By Jimmy Frischling, Managing Partner at Branded Strategic Hospitality
Unless you live under a rock, some of the buzz words that have dominated the restaurant industry for the past couple of years has been “ghost kitchens”, “virtual restaurants” or even the “WeWork for Restaurant Kitchens” (this one probably stung the founders of ghost kitchen companies the hardest). Like the words finance, medical or health, the nomenclature “ghost kitchens” puts you in the right sport, food services, but just like these other industries, you need to dig deeper in order to understand the specific service being offered and the value of such service (this is of course critically important from an owner & operator and investor perspective).
For avoidance of any doubt, the ghost kitchen space is going to have a truly meaningful presence in the hospitality industry and is here to stay. If you’re not familiar with this space, it’s critically important that you spike your learning curve because Branded expects virtual kitchens to approach 50% of the entire industry. Since providing people with numbers, especially large ones, tends to garner greater attention, allow me to provide the following statistics from our friends at Euromonitor:
The U.S. currently has 1,500 ghost kitchens, putting it ahead of the U.K. market (750) but behind China (7,500+) and India (3,500+).
The ghost kitchen market size is projected to go up approximately 10-fold by 2030.
Ghost kitchens could be a $1T global market by 2030.
To understand the ghost kitchen market, let’s first put some definitions around it and what Branded refers to as the “Kitchen Type”. You can essentially delineate the ghost kitchen market into two distinct categories: (i) the Virtual Kitchen; and (ii) the Shared Kitchen.
What both Kitchen Types afford restaurant owners are a combination of reduced rent and overhead costs, maximized workflows, the ability to meet the current and increasing demand for off premise food services and an increased speed to market. However, there are more differences than similarities to these two distinct ghost kitchen strategies. The Shared Kitchen strategy utilizes large pieces of real estate where the space is divided into small commercial kitchens that are rented by restaurants interested in bringing their brands into new neighborhoods without the commitment and expense associated with the opening of a new restaurant. There’s a great deal of value in these Shared Kitchens, but it’s important to note that this strategy requires a large capital outlay by the owner of the ghost kitchen provider and is predicated on the position that the challenge ghost kitchens is solving for when it comes to meeting the increased demand for off-premise food services is a lack of kitchen capacity. Branded does not believe there is a lack of kitchen capacity in the country.
The Virtual Kitchen strategy is particularly different in that it utilizes the excess kitchen and operating capacity of existing restaurants. As a longstanding owners & operators of restaurants in NYC, Branded is of the mindset that every restaurant has capacity available for utilization by a virtual restaurant concept at least during some hours of the day. This creates a unique opportunity for existing brick and mortar stores to expand their presence and diversify their offerings in any given neighborhood where the store resides. Adding a virtually concept to an existing venue also more fully utilizes the staff and existing infrastructure. It creates additional revenues, which Branded believes is critically important especially as the hospitality industries continues to be transformed and disrupted by technology and innovation.
Branded will be writing much more on the topic of ghost kitchens and will also be exploring opportunities to deploy capital in this specific vertical. To understand why we care so much about the momentum associated with the ghost kitchen space, Euromonitor predicts that the virtual kitchen space will continue to expand and will reach the following thresholds:
- 50% of drive-thru service ($75 billion)
- 50% of takeaway foodservice ($250 billion)
- 35% of ready meals ($40 billion)
- 30% of packaged cooking ingredients ($100 billion)
- 25% of dine-in foodservice ($450 billion)
- 15% of packaged snacks ($125 billion)
These are numbers and predictions that can’t be ignored. Global foodservice delivery sales have more than doubled from 2014 to 2019 and over 50% of global consumers are comfortable ordering from a delivery-only restaurant with no physical storefront.
When you look at these numbers and consider the growth that will take place over the next several years in the virtual kitchen market, you can see why Branded continues to be so excited about this segment of the hospitality market and is why we’re going virtual.
Branded Strategic Hospitality is an investment and advisory company exclusively focused on Hospitality Technology, Food & Beverage Innovation and Emerging Concepts. For more information, please go to our website: www.brandedstrategic.com.
