Ghost Kitchens Begin To Fail As ‘Pandemic Buzz’ Wears Off

Ghost kitchens, the commercial kitchens with no dine-in option that became pandemic-era darlings, are beginning to fail, raising questions about whether the industry’s projected boom was a collective CRE hallucination. 

Kitchen United, a startup that ran delivery-only restaurants and raised $175M in funding, announced last week it would sell or close all of its locations, Restaurant Dive reported. The company was backed by Kroger and ran its operations from inside the grocer’s stores, at malls and from inside chain restaurants, sharing cooking space.

Ghost kitchens were once predicted to make up more than 20% of the restaurant industry by 2025, CNN reports. An even more bullish 2021 projection from Euromonitor estimated ghost kitchens could be a $1T industry by 2030. 

“Coming out of the pandemic, a boatload of restaurants closed. There was a lot of vacant restaurant real estate, especially in cities. There was hope that this valuable real estate could be put to use,” restaurant consultant John Gordon told CNN. “Chains wanted to bring in new products in cost-effective fashion.”

The restaurant industry expanded its investment in ghost kitchens early in the pandemic, as restaurants closed and online ordering became a primary option for many customers. 

Wendy’s released plans in 2021 to open 700 ghost kitchens with startup Reef Technology, according to CNN. CloudKitchens, a ghost kitchen startup from Uber co-founder Travis Kalanick, bought over 40 properties in two dozen cities for $130M.

But Wendy’s scrapped its ghost kitchen plans earlier this year, and CloudKitchens laid off staff this fall. 

Ghost kitchens fulfill online orders from delivery-service apps like Grubhub and Uber Eats, and several dozen menus can come from the same kitchen. Customers are frequently unaware they are ordering from a restaurant without its own physical location.

The distinction is important for consumers, who prefer ordering from brick-and-mortar restaurants, the National Restaurant Association found in a survey this year. Seventy percent of diners said it is important for their food to come from a publicly accessible, physical location.

“It was a pandemic buzz,” Gordon told CNN.