Ghost Kitchens - Rise of the Industry
Euromonitor predicts that ghost kitchens could create a $1 trillion global industry by 2030. In 2020, the industry closed 199 deals, seeing a $55 billion capital investment from 507 investors.
Increase in the Number of Ghost Kitchens
- According to JD Supra, ghost kitchens are popping up in empty retail spaces, parking lots, and underdeveloped or undesirable locations.
- According to PitchBook, at the end of 2020, ghost kitchens had 59 leading companies.
- DoorDash opened its first ghost kitchen in Redwood City, California.
- Food on Demand reported that many small operators are trying out the concept of ghost kitchens in markets across the US, with many shared food production kitchens cracking the doors to hand off delivery orders.
- According to Euromonitor data, 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+).
- A Restaurants Canada survey found that 17% of Canadian restaurants were planning on launching a ghost kitchen within the next two years.
Increase in Venture Capital Funding
- Venture capital investment in ghost kitchens is said to be on the rise. Forbes opined that ghost kitchens are attracting big investments and becoming an industry unto themselves, built around the internet.
- Investments in the sector had risen since 2016, with deal values increasing by 2.4 times.
- In 2019, ghost kitchens saw a $1.9 billion investment across 16 deals.
- In 2020, the industry closed 199 deals, seeing a $55 billion capital investment from 507 investors.
- The likes of former Uber CEO Travis Kalanick and Alphabet venture capital division GV have invested heavily in the concept.
- An example is New York- and Dubai-based Kitopi, a self-acclaimed world-leading managed cloud kitchen, said it raised $60 million for expansion in the food delivery space.
- The funding comes from Knollwood, Lumia Capital, BECO, CE-Ventures, GIC, Rise Capital, Reshape, Global Ventures, MSA Capital, and Wilshire Lane Partners.
Large Brands are Joining the Trend
- Initially, Ghost kitchens were off-premises locations set up by small and midsize restaurants to reduce real estate and staffing costs and build brand awareness using a lower overhead model.
- This was due to the rising cost of food delivery services, as delivery and packaging fees take a big cut of restaurant profit.
- Post Covid-19 pandemic, larger restaurants and food chains are beginning to open up their own ghost kitchens to compete with the increasing demand for delivery, enter new markets, and test consumer demand.
- Bloomin' Brands is piloting kitchen-only formats for takeout and delivery orders. McDonald's opened a ghost restaurant in London in 2019. Chick-fil-A is experimenting with kitchen-only locations in Nashville and Louisville, Kentucky, that prepare individual and catering orders for delivery through DoorDash.
- Household names such as Starbucks are interested in the concept. According to Nation's Restaurant News, "the coffee giant has partnered with Alibaba in China to develop a ghost kitchen model."
- Starbucks believes ghost kitchens will complement existing restaurant operations rather than replace them.
- Wingstop has also mentioned New York City as a prime location for the ghost kitchen model. Management was clear that while Wingstop does want to experiment with this idea, it wants to be careful not to infringe on any franchisee's territory.
- Companies with real estate and restaurants also are getting into the ghost business.
- SBE Entertainment Group partnered with Simon Properties and hotel operator Accor to found C3, or “Creating Culinary Communities.” C3 plans to set up kitchens in vacant retail space, existing restaurants, and hotels.
- DoorDash, an American food delivery service, launched DoorDash Kitchens, renting space to restaurants and brands in a large kitchen after using data to determine delivery trends.
Growing Consumer Preference for Delivery
- According to The Motley Fool, one trend that could drive ghost kitchen adoption is a growing consumer preference for delivery.
- 52% of global consumers are comfortable ordering from a delivery-only restaurant with no physical storefront.
- Food delivery services like Grubhub, DoorDash, and Uber Eats have seen increased demand for their services in recent years.
- Pitchbook opined that the growing prominence of ghost kitchen providers relates to consumers’ interest in food-delivery options.
- As the popularity of ordering food online grows, ghost kitchen startups emerge as an attractive option for restaurants that get little foot traffic and/or seek to spend less on real estate and kitchen staff.
- The increase in consumer preference for food delivery has been due to the Covid-19 pandemic and the need for fewer contacts with food delivered. This bolstered the opportunity for ghost kitchens.
Ghost Kitchen Market Size
- The Covid-19 Global Pandemic has proved that the Ghost Kitchen industry has now become unstoppable.
- Experts have now started to predict an exponential rise in ghost kitchens' market size after the pandemic.
- Many consumers are already started using ghost kitchen facilities as a safety measure against contracting the virus.
- In the US, the market size for ghost kitchens is expected to grow from $35 billion in 2018 to $365 billion by 2030, at a CAGR of 20% for the growth period.
- This will be equivalent to a 934% total growth within the giving period.
- Globally, Euromonitor predicts that by 2030, ghost kitchens could create a $1 trillion global industry.
- The firm predicts cheaper, faster, and more reliable delivery could help this segment capture 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), and 15% of packaged snacks ($125 billion).
- According to Euromonitor's Global Food and Beverage Lead, Michael Schaefer, restaurant closures, in the wake of the novel coronavirus pandemic, will drive a change in how physical restaurant formats are being used, especially as shuttered businesses leave empty real estate behind.
- This shift will prime the industry for an acceleration in ghost kitchen development.