Ghost restaurant, also known as cloud kitchen, delivery-only restaurants, or dark kitchen, are a growing trend in the restaurant industry. The term refers to restaurants being operated on a delivery-only basis with no physical storefront. This means they operate from a commercial, centralized kitchen and partner with third-party delivery service apps to deliver their food to the customers.
Food delivery has accelerated since the Covid-19 pandemic but this is not a new concept. There has been an increasing demand for online ordering and even restaurant experts predict that the future will be delivery-oriented. But like any other business, it carries its own share of pitfalls. Are you looking to invest in a ghost restaurant? Let’s take a look at both sides of the coin to help you make an informed choice.
Easy to get started
Ghost restaurants are super easy to set up. All you need is a small facility within your budget and it doesn’t have to be in a highly trafficked location. You’ll also need to hire and train a smaller number of employees compared to the physical restaurants. And, you’ll be able to cut down on the cost of equipment and deal with much less legal work. Creating a traditional brick-and-motor restaurant can take months or even years but with a ghost restaurant, you can start selling almost immediately.
Opening a brick-and-motor restaurant can be quite expensive, costing from $100K or $1M depending on the concept. A lot of people don’t have that kind of money. Opening a ghost restaurant instead will slash costs immensely and save you money in many ways. For starters, it requires less space and this translates to lower overhead costs associated with renting or buying a commercial space. Since these restaurants don’t have to be located in highly-trafficked areas, you can rent a kitchen slightly out of town for cheaper rent.
Ghost restaurants don’t offer in-person dining and this means no need for furnishings, cutlery, décor, parking lot, customer restrooms, etc. You’ll also save on equipment, utilities, computer systems, the list goes on.
One of the biggest challenges for physical restaurants is high labour costs and compliance with ever-stricter labour laws. Ghost restaurants can take advantage of on-demand labour and best of all, don’t need front-of-house staff. This cuts your labour costs significantly.
Without all these costs, your initial investment and on-going costs plunge, allowing you to increase profit.
Ghost restaurants allow you to be more flexible and adaptive to the ever-changing consumer preferences and market conditions. You have access to consumer data so you can know what’s working and what’s not. Everything from branding to the menu to the operating times can easily and quickly be changed to suit consumer demand and increase margins, thereby optimising the delivery-only model overtime. You can also optimise processes, orderings, staff scheduling, and more, depending on customer behaviour. This allows you to experiment during the initial stages of your business until you find what your customers like best.
Access to a wider audience
A brick-and-motor restaurant is limited by location and finite occupancy, which has further been reduced due to social distancing and movement restrictions. With a ghost restaurant, you have access to a wider customer base in terms of volume and geography.
Reliance on third-party delivery apps
Running a ghost restaurant usually means partnering with third-party services to provide delivery services and even host your restaurant on their platforms. While this can increase your customer reach, many take large commission fees that can eat into your margins. Also, your reputation is at risk by the quality of their services and you have no control over the food’s quality and safety once it leaves your kitchen.
Since ghost restaurants lack a physical presence, they lose out on walk-in and drive-by traffic. Also, when people are dining at a physical restaurant, they are more likely to purchase add-ons like desserts, drinks, or extra food, which in turn, increases sales. Impulse buys are reduced as customers are less likely to make such extra purchases when ordering online.
Challenges of building and managing reputation
Ghost restaurants don’t have direct contact with their customers, which can make it challenging to build customer loyalty and lasting relationships. One bad experience, even with a delivery app, can cost you a customer. Since these restaurants rely heavily on online reviews, negative reviews can significantly bring down your average rating and reduce your online visibility.
No business comes with guaranteed success, what’s important is to know the challenges and find creative ways to tackle them. That being said, many consumers today prefer takeout over dining out; plus, the recent lockdown and restricted movements due to Covid-19 has made it the only choice. Are you ready to capitalise on the increasing demand for delivery services? Well, click here to find your ghost kitchen for rent and get started right away.