Ghost Kitchens Insurance Package… A Closer Look

Ghost kitchens, also known as “cloud” or “virtual kitchens,” are cooking facilities chefs and restauranteurs can lease. There are no dining rooms, seats, tables, waiters, hosts/hostesses, cashiers, or patrons. As one publication described them, ghost kitchens are sort of the “We Work” for chefs. In essence, they are physical spaces for operators to create off-premises consumption and utilize third-party delivery services to get their food into the hands of consumers.

Ghost kitchens took off during the height of COVID-19, and continue to do so as people look for the quality of restaurant-prepared food without the in-dining experience. At the same time, chefs get to test out new food concepts and menu items without incurring the expense of labor and real estate. Additionally, restaurant owners have an opportunity to expand their business with the additional revenue stream a ghost kitchen offers. Most restaurant owners will set up a ghost kitchen close to their existing standard-style establishment. This allows owners to take advantage of the rise in on-demand delivery services. 

A Growing Sector

According to research firm Euromonitor, it’s projected there are more than 1,500 ghost kitchens around the country. Moreover, pre-pandemic, ghost kitchens were expected to account for 10% to 15% of the $66 billion U.S. restaurant industry. Now that number is expected to climb to 21% by 2025, according to CBRE.

Ghost Kitchens Insurance

Ghost kitchens don’t face the same extent of property and liability exposures as brick-and-mortar establishments. Most ghost kitchens lease their space which comes with significantly less square footage and lower property values. Their liability exposures are also lower as they have no patrons physically on site. Workers’ Compensation is also impacted positively as ghost kitchens don’t have front-of-house staff, reducing their payroll and exposures.

However, risks definitely exist including food contamination, business interruption (from a fire, for example) and cyber, making a package policy that includes Property, Liability and Cyber insurance critical. Umbrella insurance is also recommended as most primary Liability policies come with a $1 million per occurrence limit. This may not be enough considering today’s social inflation, nuclear verdicts in the tens of millions of dollars, and a pro-plaintiff mindset.

Zoom In on Cyber

Ghost kitchens face higher cyber exposure as everything is performed digitally (other than food preparation). Ghost kitchens receive all their orders online and transmit all orders to third-party delivery services, in the process exposing themselves to cyber vulnerabilities including data breaches. Having a Cyber insurance policy is essential for ghost kitchens to protect against hacks.

Distinguished Programs has been on the forefront of providing ghost kitchens with insurance as a result of our deep experience. Our package program includes Property, General Liability, Employment Practices Liability, and Cyber insurance. Our affordable Cyber program covers network security and privacy liability as well as data incident response coverage. A 24-hour data security event “hotline” is available to all policyholders.

Umbrella coverage can be added with limits that begin at $1 million and go up to $150 million.

With Distinguished, agents and brokers have the convenience of partnering with one provider to offer a complete insurance package to clients. Our program also provides you with an opportunity to expand your footprint in a sector that continues to take off.