Ghost Kitchens Look Ahead, Plan For Post-Pandemic Life

It is no secret that the coronavirus pandemic kicked the demand for food delivery into overdrive. But across the country, some of the biggest names in virtual kitchens — delivery-focused kitchens that house multiple brands and don't always have a customer-facing element — are already making plans for what will happen once the dust settles.

For companies like Pasadena-based Kitchen United and the Sam Nazarian-led C3, which predated the surge in delivery, the pandemic offered a chance to speed up timelines for expansion. But as vaccinations rise and the economy begins to re-emerge, questions are swirling over how the current construct will evolve to survive beyond the delivery boom. 

Forming a connection between customers and the food brands they order from is something that has been an increasing focus for many of the big names in virtual kitchens. The idea of a big kitchen housing multiple brands and focusing purely on delivery production — how the concept of virtual kitchens emerged at first — is, like the rest of the food industry, adapting. 

“Delivery will eventually stabilize and level off, however it will never return to pre-pandemic lows,” Nazarian wrote in an email to Bisnow. “At the end of the day, consumers feel most connected to brands they can see, touch, and connect with in person, and these are the brands that will survive on and off the delivery apps when we reach 'the new normal.'”

Ghost kitchen funding in 2019 grew at 12.5 times the rate of the previous year to more than $520M, according to a report from Cushman & Wakefield, citing technology analytics firm CB Insights. Euromonitor predicted that in the next decade, ghost kitchens could become a $1 trillion market globally. 

Third-party companies like Kitchen United and C3 were at the forefront of the trend when it was emerging and are now thinking about what comes next. Last month, KU announced it would go from four locations to 20 by the end of 2021. 

Kitchen United’s first location opened in 2018 just outside of Los Angeles in Pasadena. The concept first launched as a traditional ghost kitchen, geared exclusively toward delivery customers who ordered online. It didn’t take long for KU to realize that the neighborhood lent itself to foot traffic customers who wanted to order on-site too. Now, KU’s four locations (including Scottsdale, Arizona; Austin, Texas; and Chicago) all include a way for customers to order on-site. 

Delivery gets a lot of well-deserved attention, KU Chief Business Officer Atul Sood said, but takeout orders make up a “significant” portion of KU’s revenue.

“That’s an underappreciated part of the off-premise dining business,” Sood said.

KU had a banner year in 2020. Gross merchandise volume was up 678% year-over-year, KU CEO Michael Montagano said at the ICR conference in late January. That increase in volume led to a 377% same-store sales increase for KU’s restaurant partners, Montagano said. Revenue was up, too, by almost 200%.

The plan for KU moving forward was just to take “a more creative approach” to its virtual kitchen model, and while that definitely includes being streamlined for delivery and takeout, it might also mean allowing for dine-in in some places. 

KU is opening a new location in Chicago, taking up space in a former food hall. Once pandemic precautions allow, that location will eventually offer seating for diners. Taking over the space was less about preparing for a time when delivery is no longer king and more about being open to spaces that might work for their concept, “because the demand is so high both from consumers and restaurants,” Sood said.

In Santa Clara, KU has dipped a toe into malls, teaming up with Westfield Valley Fair to order from eateries that are already available on-site. KU’s involvement will mean that orders will go to pick-up lockers via a conveyor belt, allowing for the speedy delivery of food to those waiting to pick it up. 

Even before COVID-19 prevention measures led to reductions in mall occupancy, another virtual kitchen company, C3, had its eyes on malls and hotels, sectors that have struggled during the pandemic.

"Unlocking the value of underutilized real estate and creating opportunity in a hurting food service industry is key to the C3 model," Nazarian said in early January when C3 announced the acquisition of 22 new kitchen locations. 

The acceleration of consumer interest in getting food delivered “prompted our hotels and other operators to be more open to what we’ve been wanting to do — handle their food and beverage programs and partner with smaller restaurants to help facilitate their expansion,” Nazarian wrote.

In December, C3, which launched as a partnership between shopping mall operator Simon Property Group and hotel company Accor, announced that it would have 200 kitchen locations by the end of 2020, but its growth didn't stop there.

C3 just announced that it will partner with college town-focused brand Graduate Hotels to launch “a delivery-focused, hybrid digital kitchen concept” called the Graduate Food Hall. C3 will install as many as six of its popular restaurant brands in the kitchens at Graduate Hotels. Delivery and takeout for hotel guests and nonhotel guests will be available, and dine-in will be offered in some of the hotels’ common areas, Nazarian said. The rollout will start with six locations, which are expected to be up and running by the middle of this year, and ultimately extend to most U.S. locations.

“There has been a move toward some customer-facing units that I think is very important because to take space just for the purpose of production with something as culturally important as food is potentially short-sighted,” Cushman & Wakefield’s Phil Colicchio said.

There are more opportunities to build customer loyalty if a connection between brand and customer exists. That loyalty will be important if these types of kitchens are here to stay, and in terms of space, there is room for ghost kitchens to grow. 

“There are so many underutilized restaurant kitchens in America right now that you could say there is a glut of space in which to perform virtual kitchens,” Colicchio said.