation.

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