The coronavirus has certainly changed our lives, and with that comes a whole new slew of everyday words and terms that represent new concepts to think about. Some examples: "flatten the curve," "herd immunity," "long-hauler," "PPE," and "pod."
Another term makes the list: ghost kitchens. And no, this term has nothing to do with The Amityville Horror house kitchen. Ghost kitchens are used to prepare restaurant food, but they have no attached dining area: They're commercial kitchens that serve the takeout and delivery market only.
A growth industry
Although ghost kitchens have been around for a while, they weren't considered a thing, so to speak, not like what they've become post-pandemic. Ghost kitchens, the current "it girls" of the restaurant industry, are now part of a growth industry of delivery-only restaurants that could be worth $1 trillion within the next 10 years, predicts Euromonitor, a market research company.
More about ghost kitchens
Ghost kitchens could operate from trailers set up in unused parking lots, from warehouses, or they could operate in an underused hotel kitchen. What makes them ghost kitchens is there's no restaurant attached to them. They produce restaurant food, but there's no dining area or going-out-to-eat restaurant experience. In fact, people typically don't go to a ghost kitchen at all, as this is generally a delivery-only restaurant where people order food through a delivery app, like GrubHub (NYSE: GRUB) and DoorDash (NYSE: DASH).
A perfect partnership
The growth of ghost kitchens is aided by the increased vacancies hotels have been experiencing during the pandemic. On one hand, restaurants under lockdown orders have little to no use for their dining rooms (which cost money to keep open). On the other, the hotel industry is in deep trouble. The American Hotel & Lodging Association (AHLA) reports 71% of hotels won't make it without federal assistance.
So these two industries have joined hands to solve a problem. Restaurants are now renting space in underutilized hotel banquet kitchens. Restaurants are making money by selling food, while hotels are making money by renting their kitchens to restaurants. Another bonus for restaurant owners: It's much cheaper to open a restaurant when you just need to rent kitchen space versus needing a dining space as well.
Suburbs are prime locations
Suburban hotels make the most sense for ghost kitchen operators because of the large concentration of homes to deliver to. The sweet spot for meal delivery would be no more than 10 miles. Urban areas can work, but only locations where large concentrations of people live.
Keep your eye on virtual restaurants
You'll probably be seeing an increasing number of restaurants starting to open virtual-only businesses. There's been an uptick of requests from both existing restaurants that have taken a hit during COVID-19 and from new businesses looking to launch now that the restaurant business is affordable to get into.
There are pitfalls too. There's a question regarding whether the FDA is monitoring the food made in ghost kitchens. Some ghost kitchens are exempt from federal regulatory standards. And since there's no restaurant for customers to go to, there's no easy way to tell whether the food prep area is sanitary.
Landlords should be particularly aware of this. If you're thinking of investing in a virtual kitchen, you might be liable for health violations an inspector might find.
The Millionacres bottom line
Restaurants will probably return after the pandemic is over, and hotels will probably pick up business as well. But until those things happen, it's encouraging to see businesses pivot in the way restaurants and hotels have.