Ghost kitchens, also known as virtual restaurants; cloud, commissary, or shared kitchens; and delivery-only, shadow, and dark kitchens, are the restaurant industry’s newest attempt to feed into the ever-growing on-demand consumer culture. Don’t let the spooky name fool you, these kitchens are simply delivery-only restaurants that utilize third-party apps such as DoorDash, Grubhub, Postmates, and Uber Eats. Customers don’t set foot inside a ghost kitchen, eliminating a lot of the start-up costs and ongoing expenditures that come with setting up a traditional, in-dining establishment. Ghost kitchens exist solely online, on the apps and websites of aggregate delivery services.
The Allure of the Virtual Kitchen
Virtual restaurants spend far less on real estate than their traditional counterparts, as they do not need to worry about curb appeal, foot traffic, or accessibility. This enables kitchens to be housed in locations (such as warehouses) where their square footage is maximized by being devoted entirely to the kitchen, with no customer seating or waiting areas. Fast-casual restaurants, like Chipotle, Panera Bread, or Pret, dedicate 75% of their space to seating, but only 10% of customers use the space. That’s a lot of expensive and unutilized square footage that ghost kitchens do not need to pay for — it makes sense for restaurants to cut that cost, especially with the high cost of rents in our nation’s cities.
Another major advantage of the delivery-only model is flexibility. Ghost kitchens are brandless. One kitchen easily can host multiple different restaurants, all with different types of food and styles. Restaurants do not need to change décor or dinnerware to fit the new cuisine, and food and equipment can even be shared between different subdivisions of the same virtual kitchen. This “non-brand” approach enables restaurants to keep up with trends and experiment while increasing their overall revenue opportunities.
For restaurants that currently operate a full-service establishment but want to expand their operation in other locations and boost revenue without the expense of a brick-and-mortar build-out, ghost kitchens might be a viable option as well. Some large chains, like Chick-Fil-A, have created virtual kitchens to outsource delivery. New chefs are also looking to set up ghost kitchens as a way of testing out their concept and whether it’s viable.
What Should We Expect Moving Forward?
Ghost kitchens gained significant traction in 2020, largely because of the pandemic and subsequent temporary closures of restaurants and the surge in food deliveries. The gig economy has also contributed to the rise of ghost kitchens as owners can hire freelancers to make deliveries at a fraction of the cost of third-party delivery apps. Euromonitor estimates that ghost kitchens could potentially top $1 trillion in revenue by 2030.
This growing niche represents an additional market for the insurance industry to provide protection from the various risks that come from running a kitchen. Although there is less risk due to the absence of customer and employee foot traffic, owners of ghost kitchens still require General Liability, Property, Cyber, EPLI, Umbrella and Workers’ Compensation. Distinguished provides a package policy for ghost kitchens, supported by the expertise and experience of our restaurant underwriting team at ProHost.
