Ghost Kitches | Vestian

Ghost Kitchen and The Impact on Commercial Real Estate

After a hectic day at work, the last thing one would want to do is to cook. So you grab your laptop and order in. While you may think the food is being whipped up at a nearby eatery, it’s increasingly likely you’re ordering from a ‘ghost’ kitchen with no physical location.

Ghost kitchen, also referred to as ghost restaurant, a new concept in the F&B services market, is mushrooming across densely populated cities. These restaurants, unlike other restaurants, which require a physical presence, only provide delivery service. Think of the yesteryear’s takeaway places, now think again. These need not necessarily be a hole in the wall takeaways, but commercial ventures run out of larger spaces, only difference being it does not have the trappings of a traditional restaurant.

Owing to the recent shift in dining trends and evolving consumer preferences, these Ghost Kitchens are growing in popularity. This trend is creating a demand for delivery services that in turn is bringing such ghost kitchens to the forefront.

Impact on real estate

‘Delivery-only’ food services are changing the type of spaces that restaurateurs are searching for. With the absence of foot traffic, ‘delivery-only’ food service companies require neither storefront space nor a prime location to attract customers. Instead of zeroing in on a prime location, these restaurateurs can establish their virtual restaurant in any neighbourhood they deem fit, as long as their delivery service can easily reach its customers. Some are even leasing space in unconventional spaces such as under-utilized retail centers, basements, and industrial-type spaces. As such these experimental kitchens are driving demand for industrial land in major cities.

Some ghost kitchen concepts occupy as little as 200 square feet, which implies that ghost restaurants need not be an expensive investment/can be cost effective as well. Owing to their small operations, these kitchens can run on a smaller footprint compared to traditional operators. Running a brick-and-mortar restaurant – includes staff, insurance, amenities, furniture and other expenses driving overall costs, not to forget that the rental cost in city centres are skyrocketing. The idea is that ghost kitchens can offset the costs of a delivery service with lesser expenditure on real estate and operations.

Growth of ghost kitchens is directly impacting development decisions in several ways. For example, such delivery-only restaurants need to factor in food delivery services when leasing operational spaces. However, properties that have good street frontage to attract customers and a secure parking lot for vendors to park their trucks will always remain in demand.

Other similar concepts to ghost kitchen are delivery kitchen and cloud kitchen, the fundamental difference being the way they operate.

In delivery kitchens, orders are placed through calls or website and the orders are prepared and delivered under a single brand name. An example of the same world be FreshMenu or Box8. Cloud kitchens on the other hand, operate more than one brand which may or may not be owned by a single entity. For example, if the owner of a Lebanese food delivery kitchen starts preparing and delivering Cantonese cuisine under a different brand name, he/she turns the delivery kitchen into a cloud kitchen.

The difference between ghost kitchen, cloud, and delivery kitchen is the source/location where the food is prepared. A ghost kitchen works on a hub and spoke model. The food is prepared in a central kitchen and distributed to subsidiary or secondary kitchens. When the food is ordered, the customers are routed to the virtual kitchen nearest to him/her and the food is delivered from that location. In delivery and cloud kitchens, the food is prepared in the location from where the food is ordered.

While it’s unlikely that ghost kitchens will ever fully replace traditional eateries, it’s important to understand the latest trends in food services market and how it will further affect businesses. As delivery-only food services gain popularity, more and more entrepreneurs are likely to enter this market, in turn changing the leasing pattern in the F&B retail-scape.

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