Ghosts of the Food Industry

By Debon Victor

The COVID-19 pandemic has left many restaurants without income, as shutdowns have severed dine-in eaters from servers and both virtual and ghost kitchens compete for customers on delivery apps. That competition, however, has led to too many online restaurants. Now those same restaurants that faced grim pandemic prospects are facing a second financial hit.

Ghost restaurants and ghost kitchens are growing business models in the food industry. While the two terms sound similar, they are different concepts. A ghost restaurant refers to an already established restaurant that offers a delivery-only menu; sometimes it’s associated with a brand. This means ghost restaurants can technically offer both dine-in and delivery, but the delivery-only menus are not available for dine-in options. Ghost kitchens are not associated with any brand and are strictly delivery. They typically rent out a facility that will make the food for them and have drivers from third-party apps like DoorDash or Uber Eats deliver it. Facilities can also host multiple ghost kitchens at a time. There is more freedom in how one can operate a ghost kitchen than there is with a ghost restaurant, since ghost restaurants still depend on preexisting brick-and-mortar restaurants. A ghost kitchen’s only real requirement is that customers have the ability to order online.

Although the pandemic has certainly given these two concepts a rise in popularity, they existed beforehand and had some moderate success. While many restaurants have struggled, ghost kitchens have appeared particularly promising. In February 2021, Sterling Douglas, the CEO of Chowly—a software company that helps restaurants and third-party apps integrate with each other—stated: Already, an estimated 100,000 virtual kitchen concepts exist on third-party apps.” While he didn’t specify the difference between ghost kitchens and ghost restaurants, his sentiments exemplify the high increase in ghost establishments because of  the pandemic. Some were established out of survival, while others were established out of opportunity. These virtual restaurants have allowed preexisting or new restaurants to earn revenue during these trying times.

Caught in the crossfire between up-and-coming virtual kitchens and giant companies are often the local restaurants, who’ve struggled to find solid footing in the ecosystem. They were dealt a blow when the first wave of COVID-19 hit and brought restrictions that changed the capacity at which they could operate. Suddenly local restaurants that relied solely on people coming in to dine were left without a profit. In one search, it’s clear that not all local restaurants are on every third-party app. Some rely only on Grubhub, while others only on DoorDash. This doesn’t mean that they can’t afford placement. It suggests that they may have struck a deal with their respective third-party app. Pizza 9 of New Mexico is a chain restaurant that has its own delivery services. A representative of Pizza 9 said that while at first the chain was hesitant to partner with DoorDash due to its already strong customer base, eventually Pizza 9 decided to join. It’s paid off, the representative said, as Pizza 9 has been able to increase sales and expand its normal delivery zone. 

Ghost kitchens have also offered a cheaper entrance into the food industry. Instead of renting out a building in which one can offer both dine-in and delivery, businesses can just opt to rent out a kitchen itself and have third-party apps do the deliveries for them. There is no need to have a building in high-traffic areas because now they have the ability to easily advertise online. This relatively cheap start-up is why ghost kitchens have been soaring and popping up in cities.

Ghost kitchens don’t just benefit themselves, either. These kitchens create jobs and have enabled others to make money during the pandemic. When a virtual kitchen decides to rent a facility in which its food will be made, the facility takes a cut of the profits. Facilities can also use this new opportunity to expand their production and make different kinds of foods without risk of tarnishing their names. A facility can also host multiple kitchens. This held true for James Garofalo, owner of the Chicago and Wisconsin-based cafe chain Goddess and the Baker. He has one location that runs 12 ghost kitchens out of a single restaurant.

While the rise of these virtual kitchens and restaurants has proved positive in many respects, there have been drawbacks, too. One of the main problems that can come with these businesses popping up left and right is oversaturation. Before COVID-19, these third party-apps most likely didn’t feature that many local restaurants, as most local establishments didn’t need the extra exposure because they already had a client base with the local populace. Once the pandemic hit, that all changed. Many businesses needed to get on the apps if they wanted to survive in what was already a competitive environment. This in and of itself was only a chance of receiving customers. Everyone who wants onto the app has to pay for that placement, and that placement isn’t always going to be the best because now they have to compete with everyone else who also paid to be on the app. How close you are to a potential driver does not seem to help a restaurant’s or kitchen’s odds either.

Giant corporations like McDonald’s and Burger King have a strategy called undercutting, where they sell an item for less than it’s worth to purposely steer potential customers away from their competitors. In theory, this makes them more money and draws in more customers. One example of undercutting is with Burger King and its nuggets being priced extremely low compared with those of its competitors. 10 pieces are only $1.49 (prices may vary depending on location). Compare this with McDonald’s, which priced its nuggets at $4.49 (again, prices may vary). This tactic really only works with companies with money to spare, as they run less of a risk of losing profits through a drop in quality.

Ghost restaurants also contribute to the problem. Since a ghost restaurant is already an established business, when it opens up a second, delivery-only menu, it essentially creates two storefronts. Most ghost restaurants utilize ingredients  already used in their menus. Denny’s? It creates a menu with burgers. Chili’s? A menu with wings. They don’t create massive menus. Instead, these restaurants expand on what they already have in their arsenal. These ghost restaurants can also afford to make deals and offer themselves to the third-parties’ apps premium services, thus making their prices lower than that of ghost kitchens.

This fierce competition within the food industry can lead to the death of restaurants, virtual or not. Maybe the establishments that fold will be those smaller restaurants that weren’t able to strike a deal with their third-party apps or ghost kitchens whose concepts did not set them apart from the rest. Truly, this competition exists only between local and virtual kitchens. Big names like McDonald’s or Burger King don’t need to compete, but they still contribute to the competition through undercutting and marketing special deals to draw in customers.

Debon Redd Victor

Debon Redd Victor is a student at IAIA majoring in Creative Writing with an emphasis on Science Fiction. He comes from San Carlos Arizona and is a member of the San Carlos Apache Tribe. He is currently on his 4th year into his degree.

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