February 1, 2021
Main Street Monday – Restaurant Entrepreneurs Adopt Virtual Business Model
The COVID-19 pandemic has left restaurants struggling to catch up with delivery demand, but experts now see a potential for permanent disruption to the traditional dine-in business model as ghost kitchens gain traction.
A ghost kitchen is a delivery-only food concept with no storefront or seating area. The budding segment was already on the rise prior to the pandemic due to steady gains in the food delivery space through apps such as Grubhub, Doordash, and Uber Eats. At the end of 2019, ghost kitchens were projected to be a $200 billion global industry by 2025. However, COVID-19 related restrictions on restaurant operations caused the segment to see over five years worth of unexpected growth in Q4 of FY 2020, boosting its profitability significantly.
U.S. small business restaurant and hotel owners have especially profited from the ghost kitchen business model. For restaurant owners, operating a business without customers on-site reduces overhead costs and allows the business to test products without fully committing to a food truck or brick and mortar operation. Hospitality owners are also capitalizing on the trend by forming mutually beneficial relationships with local food businesses in search spaces to operate their ghost kitchens. Apps like Use Kitch and programs such as the Hyatt Loves Local Initiative connect empty hotel kitchens with small business restaurant entrepreneurs.
Still, small business ghost kitchen owners must carefully consider how they will challenge a market that is used to a dine-in and delivery model. Additionally, joining a food delivery app can have high costs for independent restaurants who must pay between 15% and 30% commission on each individual order. For small food businesses with slim margins, these food delivery apps can bleed the business dry.
Although it may be too early to tell whether the popularity of ghost kitchens will fade after the pandemic, the adaptive business model demonstrates the perseverance of small business entrepreneurs.