The Rise of Ghost Kitchens

It’s estimated that more than 44,000,000 smartphone owners in the US will use food delivery apps this year, an industry that is valued at $16.6 billion, with projections to grow to $365 billion by 2030. With the number of users having grown from in 31.4M in 2018 to 38M in 2019 restaurants have shifted their business models to adapt to the rapid growth of customer demand via third party delivery apps. In response to rising demand and coinciding with the growth of food delivery apps, 2019 saw the evolution of the ghost kitchen concept (also referred to as a virtual kitchen, dark kitchen, or cloud kitchen), a trend that will certainly carry over and proliferate in 2020.

A ghost kitchen serves as commercial kitchen space for one or multiple concepts under one roof, where food is cooked and prepared to then be picked up and delivered by a third-party delivery service such as Postmates, DoorDash, GrubHub, or Uber Eats. With a focus on delivery, most ghost kitchens do not have space for walk-in customers or space for dining, and from a real estate perspective, are often industrial in nature. Some of the major players in the ghost kitchen space are former Uber CEO’s CloudKitchen and Pasadena based Kitchen United.

In October 2019, DoorDash vertically integrated and opened their own ghost kitchen – DoorDash Kitchens – in Redwood City. DoorDash Kitchens is a 6,300 square foot shared space that is currently partnered with Chick-Fil-A, The Halal Guys, Humphry Slocombe, Rooster & Rice, and Nation’s Giant Hamburger. DoorDash worked with each brand to customize and build-out their stations to fit their individual needs. An order is placed via the DoorDash app, the food is prepared, a driver picks up the order from DoorDash Kitchens, and the food is back out for delivery.

Ghost kitchens are proving to offer many operational benefits to restaurant operators. Ghost kitchens relieve pressure on traditional customer-facing restaurants by providing operators with a satellite kitchen to focus on meeting the growing demand for delivery while allowing greater speed and service for dine-in or carry-out customers. Also, by diverting delivery drivers to ghost kitchen locations, parking is also freed up at dine-in locations, creating greater convenience for customers.

From a real estate perspective, the primary cost-saving benefit is that ghost kitchens allow restaurant operators to meet demand via a smaller footprint while taking away expensive build-out costs. In the case of DoorDash Kitchens, DoorDash went through the arduous process of getting operating permits from the city and took on the cost of building out suites, allowing the restaurant operators quicker and cheaper entrances into a new market. Additionally, by allowing introductions to new markets with less initial investment and thus risk, restaurants are able to test new markets through delivery before signing long term leases.

Looking ahead, as the delivery industry continues its rapid growth, so will ghost kitchens. Kitchen United, which recently received $10M from Google Ventures, aims to build 400 ghost kitchens with over 5,000 kitchens in the next few years. Additionally, following suit of DoorDash, delivery service companies will continue to vertically integrate and venture into the ghost kitchen space. Finally, the rise of the ghost restaurant, or virtual restaurant is poised to grow as well – restaurants serving customers exclusively via online orders.