start a ghost kitchen

What is a Ghost Kitchen [and Should You Start One?]

This might have passed you by, but ghost kitchens are sort of having a moment–a big one.

Now, if you’re wondering, “Look, fella, what is a ghost kitchen in the first cotton-pickin’ case?” hang in there. I’ll spill the beans in a moment. Meanwhile, to be perfectly honest, the language hasn’t settled down yet. So, you’ll hear names like ‘ghost kitchen’, ‘virtual kitchen’, ‘cloud kitchen’, ‘shadow kitchen’, and even ‘dark kitchen’ bandied about.

What is a ghost kitchen (and to quote me from earlier), why are they having a moment?

ghost kitchen is basically a restaurant that doesn’t operate a dining room. Ghost kitchens focus on online and mobile ordering. In a sense, ghost kitchens are an evolution of the familiar ‘take away’ business model. Several ghost kitchens don’t even have a physical storefront. When it comes to systemizing your restaurant, sometimes the best thing you can do is scale down.

The rise and rise of the ghost kitchen

Even pre-pandemic, on average, Americans ordered out at least once a week, with 20% of the Generation Z mob ordering out more than three times that rate. In this ‘sort of’ post-pandemic period, it’s too early to see trending figures, but the anecdotal evidence is that our population has learned a habit they’re not going to be shedding any time soon.

Two major factors contributing to the growth in numbers of ghost kitchens are rising real estate prices (something I can’t quite wrap my head around since so many properties stand empty; “What’s the story, landlords? Don’t you need money?”) and the rise of the gig economy. Freelancers are now readily available to deliver orders at fractions of the cost of more expensive third-party apps.

Three ways to skin a cat

I fervently hope you’re not reading this expecting to discover three ways to skin a cat. If you are, I’m glad to disappoint you, weirdo. Nope, what I’m speaking of here are the three ways to structure ghost kitchens, ‘spin-off brand’, ‘shared commissary spaces’, and ‘renting restaurant kitchens’.

Spin-off Brand

Virtual, delivery-only food services are becoming a popular vertical-integration option for dine-in restaurants. Using their existing kitchens as a base, these restaurants launch ghost kitchens to increase market share and capture customers who don’t feel like dining out.

Chicago’s Frato’s Pizza is a prime example. The restaurant has always cooked and served pizzas to dine-in customers. However, recently, the owner launched four “spin-off” restaurants out of the same kitchen. Frato’s hasn’t stopped or diminished its primary business in any way.

Shared commissary spaces

The thing to bear in mind is that commissary kitchens (actually, just think of them as ‘shared kitchens’) can be used by multiple foodservice operators simultaneously. In some hybrid situations, the kitchen may include in-house brands owned and operated by the same management team.

Renting restaurant kitchens

Another trending structure is that some restaurants are leasing kitchen space to ghost kitchen operators that need the space and equipment offered. This creates additional revenue streams for the hosting restaurants and opens unexpected arbitrage opportunities for all parties involved (well, the more open-minded and inventive ones, anyway.)

Pros and Cons of opening a ghost kitchen

Here are some pros and cons of ghost kitchens for both customers and restaurant owners.

Pros

Low overhead: lower real estate costs, and no need to spend on decor, furniture, printing menus, and the like. In addition, you can use a mobile ordering system like Order Patrol to run your entire ordering and delivering.

Shorter launch time: Ghost kitchens simply rent space in existing facilities, dramatically reducing the time it takes to launch them.

Flexibility: Ghost kitchens can quickly adapt to changing customer preferences or market conditions.

Cons

Additional costs for established restaurants: established restaurants that decide against running their own delivery operation will have to buy into existing delivery options.

Low-quality customer service: customer relationships and loyalty is harder to manage as a ghost kitchen operator. For example, delivery personnel may be rude to customers.

Challenges in brand awareness: Although online visibility can be excellent, every restaurant competes with hundreds of others. Because all these restaurants deliver, differentiators like prime location will have little influence on customers’ choices.

How to open a ghost kitchen–or ‘How to open a restaurant virtually’

Since a ghost kitchen is a restaurant, ‘How to open a restaurant?’ is absolutely an appropriate way to ask the question, even though the intent is to open a ghost kitchen. All that anyone needs to keep in mind are the subtle differences and the pros and cons of opening a ghost kitchen. I’ll give a summary below, but before I do, let’s address the elephant in the room: “should you open a ghost kitchen?”

Should vs. Could

“Just because you can, doesn’t mean you should.” Great advice, especially for folk struggling with inappropriate thoughts about cats (see above).

Do open a ghost kitchen if you:

  • Have a flair for cooking delicious meals
  • Love cooking
  • Have experience in restaurant management
  • Can come up with a viable restaurant business plan
  • Understand that it’s a business and it must make money
  • Have the self-discipline to put in the time and effort to nurture the business to success
  • Have a very clear idea that running a restaurant is a lot of hard work (apologies for all the italics, but this stuff is critical)

Do not open a ghost if you:

  • Think you’ll be making money hand-over-fist in absolutely no time
  • Can’t tolerate negative reviews and/or unreasonable customers (you’ll have to learn how to hold your tongue–and your temper–and play the long game)

Opening a ghost kitchen: practical steps

Find a niche

What cuisine, service, or convenience is missing in your little corner of the world? Is there a foodie’s need that isn’t being met? How can you best serve your market?

Write a workable restaurant business plan

Writing a restaurant business plan needn’t be a showstopper, even for those who haven’t written one before. I offer great advice (I don’t believe in false modesty), which you can find by following the link in the previous sentence. Basically, a restaurant business plan is a roadmap to follow to make your restaurant a success.

Invent an excellent name for the ghost kitchen

Create a unique name for your restaurant, so you don’t get sued by the previous registrant. Once done, file it with your state agency. This will prevent you from losing it to a sharp operator with a good (if rather sneaky) eye for a great name.

Choose a legal structure for your ghost kitchen

Choices available:

  • Sole proprietorship
  • Partnership
  • Corporation
  • Corporation
  • Limited Liability Company (LLC)

I won’t go into them here. There are many resources available on the Internet, or you can consider taking my course and reaching out to me.

Register the restaurant for taxes, both local and state

Most territories and states in the US require employment and income from businesses, including, unfortunately, restaurants (dagnabbit). This is on top of federal business taxes.

Get permits, insurance, and licenses for the restaurant

Although the FDA updates the Food Code approximately every four years, the exact details of what’s required, strongly encouraged, or just optional, differs between states and even among counties.

In the end, make sure to do your research and don’t just jump in the well without seeing if there’s any water at the bottom. Starting a ghost kitchen could be a profitable way for you to go, but you need to know what you’re doing as well.

Best of luck, whatever direction you decide to go.

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