By Connor Dawson ’25 Associate
Just last week, Chipotle announced the opening of a brand new location in Santa Monica. However, this location will be somewhat unique compared to other Chipotle locations. It will have no tables, and the menu will be slimmed down. Orders will not be placed inside, but rather through a kiosk or one of the many popular food ordering apps. However, the biggest change is the name. This location may be run by Chipotle, but it is in fact a ghost kitchen, going by the name Farmesa.
Ghost Kitchens, a type of restaurant that only offers takeout or mobile ordering, are not a new idea. The 1990’s led to hordes of restaurants making websites that allowed customers to view their menu, and eventually users could order takeout without ever going inside. However, what truly set this industry in motion and made it so exciting for investors was the launch of services like Uber Eats and Grubhub. These apps allow customers to easily order from local restaurants, and an easy-to-use portal makes getting a restaurant listed a breeze. The biggest hurdle, getting your name out to consumers, can now be easily crossed.
The pandemic also forced a major shift in the restaurant business, with many being forced to close their tables to stop the spread of COVID-19 and some restaurant operators reporting that up to 67% of their sales came from online orders, allowing these restaurants to stay profitable in the face of mounting adversity. This major shift in consumer behavior also brought ghost kitchens to the main stage for investors and hopeful entrepreneurs. In 2021, this market was valued at $56.71 billion dollars, and by 2027, it is predicted to be worth $223.7 billion.
One of the unique facets of this growing market is that there is potential value for both restaurant owners and the businesses that handle the backend. A great example is CloudKitchens, one of the fastest growing companies in the Ghost Kitchen industry, having raised over $800 million by 2022. CloudKitchens owns the real estate and equipment necessary to run a successful kitchen, and also provides support staff, so potential owners only need to have a menu in mind. Restaurant owners have also been able to think outside the box and get a leg up over their competition from the traditional restaurant industry. Successful kitchens can offer multiple menus under different names, allowing one kitchen to serve multiple customer bases. The front end for a restaurant is also no longer a required expense. A traditional restaurant can easily require 2,100 square feet of space between the front and backend, compared to the measly 200 square feet an owner needs for a kitchen with a pickup area for delivery services. Delivery services have also boomed with this new development. Kitchen United and All Day Kitchens are both successful companies that simply offer a platform for users to order food off of, and almost everyone has heard about Uber Eats, and Grubhub, two companies that exploded due to the rise of takeout and delivery during the pandemic.
As previously mentioned, new companies are not the only ones taking advantage of the new market. Major chains are as well. Dave and Buster’s and Chuck E Cheese’s, both popular restaurants/arcades, both run their own ghost kitchens. As businesses that were hit hard by the pandemic, this was seen as a diversification strategy, and a way to make up for lost profits. Other brands, like IHop, use ghost kitchens to show off different parts of their menu to consumers who otherwise may be reluctant to eating at their restaurant. Chain restaurant brands have the advantage of a preexisting menu, as well as a staffed kitchen to make the food. New owners will not have that advantage, but can utilize small spaces, and can run a highly profitable business with just a few employees, compared to normal restaurants which require a large front of house staff.
Today is an excellent day for future restaurant owners to examine their plans and decide if a ghost kitchen is right for them. In a time of rising costs, ghost kitchens can allow owners to open a restaurant quickly, and cheaply, with some businesses allowing a restaurant owner to open up for a little over $30k, much cheaper than the hundreds of thousands of dollars required for a brick and mortar establishment. Owners that are worried about staffing issues will likely also be happy to be able to run a very successful business with very few staff members, because much of the work in a traditional kitchen is not needed in a ghost kitchen. Though some may find this baffling, and an affront to what a restaurant is truly about, one thing is certain. We are in a time of great change in the restaurant industry, and the next few years may change what we as consumers consider a restaurant.
Connor is a sophomore from Londonderry, New Hampshire pursuing a degree in Accounting. When not at UNH, he can be found operating the rides at Canobie Lake Park, where he has gained valuable experience in a guest service industry. Connor is excited to be joining the Fund so he can learn more about what makes a successful startup, and get an insight into the entrepreneurial process.