Ghost Restaurants: What Are They? And Are They Here to Stay?

Chris Rumpf

Founder and CEO, 15+ Years of Restaurant Technology Innovation

Ghost Restaurants: What Are They? And Are They Here to Stay?

We’ve come a long way since Meals on Wheels, and in recent years, the business of on-demand dining has begun to impact the restaurant industry in a big way.

Chances are you’ve heard of virtual dining—or “ghost restaurants”—and you may even have used one yourself. Poke Cafe in Chicago is one of them, and Forage Kitchen in California is another. The virtual restaurant trend has risen in popularity, further entrenching itself into the hipster foodie scene with every passing year, and not just with customers. Restaurant owners are beginning to take note of the perks of virtual dining, too.

How Do Ghost Restaurants Work?

If you’re not sure exactly how a ghost restaurant works, it’s basically like this: a restaurant, or sometimes a parent organization, like Green Summit Group, sets up a kitchen and launches one or more brands, partnering with one of the popular external food ordering platforms like GrubHub or Uber Eats to deliver the food.

Customers love the service for obvious reasons: it’s convenient and on-demand; they can order directly from their phone; the price is right; and most menus consist of assorted and delivery-friendly dishes, making for quality meals that taste a whole lot better than what you’d get from the to-go menu at your typical brick-and-mortar restaurant.

One customer we spoke with said that she uses DoorDash for her own meals, as well as catering food for office meetings at her workplace in Walnut Creek, CA. “I love that I don’t have to interrupt my day to go pick up food.” The customer told us she uses the service for pretty much everything but fast food.

Benefits of Virtual Dining

But what are the benefits of virtual dining that appeal to restaurant owners? Here are just a few advantages realized by ghost restaurants:

  1. Reduced overhead: Skipping the need for a dining room means that owners of virtual restaurants enjoy cheaper overhead, saving money in real estate and operations.
  2.  Narrowed focus: Focus shifts from visibility, curb appeal, and foot traffic to quality, specialization, and service.
  3. Unique business model: Virtual restaurants enjoy the freedom of maneuverability, allowing them to test out different cuisines and concepts.
  4. Simple metrics: Whereas traditional restaurants have to stay on top of key performance metrics, like server performance and customer retention, online outfits operate more like fast food restaurants, calculating performance on meals per hour per kitchen.

Challenges of Virtual Restaurants

Even with these benefits, though, online restaurants are still restaurants, and they aren’t completely immune to the challenges inherent in the industry, like shifting customer preferences and expectations, staff turnover, and brand management. Beyond these industry hurdles, ghost restaurants face a few unique challenges of their own:

  • High delivery costs: Even partnering with a 3rd-party delivery service, as opposed to building your own in-house service, can be expensive, forcing extremely low overhead and high returns to offset the costs.
  • Technical challenges: The more heavily a business relies on technology, the more exposed they are to glitches and crashes, testing customer patience.
  • Customer loyalty: Virtual restaurants and delivery services are sprouting up everywhere; how do you differentiate and draw customers loyal to your brand?
  • Accuracy: If you open the box to find someone else’s meal, you can’t just send it back to the kitchen.

For the time being, though, ghost kitchens are on the rise, and the technology is improving with the demand. Research shows that 46% of mobile users are hopping on their phones at least once a month to order takeout or delivery, and the trend is not likely to decrease anytime soon.

Two other restaurant trends to watch this Fall include a response to “Instagram influence,” with an increased focus on interior design, as well as the rise of fast, casual food, which might bridge the gap between traditional restaurants and virtual restaurants, meeting the customer demand for convenient food that is also quality.