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Is Virtual Kitchen Membership Your New Reality for the Post-Pandemic Recovery?
Conceptually, virtual (or "ghost" or "dark") kitchens are easy to get your head around. Find a space in a low-rent district. Install a kitchen. Produce food and deliver it to customers. Hey, if a large percentage of your busines is via third-party delivery during the pandemic, your location is no longer a big deal. And with a lower rent factor and a reduced service staff, you reduce your overhead and labor costs.
While on the rise before COVID-19, the virtual or "ghost" kitchen market accelerated by years during the pandemic. Euromonitor predicts the ghost kitchen market will be worth $1 trillion by 2030. Is this business model right for your independent restaurant?And, if so, how does it work?
The "virtual kitchen" model has been applied for years by full-service operators in the form of commissary kitchens, where a kitchen crew preps items, such as desserts and sauces, and delivers them to four-wall locations for service to seated guests.
As consumers embraced Amazon-style retailing and third-party delivery companies emerged like mushrooms after a spring rain, the ghost kitchen made increasing sense, even before the pandemic. Post-pandemic, they might be the most logical approach for startup operators and existing concepts seeking to adapt to the "new normal".
Entrepreneur Nili Poynter, co-founder and president of Denver-based virtual kitchen ChefReady, has several friends who operate restaurants. She decided to launch a ghost kitchen after witnessing the struggles of her restaurant operator friends.
"Because of all these high costs [including labor and rent], we've seen our friends suffer tremendously," says Poynter. "All of a sudden they went from three [restaurants] to two and two to one, [and] some had to close all their restaurants." Poynter is an entrepreneur, and says "we wanted to give other entrepreneurs a true chance. A virtual kitchen gives them the opportunity to work for themselves instead of the landlord."
With a virtual or ghost kitchen, adds Poynter, there's "no longer-term liability as you have with traditional brick and mortar locations, which chefs don't really think about. The short-term and long-term debt you're saving is huge, [because] your leases are shorter." The labor savings can be just as substantial because "all you need are one to two chefs a shift," Poynter explains.
While virtual kitchens lower the cost of expansion and help existing operators cater to new markets, they also offer a path to restaurant ownership for people who were locked out of the restaurant industry because they could not raise the money for a traditional brick-and-mortar location, explains Poynter.
When done as part of a strategic plan, Barnett feels ghost kitchens can be "efficient expansion strategies for brands that are looking to develop their online profile and delivery sales."
Even before the pandemic, some operators including Cali Comfort BBQ operator Shawn Walchef, began to wonder if "the full-service restaurant model [was] broken." If Walchef and other like-minded operators were teetering on the edge of testing the ghost kitchen model, the pandemic was the tipping point. With guest capacity restrictions, sanitation, and ever-changing safety recommendations, eking a profit from the full-service business model has only become more challenging.
And the health and safety landscapes continue to shift as public health officials continue to learn about the disease. In late October, the Center for Disease Control and Prevention changed its definition of "close contact." Previously, CDC defined close contact as being within 6 feet of an infected person for at least 15 minutes. That definition was used to determine when a person should be quarantined. Now, a "close contact" is defined as being within 6 feet of an infected person or persons for at least 15 minutes over a 24-hour period, indicating multiple brief encounters can contribute to spread of COVID-19.
Manhattan's Zuul Kitchens launched Zuul Market, a "virtual food hall powered by ghost kitchens." Incorporating ghost kitchens to a traditional four-wall business model doesn't have to be an all-or-none proposition says Director of Strategy Kristen Barnett. With dine-in numbers down, she sees opportunity for virtual locations to complement traditional brick and mortar operations by fulfilling the delivery orders placed by new customers.
Barrett believes by viewing ghost kitchens as opportunities, not threats, operators can partner with a company that provides greater support and marketing services than third-party delivery platforms while still leveraging delivery services to get food to consumers. When done as part of a strategic plan, Barnett feels ghost kitchens can be "efficient expansion strategies for brands that are looking to develop their online profile and delivery sales."
Choosing a Ghost Kitchen
An elegant definition of ghost kitchen is expressed by Ian Christopher in his June article "What Is a Ghost Kitchen?" published by Galleysolutions.com. He writes, "a ghost kitchen is a delivery-only restaurant. There's no physical space for customers. Orders are made in one location, picked up by a delivery driver, and enjoyed off-premise."
Always learning... What is a Ghost Kitchen Master Guide 2020
Certainly, you can turn your current four-walls location into a ghost kitchen by limiting service to third-party delivery. That approach would lower your labor costs; but you might still likely be paying premium rent for a prime location at which you are no longer optimally using all the space.
For new startups and existing concepts that want to shift some or all their operations to third-party delivery, a preferred approach is membership in a rented commissary location, with shared kitchen space. Depending on the membership structure of the ghost kitchen you select, different amenities may be included: dry storage and freezer shelves, done-for-you dishwashing, and other perks. Some employ porters or food runners that take food to delivery couriers. Some have a la carte fee structures that allow you to tack on only the amenities you need, such as dry storage.
ChefReady offers takeout in addition to delivery, as does Kitchen United, a virtual kitchen with locations in Chicago, Pasadena, Scottsdale, and Austin. Poynter is anticipating a post-COVID time when they can hold events to "engage the community...[and] help gain some of the customer connection from the restaurant." For operators who miss the community of a physical location, virtual kitchens with takeout offer some of that connection.
After members sign the contract, Poynter says they can expect to be up and running in around a month. ChefReady pairs new members with an architect who helps design the kitchen and a technology integrator who can help set up accounts with third-party delivery services. The company assists with permitting, too.
There are costs associated with the buildout of an individual ghost kitchen--at ChefReady, for instance, operators get a 200-250 square foot kitchen with a 10-foot ancillary fire suppression hood, three-compartment sink, handwashing sink, and veggie sink, but must purchase everything else. Given the virtual service model, operators still save on equipment because there's none of the decor, seating, or small wares associated with in-person dining.
Zuul Kitchens gives members "a base set of handwashing [sinks], reach-in, [and] 6-burner stove"; everything else must be purchased by members, though Zuul Kitchens assists with installation. Startup assistance consists of "trainings with the team, going over our policies so they understand how to use the space and how the flow of the space works, onboarding their menu in the Zuul Market, and ensuring our systems are calibrated" (like accounting and menu item photos), explains Barnett.
Zuul Kitchens members can join the virtual food hall, Zuul Market, which includes access to partnerships with commercial buildings and landlords, plus virtual brand development assistance. By spinning off a segment of the menu into a separate virtual brand, Barnett explains, operators can "garner more consumer interest, thereby driving more sales." Barnett tells the story of StoneBridge Pizza & Salad, a Zuul Kitchens member that developed virtual brand Rival Sandwich Co: "We believed their sandwiches were worthy of their own brand, so we could tell the story of the fresh bread. We renamed the sandwiches, created a brand, tagline, and storyline around it, and im- mediately saw sandwich sales increase three times in the first week."
Whether your critical drivers are marketing and branding assistance, maintaining aspects of traditional hospitality or pure bottom-line considerations, there are ghost kitchen models that can complement your vision and will work with you to tweak your concept to a virtual service model.
Operators who don't have a clear plan on how to reach their customers and direct them to native online ordering may struggle to make a ghost kitchen work, Barnett notes. If you're not currently connecting with customers digitally, or if you're unclear on how to pare down a huge menu into items that travel and present well, these are challenges to solve before signing up for a ghost kitchen. While you'll get hands-on assistance with many of the logistical challenges that come with digital service, it's not a fully done-for-you model.
Since there are so many players, it's critical to do your own research and identify the best fit. Poynter suggests vetting kitchens and looking over contractual agreements with legal assistance, and only signing on once you're clear you understand the company's differentiators, fundamentals, membership structure and additional services. Poynter is optimistic that virtual kitchens can work even for operators in fine dining, who hadn't really embraced food delivery until the pandemic. There are ways to keep food looking nice in delivery boxes, and aspects of a fine dining menu better suited to delivery. By identifying and leveraging their opportunities, opera- tors who want to try ghost kitchens can make the model work for them.
A Pandemic Pivot to a Virtual Kitchen
John Lee, owner of Seoulju in Austin, Texas, estimates takeout wasn't even 10 percent of his business before the pandemic. The Korean restaurant was a popular late-night drinking and dining spot best known for its award-winning "KFC", or Korean fried chicken.
When the dining room closed earlier this year due to COVID restrictions, Tram Lee, Lee's wife and Seoulju's general manager, says they were getting "steady takeout volume." When takeout volume started to decline, they pivoted to a virtual kitchen, joining Austin's Kitchen United MIX. They signed the agreement at the end of May, and opened the virtual kitchen in July.
The monthly rent for the virtual kitchen covers everything: "maintenance (they change the fryer oil once a week, trash, cleaning), lights, [and] utilities...so in the end, the only thing I have to worry about is the cost of employees and food and rent at the end of the month," John Lee says.
Seoulju's menu -- rice plates, waffle fries, KFC, and dumplings -- was very delivery-friendly. The Lees streamlined their menu for an "express type" service, removing labor-intensive menu items such as soups, seafood pancakes, and kimchi pancakes. In preparation to launch, Tram Lee spoke with a Kitchen United marketing consultant, who "helped me come up with a marketing plan and pictures to provide for the website." The consultant also did some sponsored posts on Face- book and Instagram on their behalf.
"We sell three times the volume at Kitchen United just because of the amount of traffic that's going through that one location," Tram Lee says. She's noticed that people who are ordering from another restaurant in the MIX will often add on something small from Seoulju just to test it out.
The virtual kitchen helped the Lees expand their business and introduce new audiences to their brand during a very challenging time. Joining the virtual kitchen also brought community with other operators, who are sources of ideas and education, says Tram Lee.
Embracing Virtual Service and Digital Hospitality
Shawn Walchef, operator of Cali Comfort BBQ in San Diego County, came to virtual kitchens in a slightly different way: he was approached by CloudKitchens to join its Barrio Logan location.
Walchef's four-walls restaurant is outside of San Diego city limits, so he jumped at the opportunity to have a location inside city limits with "one million residents within the delivery radius." He'd been thinking of expanding, but knew the build would cost $1 to $1.5 million. "This we could get in for under $50,000," he says, adding that he can't give too much detail because he's under an NDA to describe as little about CloudKitchens as possible. While the upfront savings were attractive, Walchef's financial projections indicate that it's "three times more profitable to run the digital restaurant than our old one."
The Barrio Logan CloudKitchens includes shared walk-ins and storage, which customers can pay into if they need it. While other restaurants are "operating essentially a food truck" as Walchef explains, he's cooking all his food at the physical restaurant and delivering fresh, slow-smoked barbecue to Barrio Logan, assembling orders at the cloud kitchen from food prepared at the restaurant.
When asked how he'll balance dine-in demand with cooking for the cloud kitchen, Walchef has a unique answer. "We're actually going to reduce seating capacity in the restaurant to service more micro ghost/virtual restaurant locations."
Operating outside city limits for the last 12 years, Walchef had to really build a brand that would drive customers to venture outside the city. "We do a great job with hospitality, craft, BBQ, we care about our digital footprint [and] creating relationships and letting people know where we are on these different platforms," Walchef says.
Effective brand storytelling helped gain Walchef an audience, but operating in a neighborhood that's not a destination for dining taught him that he could not control where diners decided to eat BBQ. Increasingly, it wasn't realistic to "expect people that live forty minutes away to drive, wait in line for an hour, get ribs and watch the game."
Walchef looked for the opportunity. He couldn't control how diners ate his food, but he could control how diners were exposed to his food by meeting San Diego diners on the platforms they were using -- all of them. "We want to use all the delivery partners available to get them their BBQ, [because] if we don't do it someone else will," he explains.
Walchef is passionate about craft food and BBQ and "obsessive" about hospitality. Perhaps surprisingly, he's optimistic about the "gold rush" potential of a virtual kitchen and the future of "slow food" in a delivery world. Diners will still want time-intensive foods like slow-smoked barbecue, even if they now want the convenience of online ordering. Operators who can figure out how to "deliver slow food fast" will have a competitive advantage, says Walchef.
It's Still the Hospitality Business
Another way to gain a competitive advantage in a virtual food hall world is to adapt hospitality essentials for digital, says Walchef. "You have to get people to be part of your normal routine [and] want to come back," he adds. But how do you make a diner a regular when they're ordering from an app? "You have to be transparent [and] digitally story tell," Walchef suggests. A number of ghost kitchen companies, including Zuul Kitchens, offer help with virtual branding and storytelling.
Both Walchef and Poynter believe that community connections are worth developing in a ghost kitchen model. To Walchef, the ultimate goal is to give back: "The more locations we open, the bigger impact we can have on all the communities we help," he says.
There's opportunity in virtual kitchens, which boosts their appeal among operators burnt out by this challenging year. While the model may be different than full-service, players like Poynter and Walchef believe the new model keeps restaurant community and hospitality alive while freeing operators to run more successful businesses.
STAFFING A GHOST KITCHEN
As you might expect, hiring back-of-the-house labor for a ghost kitchen is not unlike any operation, including a full-service concept. "Cooks cook food," says John Lee, owner of Seoulju in Austin, Texas, explaining, however, the service aspects of ghost kitchens are a bit different than for on- premises operations.
"Virtual kitchens like Kitchen United tend to staff service-facing positions," says Lee. "You don't have to hire and train those employees, but you don't have autonomy, either." Other issues to consider:
Customer service. While front-of-the-house employees take care of the majority of customer inquiries, according to Mika Otomo, manager of Shimogamo, there are times when calls get passed on to her cooks, who need to answer store-specific questions. "Most kitchen staff are not trained to provide customer service, especially the ones who do not prefer a social environment [and] are generally not skilled with service. I often find it challenging to require them to handle customer inquiries and complaints," she says.
Turnover. Lee's turnover is non-existent ("we're a family business") and Otomo's has been low, though she wonders whether the pandemic has depressed the hiring market.
Personality. Being the only cook in a ghost kitchen is a shift from working alongside a full team, but some chefs prefer it that way, says Otomo. For sushi chefs, the new work environment brings a change from the sushi bar "[requirement] to face customers and entertain them as they make sushi." Staff ghost kitchens with someone you trust to work alone who prefers a quieter kitchen and leave the social cooks on dine-in.
Working environment. Ghost kitchens are quieter, but don't mistake that for a lonely work environment. "Employee satisfaction is very high since everyone from every kitchen basically knows each other. It almost feels like one giant food dorm," says Lee.
An Independent Sushi Restaurant Solves Ghost Kitchen Logistical
Challenges
with a Little Luck and Good Timing
Last December, Mika Otomo moved back from Japan to manage Shimogamo, the sushi restaurant in Chandler, Arizona owned by her parents, now in their seventies. The 45-seat restaurant offered dinner service only. The kitchen was so small, they didn't do takeout, and they couldn't easily train chefs in Japanese culinary techniques.
Otomo knew the restaurant needed to expand beyond dine-in service, but there were logistical challenges, including difficulty finding trained sushi chefs.
"I was looking for different channels where we could minimize our initial investment and launch different types of business using our existing resources," Otomo explains. Through exploring third-party delivery services, Otomo learned about Kitchen United, a ghost kitchen with a virtual food hall (Kitchen United MIX) in nearby Scottsdale, Arizona.
Otomo liked the low-stakes contract: it was for a year, but "Kitchen United doesn't mind [you] leaving and bringing someone else in, so I thought it was less of a commitment." The Kitchen United space could accommodate four people, which provided a solution to Shimogamo's culinary training issues.
Otomo compared Kitchen United to its local competitors and found that "Kitchen United is more comprehensive in terms of the shared services... [they were] the most expensive, but they offered a lot." The collaborative marketing services were enticing, as were the opportunities to co-market with other restaurants in the MIX.
In consultation with Shimogamo's chef, Otomo pared down the sushi menu for the ghost kitchen. "At the restaurant, we offer twenty different kinds of fish as nigiri or sashimi, of which the top sellers are tuna, yellowtail, and salmon." These most popular picks made the Kitchen United menu. "We add- ed a couple of others that are popular and easier to prep. We picked signature rolls and basics and ignored the ones that are not so popular and not so representative," she explains.
Kitchen United worked with Otomo to develop two virtual brands, in addition to the virtual Shimogamo location: Roll & Bowl, a sushi and rice bowl concept, and Gamo Men, a Japanese noodle shop. Otomo explains the reasoning behind the virtual brand development: "Kitchen United hosts different brands catering toward lower-cost ticket customers, [who are] not looking for anything more than $12." Shimogamo's restaurant customers had an average ticket of $98, in part because the restaurant tended to serve larger parties.
"[Kitchen United] suggested offering a brand that would be a lower priced item" to capture more sales from customers who were price sensitive. "I didn't want to cheaply sell Shimogamo, because people come in to eat really high-quality sushi," says Otomo. Nor did she want regulars to think they were running a deal at the virtual food hall. Her solution was to use parts of the fish that weren't ideal for sushi to make sashimi salad and poke, which they could sell for less. Otomo's husband is an executive chef with an extensive collection of Japanese recipes. They weren't interested in opening a second brick and mortar concept due to the startup costs, but a second virtual brand would allow her husband to use his recipes and further diversify the revenue streams. Kitchen United shared data from their Chicago and Pasadena location to help Otomo develop Gamo Men.
The virtual Shimogamo was already up and running when the pandemic struck. While the year has been difficult, Otomo believes the ghost kitchen "gave us an edge" in terms of capturing delivery traffic when restaurants shut down. The venture is profitable, and her Kitchen United experience even helped her add third-party delivery services for the Chandler Shimogamo location during the dine-in shutdown.
