What is a Ghost Kitchen? Winning Models, Trends, and Opportunities

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Every few months, a media article declares the death of ghost kitchens as a viable business model. 

Market data, however, tells a different story. According to Statista, in 2023, the revenue of online food delivery was estimated at over $1 trillion, and it is expected to hold a 50% share of the drive-thru and takeaway food service markets by 2030. 

That is not too bad for a dying sector.

The truth is ghost kitchens are alive and well. Indeed, they have been around for over a decade: a NYT article from 2019 dates them back at least to 2013. Interestingly, in the article, “ghost kitchens” is enclosed in quotation marks, meaning that the term was new at the time. 

Today, there’s no need for that anymore: everyone in the restaurant industry knows what ghost kitchens are (also known as dark kitchens or cloud kitchens; they’re all synonyms). 

Like everything else, though, they have evolved and are still evolving. 

In this guide, we’ll provide a definition of ghost kitchens, describe the different ways they can make money, their pros and cons, and the critical factors behind a successful ghost kitchen business. 

We’ll cover the following topics: 

What is a Ghost Kitchen?

Ghost Kitchen Definition
This definition allows us to include all the different types we see on the market today.

A straightforward definition of a ghost kitchen—and one that allows us to include all the different types we see on the market today—is a kitchen without a dine-in space or storefront that prepares food consumed elsewhere. Starting from this definition, we can describe four types of cloud kitchen business models.

The Different Types of Ghost Kitchens

Ghost Kitchens 4 Types
Despite frequent reports of their decline, four types of ghost kitchens continue to thrive.

1. Virtual restaurant brand. A virtual restaurant is the original and most straightforward type of ghost kitchen. It’s a delivery-only restaurant that prepares food in a dark kitchen with no takeaway or dine-in. The brand only exists online and takes orders through mobile apps such as Uber Eats or Just Eat. 

Examples of popular virtual restaurants are Tender Shack in the US and Dirty Vegan Burgers in Europe. The typical menu of a virtual restaurant has food that travels well and can be eaten outside of home, such as burgers, pizzas, sushi, tacos, fried chicken, sandwiches, or stir-fries. Sometimes, the same company behind the virtual restaurant has a portfolio of brands and runs them from the same dark kitchen to optimise operations.

2. Brick-and-mortar restaurant with a delivery operation. In this model, a classic restaurant sets up a delivery operation from a ghost kitchen to expand its reach and generate more income. The virtual brand could be the delivery-only version of the original restaurant or a separate one. 

3. Commissary kitchen. A commissary kitchen is a central production kitchen that preps food for different types of food service businesses: food trucks, mobile vendors, catering services, other ghost kitchens, brick-and-mortar restaurants, or pop-up food events. Commissary kitchens don’t collect online orders from diners (which is why we didn’t include online ordering in the general definition of ghost kitchens). Rather, they are part of the logistics chain of a food service operation that may or may not have online ordering in its business model.

You might think central production kitchens don’t belong in a discussion about ghost kitchens, but omitting them would be a mistake. There are two reasons: first, the similarities between ghost and commissary kitchens can be confusing, and clarifying the distinctions is important. Second, central production kitchens are essential to the popular hub-and-spoke ghost kitchen model, which we will explore next.

4. Hub and spoke cloud kitchen. This model expands #3, where a commissary kitchen (the hub) preps food, delivering semi-finished products to multiple locations (the spokes) that give the final touches, collect orders, and deliver them to customers. 

Different ways to get access to a dark kitchen

For each of the business models above, there are different ways to access a ghost kitchen. Owning one is an option, but there are more flexible alternatives that require a lower initial investment. 

1. Rent it. One option is to rent a ghost kitchen optimised for delivery and with all the required permits to use for one or more virtual brands or as a commissary kitchen. Specialised rental companies like Cloudkitchen and Nimbus are on the market, providing not only the physical space but also consulting and other services. 

2. Share kitchen space. This option costs less and is more flexible but has more limited capabilities. It’s ideal for virtual brands wanting to start small or commissary kitchens that only prep food and don’t need a fully equipped space. Consider the difference between renting an office or a desk in a coworking space.

3. Use a host kitchen. Instead of owning or renting a dark kitchen, virtual restaurant brands can use an existing restaurant’s kitchen space and resources. This so-called host kitchen model can be a win-win for both partners. It generates extra income for restaurants with underutilised resources and allows virtual brands to operate without renting or owning a ghost kitchen. 

4. Buy a modular kitchen. Also known as a kitchen pod, a modular ghost kitchen is a standalone container that can be loaded onto a truck and shipped to different locations. You can buy one from KitchenPodular for $100k. 

Why (or Why Not) Start a Ghost Kitchen: Benefits and Challenges 

Ghost Kitchens Benefits and Challenges 
Ghost kitchens have different challenges than traditional foodservice operations.

Like any business model, ghost kitchens have advantages and disadvantages. 

On the plus side, there are: 

  • Lower real estate and labour costs. A high foot traffic location is crucial for traditional restaurants. Ghost kitchens, on the other hand, can be more flexible. They don’t have to attract walk-in customers so that they can be located in lower-end rental areas. Not having a front-of-house also contributes to lower rent and staffing costs.
  • More profit opportunities. With a virtual restaurant, it’s much easier to experiment with new dishes or to launch an additional brand that shares the same kitchen space. Do you want to run a Lebanese virtual restaurant brand and an Italian one from the same kitchen? With a ghost kitchen, you can, with a brick-and-mortar restaurant, it would be very confusing for diners.
  • Greater availability of data. With no physical space or walk-in diners, most of the ghost kitchen business happens online. This generates a tremendous amount of data that can be used to optimise revenue and costs. 

On the challenges side, we find: 

  • High third-party app fees. Online food delivery apps are essential to a virtual brand’s existence, as they provide a delivery infrastructure and a marketplace. However, they’re also known for charging commissions up to 30% of the order total. 
  • Need for optimisation and cost control. With third-party app fees eroding profits, ghost kitchens must run a tight ship to keep food, labour and rental costs as low as possible. Dark kitchens must constantly analyse data to streamline production and understand what works and what doesn’t in their menu and operations. 
  • Branding is a must. Marketing and brand building are much more critical for a cloud kitchen operation. While a brick-and-mortar restaurant in a good location could thrive purely on the reputation of its food and table service, virtual restaurants have no such luxury. Plus, being listed in a third-party app is no guarantee of success. Many more brands offer the same type of food, competing for the same screen space. 

Are Ghost Kitchens Profitable?

Ghost Kitchen Profit Margins
Are they profitable? Certainly, but only if things are done exactly right.

Ghost kitchens can be profitable. In fact, they can generate an average profit margin of 15 to 25% of total revenue, which is the highest of all restaurant business models, together with pizzerias. 

At least, that’s the theory. In reality, like any other business, a ghost kitchen operation can also be spectacularly unsuccessful. The fact that there’s an increasing demand for food delivery doesn’t necessarily make it a profitable segment.

That said, let’s examine the key elements for starting and succeeding in a ghost kitchen business.

How to Start a Ghost Kitchen

Before you deliver your first online order, you absolutely need three things: a business plan, an equipped kitchen space, and all the required permits. 

Let’s look at them briefly:  

Develop Your Business Plan

A business plan boils down to answering a simple question: how do you plan to make money with your dark kitchen? We can break this down into four more: 

  • What’s your business model? Will you rent a ghost kitchen, use a host kitchen, or buy a pod?
  • What’s your concept? What type of food will you sell? Who are your ideal customers? What are their ages, interests, and income levels? How will you customise your dishes to ensure they fit for delivery?
  • Who are your competitors? What makes you different from them? Will customers notice this difference or care about it?
  • What are your expected costs, profit margins and break-even sales? 

Location and Equipment

Once you know you need a ghost kitchen for your business plan; the next step is to find one with the right location and equipment. Here are three key aspects to consider: 

  • Find the sweet spot between staying far from high-rent areas but not too far. Think about the most convenient location to deliver orders to customers, receive food from suppliers, and for staff to commute to work. A kitchen that pays very low rent but is too far away from everything and everyone will cost more than it saves in the long run.
  • Consider external space. Even if you don’t need a dine-in area, you will still need parking and access for staff, delivery drivers, and suppliers’ deliveries. 
  • Whether you rent or own a kitchen space, the right equipment will depend on the type of food you prepare. A ghost kitchen that makes pizzas, one that makes burgers and one that prepares Thai dishes will need different equipment, so you need to have the concept very clear first. 

Licensing, Regulations, and Food Safety

These will vary depending on the country, region, and city, but in general they will cover: 

  • Business License
  • Food service license for preparing and selling food
  • Compliance with health and safety regulations
  • Food safety training of personnel
  • Lease contract for kitchen and equipment

How to Make Your Off-premise Dining Operation a Success 

With the three elements above, you will have a dark kitchen business. The four elements below will help you create a successful one. 

Cost Control 

Ask any ghost kitchen operator what the critical elements of a successful operation are, and they will mention cost control first. One of the main costs of a virtual restaurant brand is delivery platforms, which tend to charge between 20% and 30% of order value. You might have some leverage on their pricing if you’re McDonald’s, but generally, there’s little wiggle room on that front.

But you do have control over food costs, utilities, labour and rent. This is where your focus should be. Keeping them as low as possible is crucial if you want to have a profitable business. 

Here’s how: 

  • Keep the menu simple, with a limited number of items and ingredients. This will simplify procurement and inventory management, allowing you to purchase larger quantities for better prices. 
  • Procurement and inventory management are more complicated when you run multiple brands from the same kitchen. However, you can still optimise by choosing recipes with shared ingredients, such as sushi, poke, and chirashi. 
  • Consider sharing a kitchen: if you’re starting small, you may want to trade flexibility with lower costs and scale up later as needed.
  • Keep track of food waste and assign it a monetary value. Hire kitchen staff who know how to repurpose trimmings and are aware of the importance of aiming for zero food waste.
  • Be precise with recipes and train your staff to follow them. 
  • Use data to forecast demand and staffing needs so you can adjust your inventory and shifts accordingly.
  • Treat employees well: pay them more than the minimum wage and add benefits like employee-centric schemes. Investing in retention will give excellent returns in the long term.
  • If you’re scaling up, consider a bigger kitchen, not a second one. This way, you’ll employ fewer chefs and sous chefs (medium to high salaries) and more line cooks and kitchen hands (lower-end salary tier), and you will probably save on rent, too.
“Food cost is our main focus”, says Rens Bekkers.

For example: “Food cost is our main focus”, says Rens Bekkers in the video. He is the co-founder of Bright Kitchen, a delivery-only restaurant concept based in the Netherlands. “We achieve this with a lean operational model and flexible overhead costs, aligning expenses with sales. On slow days, costs stay low. Inventory control is crucial for managing food costs. Uncontrolled stock indicates waste, overportioning, or other issues, straining dish margins.”

Menu Development and Flexibility

One of the beauties of a ghost kitchen restaurant model is that it allows you to explore untapped food niches, add new items to the menu, or even create new virtual brands. Those experiments, however, always need to happen with profitability in mind. Every time you tweak an existing menu item or create new dishes, you must track costs and revenues, keeping what works and discarding what doesn’t. In short, menu engineering and development should be bulletproof. Ghost kitchens give you the gift of flexibility, but it’s up to you to turn that into agility.

Technology and Innovation

Using data and the right technology in two key areas is the way to achieve agility in the dark kitchen business, not only with menus but also with the rest of operations. 

The ordering platform. Delivery apps provide many data: what items users buy, what they look at before buying, and ratings. Based on that, you can identify the most/least popular dishes and the ingredients they have in common, using those as a base for new dishes. An interesting emerging trend in the cloud kitchen space is in-house online ordering systems that allow operators to control the customer experience and actually own customer data, offering a more stable foundation to grow the business.

If IT isn’t integrated, you get disconnected data. A point solution might excel at one task, like calculating recipe costs, but that’s it. Spreadsheets can do that, too. You need a system that connects the dots, syncing recipes and inventory with procurement.

Carl Jacobs
CEO & Co-Founder of Apicbase

The back of house: inventory control and POS system. Having these two systems perfectly integrated, with actionable data analytics and clear dashboards, is crucial for:

  • identifying discrepancies between the amount of ingredients that you should be using (based on recipes multiplied by sales) that you are actually using;
  • identifying menu items with the highest and lowest profit margins;
  • aggregating sales and customer data to identify regulars, high spenders and their preferences.

Circus Kitchens uses Apicbase in its six dark kitchens in Hamburg to track inventory, purchasing, food costs, and menu performance.

“We save 3-4% on food cost per week with Apicbase, 18% overall”, says Circus CEO Fabio Haebel.

The key to Circus’ digital strategy is that they looked holistically at their tech stack and ensured that every piece of technology could communicate and share data with others. This is a challenge for the IT lead but necessary to improve decision-making. Fred LeFranc says that cloud-based systems are essential, and it doesn’t stop with the POS.

You need to view the tech system as a whole. If you make buying decisions without considering system integration, you’ll face issues later. Cloud-based systems are key. POS, inventory, accounting, and aggregators—all technologies must work in sync.

Fred LeFranc
CEO & Co-Founder of Results Thru Strateg
y

Marketing and Brand Development

A virtual brand is still a brand. Brands need to connect with customers. 

For brick-and-mortar restaurants, an important part of this connection comes from the dine-in experience, the atmosphere, and the table service. As a virtual restaurant, you don’t have that. You can decide to pay more to appear at the top of third-party app searches, but a much more profitable strategy in the long term is to work hard on your marketing to make sure diners look for you next time they’re hungry and open their food delivery app. 

Even though the principles of marketing a ghost kitchen are similar to those of a traditional restaurant, implementing these strategies effectively will likely require more time and resources.

Here are a few pointers to get you started.

  • Take great food Instagram pics. Virtual brand or not, that’s still important.
  • Respond to as many reviews as possible, the good, the not so good and the poor.
  • Despite what your type of restaurant business would suggest, don’t be a ghost and don’t remain in the dark. Take your brand out in the open and be transparent about who you are and what you stand for. 
  • In line with the above, don’t dismiss the physical world as an opportunity to promote your virtual brand. Engage with your local community, organise pop-up events or get a stall at a local farmers’ market. Especially if you’re just getting started, these can be excellent ways to make your brand known and test the market before signing a lease with a ghost kitchen.
  • Leverage data to engage with customers. With the right technology, you can build a CRM that connects each order with a name and an email and use that data to create personalised marketing campaigns.

The Future Landscape of Off-premise Dining

As we said in the introduction to this guide, ghost kitchens have evolved since their appearance in the early 2010s. The evolution of off-premise dining will to continue in the years to come. 

Here are the major trends we are seeing right now.

Hybridisation 

More dark kitchens are being integrated with a food hall or with a consumer-facing front of house, with self-ordering kiosks for in-person pick-up orders or even a small dine-in space. Call it a brick-and-mortarization of ghost kitchens.

Ghost kitchens are increasingly making direct contact with their customers.

In other words, ghost kitchens are increasingly stepping into the limelight and shaking off the ghost, dark, or cloud prefix, narrowing the gap with traditional restaurants pursuing a take-away-first strategy. 

Rise of the hub-spoke model 

This model, where commissary kitchens act as central production units (CPUs) that prep food and send it off for finishing touches to smaller pop-up locations, is becoming increasingly crucial for multi-site restaurants and any foodservice operation that wants to expand its reach, optimising scale-up costs.

Investments in first-party delivery operations 

Many ghost kitchen brands today invest in their own branded apps and online ordering processes, aiming to convince consumers to order through those channels. This approach has multiple benefits: it saves on the high fees of third-party apps, allows them to own customer data, has direct control of the whole customer relationship, and builds a loyal customer base that they can target with promotions and marketing through their own platforms.

Third-party apps as a customer acquisition channel

Third-party apps will still be an essential sales channel for delivery-only restaurants. However, as in-house delivery operations grow, operators will increasingly use delivery apps as customer acquisition platforms to move those customers to their direct channels.

Kottipizza owns the complete value chain.

One company, multiple concepts

Another common scenario we see more often is one company owning multiple virtual restaurant concepts and running them from the same ghost kitchen. Diners like this because when they order food with family or a group of friends, they can have more choices while reducing the delivery cost. Brand owners love it because it allows them to streamline operations and consolidate diverse orders.

Artificial Intelligence

These are still very early days for AI in restaurants, but its potential is already clear. AI can change how restaurants operate, not only with customers but also on the back-of-house side, helping operators manage the tools that manage operations. For example, it can improve forecasts and thus optimise inventory and labour costs.

Dynamic pricing

Delivery platforms like UberEats and Takeaway, as well as dark kitchen companies and delivery-first restaurants, are exploring dynamic pricing. Integrating this technology into their apps and online menus makes sense. Charging more during peak times helps spread demand and increase turnover. Dynamic pricing can boost a ghost kitchen’s profitability and efficiency but requires careful planning, continuous monitoring, and a strategic approach. By leveraging technology, understanding customer behaviour, and maintaining transparency, you can use dynamic pricing to your advantage.

Final Thoughts on the Evolution of Ghost Kitchens

As we conclude our exploration of ghost kitchens, it’s clear they are here to stay. Despite occasional predictions of their decline, market data and consumer behaviours tell a different story. Ghost kitchens have established themselves as a crucial part of the modern food service landscape, adapting to meet the needs of an increasingly digital and convenience-oriented society.

Ghost kitchens offer unique advantages like lower operational costs, menu flexibility, and access to valuable data. However, they also face challenges, such as navigating high third-party delivery fees, maintaining cost controls, and building strong digital brands.

In a way, the search for cost optimisation and profitability pushes dark kitchens out of the dark. Operators are increasingly engaging with local communities, experimenting with hybrid models, and making bold moves, such as developing first-party delivery tech and using dynamic pricing. This effectively transforms them into tech companies as well.

Looking ahead, several key trends will shape the future of ghost kitchens. Hybrid models that blend delivery-first kitchens with physical dining spaces, the expansion of the hub-and-spoke model, and investments in first-party delivery operations will be crucial. Additionally, using third-party apps for customer acquisition, consolidating multiple virtual brands, and integrating AI and dynamic pricing will enhance efficiency and customer engagement.

Ghost Kitchen Apicbase

Keep Inventory and Food Costs Under Control in Your Dark Kitchen Operation

Apicbase offers end-to-end F&B management software. You can manage ingredients, recipes, purchasing and inventory for all units in one place.

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