Delivering Profits: How to Operate a Ghost Kitchen in 2023

In the past few years, we’ve seen the concept of ghost kitchens take off — and some have pretty big names attached, such as MrBeast Burger. This new trend in the food industry can be attributed to the significant shift in dining habits and consumer preferences driven by the pandemic and technological advances. In fact, the food delivery service industry has grown over 52% since the pandemic's start and is expected to increase by 10.3% year-over-year between 2023 and 2030. With the recent demand for food delivery, ghost kitchens have gained tremendous popularity and revolutionized how we order and prepare food.

In this guide, we’ll cover everything you need to know about ghost kitchens — from the basics to how to operate one. Let’s dive in!

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What is a ghost kitchen?

A ghost kitchen, also known as a virtual kitchen, cloud kitchen, or dark kitchen, is a food establishment designed exclusively for delivery operations. Unlike traditional restaurants, ghost kitchens focus solely on preparing and packaging meals for delivery, without any dine-in space or customer-facing areas. They leverage online delivery platforms to receive and manage orders, which allows for a streamlined operation. Some ghost kitchens are now allowing pick-up orders, but generally only through food delivery apps that offer a pick-up option.

There are multiple operating models for ghost kitchens. Some popular examples include:
 

• A warehouse with multiple kitchen facilities
• A shipping container or trailer with a kitchen inside
• Preparing meals in an existing restaurant 

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Since ghost kitchens only have to focus on preparing food and marketing, it minimizes overhead costs and maximizes efficiency in the delivery process. 

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The History of Ghost Kitchens

Although it’s difficult to pinpoint the exact origin of ghost kitchens, they first emerged in 2013 driven by the rise of delivery platforms, such as UberEats and GrubHub. Ghost kitchens began gaining more traction as the demand for food delivery services skyrocketed, particularly in urban areas. Despite being around since 2013, the pandemic accelerated the adoption of the virtual kitchen business model due to the heavy reliance on delivery services. In 2020, Uber Eats’ revenue increased by 100% year over year and overall delivery orders increased by 70%. As restaurants looked for ways to keep their businesses afloat during lockdowns, many turned to ghost kitchen models to continue reaching customers in a safe and efficient manner.

Who do ghost kitchens target?

Operating a ghost kitchen allows a business to reach a wider audience by expanding the delivery range. Although the target market may vary depending on the area and cuisine offered, ghost kitchens typically target customers who are looking for quick and convenient food options. In general, your ghost kitchen business should target: 

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• Busy Professionals: This group of people have hectic schedules and value the convenience of having high-quality meals delivered directly to their doorstep. Many of them don’t have time to grocery shop or cook, so they turn to quick, hassle-free dining options instead. They generally don’t mind spending a little extra for healthy, quality ingredients and convenience.
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• City Dwellers: Densely populated areas tend to have space constraints and higher living costs, which makes traditional dining experiences less practical at times. For those living in crowded cities, delivery options provide convenient access to a wide range of food options without the need to go to a physical restaurant. Due to the higher cost of living, this group appreciates a great delivery deal or meal combo. 
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• Tech-Savvy Consumers: People who embrace technology may prefer to order meals through digital channels, like online platforms and food delivery apps. Ensure you have good reviews, because they are likely to check them out before ordering.
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• Socially Anxious Consumers: After the pandemic lockdowns, many people were left feeling more socially anxious than before. This group tends to turn to dining options that have the least amount of social interaction, which makes delivery apps the perfect choice. Keep your menu simple and avoid too many add-on options. 
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• Remote Workforce: With the increasing popularity of remote work, online delivery platforms target individuals who work from home or in co-working spaces. 39% of full-time remote workers are aged 25 to 34 with busy lives both during and outside of work. Food delivery options provide a fast, convenient solution to get restaurant-quality meals without interrupting work schedules. This group is a combination of the four previous groups, meaning they are cost-conscious, tech-savvy, appreciate healthy and high-quality ingredients, and some may have social anxiety or decision fatigue. 

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It’s important to understand who you are targeting before you launch your ghost kitchen and design your menu. You may aim to target all five groups above, or you may choose to narrow in on one or two and create a highly targeted menu. Either way, it is recommended to conduct market research to best understand the consumers in your area, their preferences, and how to stand out among the competition. 

What is the revenue potential for a ghost kitchen?

Although the revenue potential for ghost kitchens can vary, overall, they can have higher profit margins and less risk than a traditional restaurant. 

Profit margins in a traditional restaurant are typically quite low at an average of 2-5%. However, operating a ghost kitchen has the advantage of having lower overhead costs by eliminating expenses associated with dine-in space, front-of-house staff, and decor. As a result, this allows business owners to unlock an additional 5% or more in profit. 

If you already own or operate an existing restaurant, you can also use a ghost kitchen to add an additional revenue stream for your business. Since you’re already paying for fixed costs, such as rent, labor, and equipment, there’s essentially no additional start-up costs required. On average, food delivery platforms charge anywhere between 15-40% of gross sales as a commission fee, but the rest is yours to keep. 

Despite the extra revenue potential of a ghost kitchen, it’s important to keep in mind that there are sometimes additional external factors that can impact a ghost kitchen’s revenue potential. These external factors include:

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• The size of the market being served
• Availability of delivery platforms in the area
• Market saturation
• Economic conditions
• Changes in consumer behavior

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These external factors may sound daunting, but you can be prepared by conducting proper market research and adapting to consumer preferences to maximize potential profits. On top of that, since ghost kitchens primarily function online, they can leverage data analytics to enhance revenue potential. Data can be used to optimize operations, increase order volume, and improve efficiency. 

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What is required to operate a ghost kitchen?

Even though ghost kitchens are quicker to set up than traditional restaurants, there are still several key components required to get started. Here are the essentials:

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1. Financing: The first step to opening a ghost kitchen is to secure proper financing to fund the venture. Without sufficient financing, nothing else will be possible. On average, it costs between $20,000 to $60,000 to open a single ghost kitchen location.
    
2. Licenses and Permits: When it comes to the restaurant industry, there are many licenses and permits required. What’s required will depend on your local state and city regulations, so it’s important to do some research to make sure you have everything you need prior to opening day. 
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3. Real Estate: After securing the appropriate financing, licenses, and permits, finding a suitable property in a central area is the next goal. The benefit of a ghost kitchen is that you don’t need to worry about curb appeal or dining room space; however, you should select a location with easy access to parking. 
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4. Commercial Kitchen: After securing a property, you need a commercial kitchen built into the space. The kitchen should comply with local health and safety regulations, have enough capacity to handle order volume, and be equipped with commercial-grade equipment. 
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5. Menu Creation and Optimization: While designing the menu, consider food items that travel well with packaging options that can preserve freshness and presentation. We cover more on this topic in the next section. 
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6. Ordering System: Establish a robust ordering system to ensure a pleasant customer experience with timely deliveries. This could include partnering with third-party delivery platforms where customers can easily browse the menu, place orders, and make payments. 
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7. Marketing and Branding: Develop a marketing strategy before launch day to promote your business and reach your target audience. Leverage social media, online advertising, and partnerships to attract new customers. Partnering with delivery apps can also help streamline marketing efforts by showing your restaurant to hungry customers as they browse. 
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8. Staffing and Training: If you’re opening a new ghost kitchen restaurant, hire chefs and kitchen staff prior to opening day. If you’re operating a ghost kitchen out of an existing restaurant, you should cross-train a dedicated team for ghost kitchen operations to maintain quality and service levels. 
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9. Logistics and Supply Chain: Establish relationships with reliable food suppliers to ensure a steady supply of quality ingredients. Efficient inventory management and logistics play a vital role in maintaining a seamless operation.
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10. Customer Satisfaction: After opening for business, prioritize customer feedback and continually strive to improve the delivery experience. Adapting your business based on customer feedback can help you build brand loyalty. 

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Starting a ghost kitchen requires careful planning, adapting to changing consumer demands, and leveraging technology and operational efficiencies to maximize profitability. By considering these essential elements, a restaurant can lay a solid foundation for a successful ghost kitchen venture.

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What menu items work best for virtual kitchens?

First and foremost, ghost kitchens need to prioritize food items that are delivery-friendly and can hold up well during transit. Offering dishes that are specifically designed for delivery can help preserve its quality by the time it reaches the consumer. While curating your delivery-only menu, it’s recommended to opt for menu items that can maintain their flavor, texture, and presentation even after travel. Dishes that are easily packaged, reheat well, or are designed for quick assembly at the customer's location tend to work better in a ghost kitchen model.

Along with being delivery-friendly, if your ghost kitchen has a large and diverse menu, consider making multiple niche menus under different restaurant names or brands instead. Large menus can be overwhelming for potential customers to navigate online and sticking to a smaller number of staple dishes can help reduce decision fatigue. Adults have to make on average 35,000 decisions per day. Make ordering from your ghost kitchen an easy one for people.

Lastly, the menu items should cater to the local market preferences. Here are some additional considerations to keep in mind while creating your ghost kitchen’s menu:

• Popular Cuisines: Look into cuisines that have a broad appeal and are in high demand in your target market.
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• Dietary Preferences: With the recent uptick of people with dietary preferences or restrictions, adapting to these dietary needs can help expand your customer base. Offering options such as vegan, vegetarian, gluten-free, or organic can cater to this growing market. 
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• Customizable Options: Offering build-your-own options or menu items with various choices and toppings can appeal to customers looking for a personalized dining experience.
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• International Flavors: Exploring cuisines that showcase regional or international flavors can attract adventurous eaters and those who are looking to try new tastes and cultures. 

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To get a better idea of local market preferences, you can conduct thorough market research and analysis prior to creating a menu. Actioning customer feedback can also be a helpful tool to help you adapt to new food trends, allowing you to continue maximizing customer satisfaction and revenue potential. 

What is an example of a ghost kitchen?

Considering that there are over 1,500 ghost kitchens operating in the United States as of April 2022, there are plenty of them around! However, one ghost kitchen that stands out amongst the rest is MrBeast Burger. 

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MrBeast Burger was launched by YouTuber Jimmy Donaldson, famously known as MrBeast, in 2020 during the height of the pandemic. Despite the restaurant now exclusively operating as a virtual brand, MrBeast Burger first started off as an in-person pop-up restaurant in North Carolina where MrBeast himself gave away food items free of charge. This resulted in thousands of visitors and a video that racked up millions of views. With the help of his substantial online following and influencer marketing, MrBeast was able to create significant buzz.

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Fast forward to today, MrBeast Burger has successfully expanded across the globe in a relatively short period of time. Since its launch in 2020, there are now over 1,000 MrBeast Burger locations worldwide with approximately 600 in 45 US states. Instead of opening each individual location on his own, MrBeast leverages existing restaurants, which reduces start-up costs and allows for his brand to expand quickly. MrBeast was one of the first to establish this business model, now coined as “ghost franchising”, and also accepts applications from existing restaurants to become a MrBeast burger franchise. By utilizing the ghost kitchen model, along with existing restaurants, the brand was able to quickly enter new markets, test demand, and scale operations. 

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What are the benefits of operating a ghost kitchen?

Now that we’ve covered the ins and outs of operating a ghost kitchen, let’s summarize the main advantages of having a virtual kitchen. 
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• Lower Overhead Costs: Not having a physical dine-in space significantly reduces the additional expenses that are associated with a bigger space, front-of-house staff, and more. This results in higher profit margins for virtual kitchen businesses in comparison to traditional restaurants. 
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• Increased Efficiency: Ghost kitchens can benefit greatly from streamlined operations since they only focus on food preparation, delivery, and marketing. This translates to faster order processing, shorter wait times, and overall a better customer experience.
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• Expanded Market Reach: Partnering with third-party delivery platforms allows ghost kitchens to cater to a larger customer base beyond their immediate geographical location. 
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• Flexibility and Scalability: Virtual kitchens offer more flexibility in terms of their location and size. They’re also more scalable due to the smaller amount of capital investment required to open new locations. 
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• Data Analytics: Order management systems and delivery platforms provide valuable insights into customer preferences, consumption patterns, and demographics. This information can be used to improve overall business operations.
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• Reduced Risk and Faster Reward: Since ghost kitchens need significantly less upfront investment, this reduces the risk of failure and brings your business to the breakeven point quicker than a traditional restaurant. 

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Tapping into the ghost kitchen model can give business owners the opportunity to capitalize on the benefits that make this concept stand out in comparison to a traditional restaurant. 

What are the drawbacks of operating a ghost kitchen?

While operating a ghost kitchen offers numerous benefits, there are also some drawbacks that should be considered. Here are a few potential challenges that you might face as an owner or operator of a ghost kitchen business:
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• Limited Customer Interaction: Ghost kitchens lack face-to-face customer interaction, which can result in reduced opportunities for building personal connections with customers and fostering a sense of community.
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• Brand Awareness and Visibility: Without a physical storefront, ghost kitchens may face challenges in building brand awareness and visibility compared to a traditional restaurant. 
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• Reliance on Third-Party Delivery Platforms: Despite these platforms providing access to a wider customer base, they also come with fees and commission structures that can impact profit margins. On top of that, being dependent on external delivery services may create challenges related to order accuracy, delivery times, and customer experience.
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• Increasing Competition: The recent rise of ghost kitchens has led to increased competition in the food delivery space. With more players entering the market, standing out and differentiating oneself is becoming more challenging. 

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It’s important to keep in mind that the risk of these drawbacks can be reduced with strategic planning and unique menu offerings. By implementing effective strategies, ghost kitchens can overcome these potential drawbacks. 

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Final Thoughts on Operating a Ghost Kitchen

Operating a ghost kitchen in 2023 presents an intriguing opportunity for restaurant owners and entrepreneurs. With the increasing demand for convenient dining options, the ghost kitchen model offers great benefits such as lower overhead costs, expanded market reach, and scalability. By leveraging technology and data insights, ghost kitchens can capitalize on the evolving food delivery landscape and meet the changing preferences of modern consumers. With careful planning and execution, a well-operated ghost kitchen can thrive and tap into the lucrative market of food delivery.

Revolutionize your ghost kitchen business by simplifying your payroll and people management. Say goodbye to paperwork, spreadsheets, and errors, and hello to smooth processes with Push. Learn how we can help you streamline operations and minimize maintenance. Embrace simplicity and focus on what matters most: serving your customers mouth-watering food!

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