Capitalizing on home-delivery food apps, such as DoorDash and Uber Eats, was one solution for restaurants and quick service venues. Leveraging their facilities and equipment already in place was another, as was the use of commercial space to accommodate multiple businesses often working out of one building.
Marketing also got more creative, expanding brands and developing specialty products available for delivery only, including Thigh Stop (a sub brand of Wing Stop) and Conviction Chicken (a virtual brand under the TGI Fridays umbrella). Though cloaked in mystery, these new brands are prepared on the premises of their owners but can have a smaller, more specialized menu, which means less overhead as they don’t need the vast supplies that a menu such as TGI Fridays requires.
Countless restauranteurs, such as Penny and Doug Mufuka, owners of Thai House in south Kansas City and Bamboo Penny’s in KBS’ Park Place Village in Kansas City’s South Johnson County submarket, endured the pandemic, in part, by bolstering to-go operations and expanding serving periods. With social-distancing queues guiding their pick-up customers through the parking lot ¾ and their servers expediting orders to cars rather than tables ¾ the Mufukas were able to keep their operation afloat during the lockdown.
This new emergence of ways to adapt and leverage available kitchen space has a lot of crossover and can vary by state and region. Urban areas are likely to have more multi-tenant use of a central space whereas suburbs are likely to have delivery-only virtual brands. But what are the various uses for these spaces and where is the industry going?
Also known as a virtual food hall, a ghost kitchen is usually a single facility where multiple restaurant operators or caterers prepare food for delivery or takeout only. Ghost kitchens are commercial kitchens for rent and usually have multiple preparation stations so several tenants can work there at once. These facilities, which could be found in retail test kitchens, unused restaurant space, cafeterias in office or apartment buildings, or multiuse buildings, generally provide everything a county health department requires.
These should have industrial-quality equipment and work areas that include:
- Cold food storage (walk-in and reach-in refrigerators and walk-in freezers)
- Dry storage
- Food-prep areas that include all standard cooking, prep and safety equipment and utensils
- A cooking line with stoves and ovens
- A steamtable (if cooking strictly to order, this may not be necessary unless orders are very large)
- Three-compartment sanitation sinks or a commercial dishwasher
- Assembly and packing areas
Prior to the pandemic, companies that would have the most use for this type of commercial kitchen would be startups, including cottage (home) kitchens wanting to expand or ship their products (not allowed under a cottage kitchen license in most states), caterers, food trucks, Meals on Wheels-type home delivery for the elderly or those with special needs, and any food product that does not own its own facility.
According to a CNBC report, “Euromonitor, a market research firm, recently estimated that ghost kitchens could be a $1 trillion business by 2030. That’s happening concurrently with near-impossible working conditions for many brick-and-mortar restaurants. Stores in cities that once did a brisk lunch business saw sales fall off a cliff, when the pandemic began. To mitigate losses, some restaurants are throwing everything they have at virtual expansion, creating entirely new brands that live online.”
Additional benefits to a multi-tenant or ghost kitchen system make it so brands can network and support each other. Does one tenant specialize in incredible salads or chocolate chip cookies? A catering co-tenant could put those on their menu. Also, in the case of CloudKitchens, the business is the kitchen, which also serves as a food-delivery incubator for its tenants.
Started by former Uber founder and CEO Travis Kalanick, CloudKitchens has received hundreds of millions of dollars in funding, and according to a recent Wall Street Journal report, it has expanded its restaurant real estate to the tune of more than $130 million in the last two years.
Miami-based Reef Kitchens prides itself on being the fastest-growing restaurant company in the world and expects tenfold growth in 2021. It has a variety of service options but its Neighborhood Kitchens are currently scaling in the largest cities in the world and claims to have reach to 70 percent of North America’s urban population.
Los Angeles pizza chain 800 Degrees plans to open 500 ghost kitchens over the next five years through a new partnership with Reef Kitchens. The ventures will be delivery only and located throughout the U.S. and Canada, possibly branching into other international markets. This is an aggressive expansion for a company that had only 15 restaurants at the end of 2020.
The future of Commercial Real Estate (CRE) and ghost kitchens
Where does the main opportunity lie for CRE and ghost kitchens? According to Martens, “Ghost kitchens are taking over the commercial scene as they’re proving to be a strong tenant for CRE’s restaurant arena. By combining the best of communication technology and responding to contemporary consumer demands for remote access to goods, ghost kitchens may be the new favorite restaurant tenant for commercial real estate.”
As stated above, there are multiple types of CRE that can house commercial kitchens. They can be repurposed from existing restaurants, cafeterias, test kitchens, mixed use buildings — such as office buildings — and malls.
Martens predicts the trend to be a savior for struggling malls in the short-term. “First of all, ghost kitchens are set to reinvigorate the mall scene by filling long-vacant units that wouldn’t really work for tenants that require lots of foot traffic to keep business booming. This is helping generate greater ROI for malls as they harness the fullness of their leasing yield capacity.”
As for industrial CRE, buildings with open square footage, space for configuring multiple workstations, good ventilation, access to regular product delivery, ample parking and areas for loading transport vehicles, could make this an entirely new niche in industrial development.
As large-scale ghost kitchen companies grow, it would stand to reason that owners want the flexibility of designing floorplans from the ground up. Gutting a facility previously created to house dine-in customers only — with a kitchen only so large as to accommodate that capacity — would be expensive. Previous restaurant space likely has multiple rooms and areas that are not conducive to kitchen conversion, but open industrial space would allow space for as much kitchen equipment as the developer wants to add. These can be created in modular configurations to have one large kitchen or five of varying or equal sizes.
Shrewd CRE developers should keep this new wave in mind when pitching building concepts.
Necessity is indeed the mother of invention. Those who are finding new and inventive ways to utilize facilities and equipment to accommodate the skyrocketing market demand for home delivery of every type of food imaginable are reaping great rewards.
So, no need to be scared of ghost kitchens. Entrepreneurship can be bolstered by that innovative spirit, allowing smaller and newer would-be food companies to get into the market without the tremendous overhead of their own dine-in restaurant space.
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