Investing in a Ghost Kitchen Franchise Isn’t as Scary as It Sounds
Throughout the COVID-19 pandemic, restaurants have been hit hard due to restrictions and business closures. As a result, many foodservice businesses have pivoted to opening ghost kitchens to compensate for the lack of customers and the difficulty of maintaining a wait staff. These ghost kitchens, also known as dark or cloud kitchens, allow restaurateurs to serve customers exclusively with take-out and delivery options. According to Statista, online food delivery sales are projected to reach $66.6 million in 2022.
But, the ghost kitchen concept has been gaining steam since before the pandemic. The term was first used in a 2015 NBC New York article. The article details an investigation that found that some of New York City’s top-rated restaurants on the food delivery sites GrubHub and Seamless were fronts for unregulated kitchens. The “ghosts” who were cooking the meals didn’t have permits to sell food to customers, and their “restaurants” had names and addresses that didn’t match up to New York City’s restaurant inspection grades or database.
Consequently, Seamless and GrubHub passed polices that would fact-check restaurant information and give transparency to the consumers. Since then, third-party delivery orders have become exceedingly popular and legitimate ghost kitchens have gained more traction and credibility along with it.
Restaurateurs find operating a dark kitchen to be an attractive addition to their restaurants because of its simple business model. It is essentially a restaurant minus servers or an indoor dining room. Done correctly, these entrepreneurs can find that investing in a ghost kitchen franchise may not be as scary as it sounds.
The Benefits of a Ghost Kitchen Franchise
The ghost kitchen franchise model has taken off due to increased demand for take-out and delivery options, such as UberEats, GrubHub, and DoorDash. According to Zippia, food delivery and online food orders have increased a staggering 300% since 2014. Additionally, ghost kitchens are predicted to exceed $1 trillion in revenue by 2030, according to Euromonitor, which researches U.S. trends relating to commercial industries, consumer products, demographics, and more.
When considering opening or investing in a ghost kitchen franchise, there are many benefits:
- It can be opened quickly.
- It requires less overhead than a traditional restaurant.
- There is no dining room, which lowers build-out, rent, and other utility costs.
The convenience factor also can’t be overlooked. Who doesn’t enjoy having food from their favorite restaurants delivered straight to their homes? Opening a ghost kitchen allows entrepreneurs to cash in on this trend.
The Cons of a Ghost Kitchen Franchise
There are also disadvantages to owning a ghost kitchen.
- While ghost kitchens can have online marketing campaigns, it can be difficult to stand out without a physical storefront, which ghost kitchens obviously don’t have.
- There is a disconnect with customers. Since the customer has the food delivered or picks it up and leaves, quality control is no longer in your hands.
- Food from ghost kitchens is delivered via a third party and the fees can add up. These platforms can charge between 20–30 percent commission per order.
Prospective candidates should consider these pros and cons before investing in a cloud kitchen.
How are Ghost Kitchens Structured?
Ghost kitchens can be structured in a few different ways. You can rent out your space and equipment to other restaurant owners, which is an additional form of revenue for your business. Restaurants are also experimenting with virtual spin-offs straight from their existing kitchen to increase delivery sales. These virtual spin-offs don’t have to sell the same food as the original restaurant. For example, Franto’s Pizza launched four virtual brands that include grilled cheese and milkshake concepts.
But keep in mind that some kitchens aren’t always located in a restaurant and are only used for delivery purposes. These ghost kitchens can share the food preparation facility with other businesses.
How is One Set Up?
There are ways to efficiently set up a ghost kitchen. You should test the menu that you develop for the business in order to ensure quality. These businesses often create their own menus to optimize their smaller kitchen space. You should also be aware of the state and local regulations in terms of getting your food service and business licenses.
Since you don’t have a physical location for customers to visit, social media marketing is even more important to get the word out about your business. If you are renting space for your business, consider its location to ensure short delivery times. You don’t necessarily have to have previous experience to run a franchised ghost kitchen because the franchisor will teach you everything you need to know.
Franchise Brands Cashing in on the Ghost Kitchens Trend
Five Guys cashed in on the digital kitchen trend when Encore Restaurants LLC, its largest franchisee in the U.S., opened one in May 2021 inside of a Revolving Kitchen location in Garland, Texas. The Wayback Burgers franchise is another restaurant that has a ghost kitchen. Edible, which opened its first ghost kitchen in Tucker, Ga., in Feb. 2021, also jumped on the bandwagon. Using this 1,700 square foot facility, the brand was able to use it as a delivery-only location while also providing shipping.
The Peach Cobbler Factory franchise recently opened its first cloud kitchen in Charlotte, N.C. The company decided to do this in order to diversify its offerings for a larger audience. The Wing Zone franchise (top photo) also has a ghost kitchen option.
The franchise did this in order to innovate their business model and offer their wings in as many ways as possible.
Is a Ghost Kitchen Franchise For You?
As you can see, many brands have found success with the ghost kitchen franchise trend. It will be interesting to see if this movement continues as the pandemic pandemonium wanes. A good way to see if owning or investing in a ghost kitchen franchise works for you is to speak with a franchise consultant. This professional will help you determine if franchising is the right path for you based on factors like your skills and financial situation.