Your burger or tacos or pizza could be cooked anywhere by anyone — which is what makes the ghost kitchen concept so lucrative and appealing to owners and investors
Ordering takeout or delivery is a lot like watching Netflix. You can do both things on your phone, the options are seemingly endless, and nothing looks particularly good. You scroll and scroll and scroll until you can’t scroll anymore, and begrudgingly decide on some gauzy teen drama, or defer to whatever generically named chicken wing joint paid for the best placement in the app. You hit play or pay or both, and several hours later you mope off to bed a little annoyed (with yourself, with contemporary life) and a little dyspeptic.
With growing frequency, the food you order from a delivery app is being prepared in a ghost kitchen — or cloud kitchen, or commissary kitchen, or whatever you want to call it — by cooks working for a restaurant that doesn’t really exist, at least not in the traditional sense. There is no storefront, no dining room, and no front-of-house staff. In some cases, the kitchen functions as a hub for a handful of other so-called virtual restaurants; in others, the food from the virtual restaurant is prepared inside the kitchen of an established brick-and-mortar but with a separate name and menu. Either way, your burger or tacos or pizza could be cooked anywhere by anyone — which is what makes the ghost kitchen concept so lucrative and appealing to owners and investors.
These kinds of digital-only restaurants existed before the pandemic broke out, but they experienced exponential growth as people across the country were confined to their homes for more than a year, unable to safely eat inside a restaurant dining room filled with strangers. Some of them are run by independent operators looking for a cheap and easy way to try something new (and for extra revenue to keep the lights on as the industry continues to struggle); many more are run by a number of large companies making big bets on delivery being the future of the restaurant industry.
Take the Local Culinary for example, a ghost kitchen company that operates more than 40 virtual restaurant brands with generic names like Chef Burger or Pizza Mania. The Local Culinary launches digital-only restaurants — many of which serve burgers, chicken, pizza, or tacos — and franchises them out to operators with physical kitchen space. Its founder, Alp Franko, says he doesn’t have enough revenue data to predict too far into the future, but some research he’s seen suggests the market might “double or triple” in the coming years, while other reports predict that ghost kitchens could transform into a $1 trillion industry over the next decade.
As cities and states begin to reopen and restaurants begin to offer on-site dining again, Franko’s biggest fear is that diners will stop relying on takeout and delivery. But for now, and with the realities of the delta variant settling in, he says business is booming, and that the Local Culinary’s revenues are increasing in the double digits. In Franko’s ideal world, franchisees of the Local Culinary’s brands will sign up to offer as many of its virtual restaurants as their kitchens can handle. Some will operate out of kitchen spaces rented from dedicated ghost kitchen brands like CloudKitchens and Reef, and others will operate out of existing restaurants — indies and chains alike — looking for extra revenue.
“We have plenty of those franchisees, and the reason is because they already pay the rent, they already have a kitchen, they already have all of the prep ability and equipment,” says Franko. “So for them to do a burger from Chef Burger, or any other menu item, it’s the same.”
Another major player in the virtual dining industry is Planet Hollywood founder and CEO Robert Earl, whose Virtual Dining Concepts has launched a handful of celebrity-branded digital-only restaurants in the past year. Like Franko, Earl — who says his budding virtual restaurant empire helped sustain his hospitality business during the pandemic — is looking to capitalize on some perceived spare capacity (space, time, equipment, labor) in restaurant kitchens.
None of Virtual Dining Concepts’s celebrity brands (not even Pauly D’s Italian Subs) have exploded more than MrBeast Burger, an online-only fast-food restaurant founded in conjunction with a wildly popular YouTuber named MrBeast. The digital burger joint launched with more than 300 virtual restaurants in more than 35 states last December. Now, there are nearly 1,000, and Earl says that number is set to double. About 20 percent of MrBeast Burgers operate out of brick-and-mortar chains owned by Earl Industries, like Buca di Beppo, while others set up shop in the kitchens of other chains or independent restaurants. On its website, Virtual Dining Concepts claims that restaurants that set up ghost kitchens to operate one or more of its brands can expect to see a 30 percent increase in profits.
Virtual Dining Concepts isn’t Earl’s only venture with ghost kitchens. Having previously collaborated on a fast-casual chicken sandwich restaurant called Chicken Guy, the mogul and loved/loathed chef Guy Fieri recently teamed up to launch Flavortown Kitchen. Like some outposts of MrBeast Burger and Earl’s other virtual restaurants, Flavortown Kitchen operates out of a number of chains he already owns, including Bertucci’s, a wood-fired pizza chain that originated in Boston in the early 1980s and is best known for its halfway decent pizza and warm dinner rolls. Now it doubles as a mass producer of Fieri’s “donkey sauce.”
At the end of the day, the goal of these virtual restaurants (for the franchisor and the franchisee) is no different than any other business: to maximize profits and minimize overhead. Why operate one restaurant in your kitchen when you can operate four or five or 12? The space is there and the equipment is there, after all. But then again, there’s also the cooks who suddenly have to memorize and execute all those extra menus. Does their pay increase? Will ghost kitchens add more staff to accommodate the increased volume? In conversations with C-suite and management types for this reporting, these questions went unanswered and danced around, but more than one source said issues of pay are determined by individual ghost kitchen operators. For his part, Franko was shockingly honest when pressed about labor in ghost kitchens.
“I want the franchisee making money,” he says. “So how to make money is to optimize the cost, and to optimize the revenue. So if the franchisee needs a new chef or a new line cook, or if they need to buy new equipment or more tools for prep, then for sure, they should invest to grow their revenue. But usually, my approach and the company’s approach is to optimize the current needs and the current team. We are not here to invest in more space or in bigger teams.”
Earl told Eater he initially tried to launch a cloud kitchen business to operate his virtual restaurants, but he found that “the economic model didn’t work.” Operating out of already existing kitchens with already existing labor forces was much less complicated — and much cheaper.
“When one had to have a separate labor force, the economics just didn’t add up,” says Earl. “If you look at the separate cost of labor, it kills the formula. So my thinking moved very quickly over to the realization that most restaurants in the world have spare capacity, meaning that the culinary side has capability of producing more food than that which is needed for the customers on the other side of the wall.”
Eater reached out to a number of Boston-area Bertucci’s directly in an attempt to speak with some of the cooks who are tasked with executing Fieri’s food on top of the restaurant’s principal menu. One kitchen manager said his staff was too busy to pull anyone off the line; several others declined outright; and one referred Eater to a vice president with the company. When asked if they could make kitchen workers available for comment, the vice president deflected, and instead said they could offer “something much bigger.” Several follow-up emails have gone unanswered.
Labor in ghost kitchens, like the concept itself, is often opaque. There are certainly instances when a brick-and-mortar opts into a ghost kitchen model, increases revenues, and is then better able to retain existing kitchen staff, or hire additional kitchen staff, but there are also instances when the opposite is true. Ghost kitchens put another barrier — a smartphone screen, in this case — between diners and the people making their food, hiding from view a workforce that was already next to invisible before anyone knew what a ghost kitchen was, one that has historically endured exploitation in the form of low wages, long hours, and various forms of abuse. And that’s only been exacerbated during the pandemic, especially for food service workers of color: According to a study from the American Journal of Industrial Medicine, Hispanic and Latinx food preparation and service workers in Massachusetts died of COVID-19 at a rate eight times higher than white workers between March and July 2020. Add to that the well-documented exploitation of the countless delivery drivers who work for the delivery apps — in California, apps such as Uber and DoorDash poured nearly $200 million into a ballot measure in last year’s election to deny drivers access to employment protections — who deliver all the food cooked in the ghost kitchens, or the fact that there are robotics companies that are out here trying to straight up replace workers in ghost kitchens entirely, and it’s clear that labor issues aren’t exactly top of mind in the booming industry.
Not all ghost kitchen businesses are inherently exploitative or obsessed with profit over labor — indeed, some may even be responsible for saving independent restaurants that might have otherwise gone out of business during the leaner moments of the pandemic without the extra revenue. Take Stillwater in downtown Boston, for example. During a typical dinner service, chef and owner Sarah Wade and her kitchen staff can be found whipping up plates of Ritz fried chicken or crispy Faroe Island salmon skin for the groups of hungry diners that have swarmed back to the restaurant since Massachusetts lifted its restrictions on indoor dining in May. But the Stillwater menu is no longer the lone focus in the restaurant’s kitchen — Wade and crew are also busy preparing orders for the Mac Bar, a mac and cheese-focused takeout and delivery restaurant she launched in November 2020 as a way to make ends meet.
“It’s a concept I’ve been rolling around in my head for a while,” says Wade. “And this was an opportunity to trial it and see if it worked, if we got a good bite on it, and if maybe someday I wanted to do it as a brick-and-mortar. So there were a lot of reasons why I started it. But mainly, of course, it was to make money and pay rent and staff during COVID.”
Still, Wade says she’s barely breaking even, and that she’s getting killed by the fees third-party delivery apps are able to charge. Massachusetts’s temporary cap on the fees expired in May, and city and state legislators haven’t moved to extend it. (San Francisco implemented a permanent cap in June, but the apps have already developed tactics to skirt the new regulations. Despite charging high fees that often hurt restaurants, none of the major players in the third-party delivery wars are profitable.) Wade needs to operate the Mac Bar for the additional revenue, and she needs to be on the delivery apps to market, sell, and deliver the Mac Bar product, but the delivery apps are digging deep into her cut. It’s a vicious cycle.
“It’s brutal,” says Wade. “Are you kidding me? After executing it and putting it in expensive to-go containers — because customers are very picky about their to-go containers — there’s not much left. But the way I see it is, the staff is still working, and we’re still putting a couple pennies into our pockets. And it’s all still moving along.”
She says she’s considering exclusive deals with some of the apps to get better placement and treatment. But the big players like Franko’s the Local Culinary and Earl’s Virtual Dining Concepts already do that, and have a lot more money, so it’s easy to see that those who benefit most from virtual restaurants — if they are indeed the future of the industry — are those who not only have the funds for their businesses to survive crises like the COVID-19 pandemic, but who can also afford to exploit opportunities that the crises present.
Does Robert Earl really need to partner with Guy Fieri? Does Guy Fieri really need to make an extra million or two? The answer in both cases is “probably not!” But the market is obviously there, so why not strike while the grill that is cooking 45 different things for 11 different restaurants is hot? Ghost kitchens may or may not be the future of the restaurant industry, but they’re definitely the present. And as the pandemic continues to surge, making diners more wary of eating indoors, they’re probably not going away anytime soon.
Carlos Basabe is a commerical and editorial illustrator based in Rockville, Maryland.
Source : food
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