What are ghost restaurants and how do they work?

What is a ghost restaurant?

Modern restaurateurs face an impossible situation regarding operating costs. Across the nation, 42% of independent restaurant owners have begun defaulting on their monthly rent.

Leasing property isn’t the only profit-killer affecting owners either, as many restaurants spend thousands annually renting equipment. Add in the cost of labor, and it’s becoming increasingly difficult to stay afloat in the food industry.

Thankfully, there’s a savvy way to mitigate rising rents and minimize your staffing and equipment needs: opening a ghost restaurant.

Ghost restaurants forego expensive brick-and-mortar locations to focus on online delivery, and they’re the quickly-encroaching future of the industry.

How do ghost restaurants work?

If you find yourself wondering, “What is a ghost restaurant?” or “Why have I never seen one?”, you’re not alone. As their name suggests, ghost restaurants operate like phantoms in the modern culinary scene. They have no storefronts, dining rooms, or maître d'hôtels. Instead, they use modern technology to connect hungry customers with their kitchens.

Ghost restaurants can be operated essentially anywhere, at any time, and by anyone. Since they have no dining space, owners don’t need to worry about things like being in a heavily-trafficked area or investing in decorations.

Instead, they rely on platforms such as Uber Eats and DoorDash to take customers’ orders and deliver them to their homes.

The pros and cons of ghost restaurants

If you’re considering opening a ghost restaurant, your ambitions are in line with current market trends. Despite restaurant profits rising as a whole across the nation, fewer customers are opting to dine in.

Ghost restaurants fill the ongoing demand for restaurant meals while acknowledging America’s reluctance to actually go to restaurants. In fact, they’re increasing in popularity, and even celebrities like Guy Fieri and Mariah Carey have opened delivery-only spots to capitalize on the trend.

Opening a ghost restaurant presents several benefits versus starting a traditional brick-and-mortar eatery, such as:

•Possibility of reduced rent thanks to smaller spaces in more affordable neighborhoods
•Lower salary costs from not having to hire wait staff, dishwashers, and other roles
•Lower operating costs since things like decor and silverware aren’t needed
•More manageable startup costs due to lack of expensive equipment, such as dishwashers or ice machines

While there are certainly more positives than negatives to starting a ghost restaurant, a couple of drawbacks still exist, including:

• The loss of business from walk-ins and people who prefer to dine out
• A potential reduction in satisfaction for owners who enjoy the customer service end of the industry

If you can live with these minor downsides, ghost restaurants present a quick and simple way to break into the industry without a lot of capital.

How to start a ghost restaurant

If you’re ready to fire up the flatiron and start dishing out delivery delicacies, it’s important to consider the logistics of opening a ghost restaurant. While they’re less complex to get going than traditional spots, there are still a few key considerations to keep in mind.

Legality – Ghost restaurants are a fairly new concept. Hence, not every municipality has specific rules regarding their operation. Some local governments may classify them in the same manner as traditional restaurants, while other cities have started legislating specific restrictions for delivery-only spots. Check the laws in your area to learn what permits you may need to open up shop.

Distribution – Many ghost restaurants rely on platforms such as Uber Eats and DoorDash to collect customers’ orders and send out deliveries. These apps take a hefty percentage of the profits from each transaction, however. Fees vary, but you can expect anywhere from 15-30% to go to the middleman on app-based orders.

In response, some ghost restaurants take orders:

• The old-school way (over the phone)
• Online through their own websites and other, commission-free platforms

In such cases, however, owners must arrange their own delivery solutions.

Staffing – While waiters and other front-of-house workers won’t be necessary, you’ll still need staff to take orders and cook up food. At first, it might be manageable to run the kitchen alone. But, as your business grows in popularity, you’ll probably want to consider hiring a sous chef or two to help meet demand.

Likewise, if you want to forego the high fees of popular delivery apps, you’ll need to pay drivers to actually get your products out to awaiting customers.

Operational space – Whether you’re frying fajitas or simmering shoyu ramen, using high-quality equipment in a functioning operational space will allow you to turn out orders faster and rake in more profit.

The initial cost of buying appliances can be massive, however, and present perhaps the largest obstacle for aspirational chefs hoping to open a ghost restaurant. Luckily, there’s a way to forego these high startup fees, as well—ghost kitchens.

Run your ghost restaurant in a ghost kitchen by CloudKitchens

If you’re ready to fire up the flatiron and start dishing out delivery delicacies, it’s important to consider the logistics of opening a ghost restaurant. While they’re less complex to get going than traditional spots, there are still a few key considerations to keep in mind.

Ready to see a ghost kitchen in action? Tour a CloudKitchens facility today!

Sources

Alignable. Rent Crisis Breaks '22 Record: 41% in U.S. Couldn’t Pay in Nov, Up 4%. https://www.alignable.com/

Eater. How Much Does It Really Cost to Run a Restaurant?. https://www.eater.com/

Cable News Network. Restaurant sales are going up. But dining out is on the decline. https://edition.cnn.com/

Forbes. Celebrity Ghost Kitchens May Be This Year’s Hottest Dining Trend. https://www.forbes.com/

The Atlanta Business Journal. Proposed Atlanta ordinance would 'try to correct' issues with ghost kitchens. https://www.bizjournals.com/  

Uber Eats. Pricing Tailored to Your Business.  https://merchants.ubereats.com/