• Cheryl Teo

Ghost Kitchens - Pros & Cons

What are Ghost Kitchens?




Ghost kitchens (aka dark kitchens and cloud kitchens) minimize the costs of rental space, staffing, and menu engineering by condensing the restaurant model to accommodate off-premise food & beverage sales. Instead of having guests dine in-house, deliveries made by the restaurant or by a third-party service are the main operating method. This newly established model enables the push for restaurant cost structures toward delivery rather than in-person dining and customer-facing, and the lean team of staff that comes with a delivery-focused model can significantly bring down rent and labour costs for restaurants. Ultimately enabling operators to grow their margins.


There are a few key reasons why experts in this field predict that the ghost kitchen model would thrive in 2020.


  1. Online ordering and delivery have been growing 300% faster than dine-in traffic since 2014.

  2. In 2019 alone, 20% of US consumers used food delivery at least once a week.


According to Technomic, sales made via ghost restaurants from 300 facilities in the United States will rise by a projected 25% each year for the next 5 years—an estimated $300 million in yearly sales. For this reason, ghost kitchens could be a new solution for the currently struggling industry, especially with the pandemic.



Pros and Cons of a ghost kitchen


Pros


Lowering overall costs: Without a physical storefront, ghost kitchens can reduce all overhead costs associated with buying or renting a commercial space. If any adjustments are to be made to your menu, there is no need to re-print physical copies. Just make the edits online and announce the changes on your socials, that’s it.


Ability to capitalize on increasing demand for food delivery services: Ghost restaurant operators can places their products across as many third-party delivery platforms as they want as well as through their own website to gain exposure and greater outreach. Especially with the trends in increasing choices for food delivery, this could be a turning point for many ghost kitchen brands.


Cons


Third-party delivery fee concerns: It’s common knowledge that third-party delivery aggregators collect a certain percentage from orders sold or service fees on each transaction made on their platform. If this process isn’t properly monitored daily, it can certainly affect the restaurant’s overall margin.


Building brand reputation: With no customer-facing service, a ghost restaurant’s reputation relies very heavily on word of mouth and online reviews. Actively promoting positive reviews and responding timely to negative reviews is a must for ghost restaurant operators.


Increase marketing needs: Now that the ghost kitchen brands can no longer depend on walk-in diners and are functioning in a strictly online space without a brick and mortar location to drive awareness, it makes digital marketing extremely pivotal to gain customers. These brands have to gain brand recognition all through their socials, advertorials on food review websites, through food bloggers, etc.


Limited customer base: Given that most third-party delivery services limit the delivery area to a radius around your ghost kitchen, the regions where ghost restaurant operators can effectively consider potential customers can be rather limited.



Best practices for boosting ghost kitchen profits


Regardless of whether the brand is offering delivery for the first time or they've already been equipped with the skills to handle off-premise sales, it is always a wise decision to reassess costs and demands. Relooking into inventory costs and food waste can be a great way to see where else you are able to increase the profit margin on each menu item.


As mentioned in our previous articles, simplifying the menu and optimizing existing recipes to better suit delivery can further expedite prep and ensure quality. This is extremely key especially if you’re looking to get positive reviews from consumers as this can make or break your brand. Creating options for customers to upgrade their meals to boost check averages without adding to the time and labour in the kitchen can be a great way to increase profits, too.


With the increased participation of ghost kitchens in the restaurant industry, a lot more automation and adoption of technology can also be expected. Working with a lean team of staff will not be an easy feat and that is why automation of mundane tasks should be fully utilised. For example, invoice processing and management technology can be adapted to optimise the kitchen’s operational efficiency. No longer do you require your staff to manually key in ingredients, prices, and quantities when they receive invoices from suppliers. Nor do you have to dig through countless paper invoices and rack your brains to figure out the average cost of purchasing avocados in the previous month when all of this can be done faster, with more accuracy with the help of relevant software like FoodRazor.


While in the past, smaller players could barely afford to dabble into off-premise sales because the cost of affording their own delivery riders outweighed the small profit margins they made, now these smaller players can utilise the development of ghost kitchens to maximise productivity and efficiency and also reduce costs in other areas. This allows smaller to medium businesses to be able to stand on the same playing field as any other big chain on a global scale and could potentially be the answer to revolutionise the current restaurant industry.


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