Ghost kitchens certainly had their moment during lockdown, gaining popularity and continuing to grow even as restaurants and patios reopened after the pandemic. Offering an appealing model for some operators, a ghost kitchen often meant lower overhead, fewer staff, and a more flexible schedule. For customers, it offered the opportunity to enjoy delicious takeout food without delivery fees. This model seemed to be a viable option for many restaurateurs during – and after – the pandemic.

The rise

When restaurants closed and a new idea was born, ghost kitchens raised over $3 billion in venture financing between 2020 and 2022. Created exclusively to prepare food for takeout and delivery, this model seemed to solve some of the issues restaurants were facing while they were closed, offering prep spaces for takeout and delivery while businesses were in lockdown. However, many of these operators could not remain profitable after the pandemic.

“Ghost kitchens were kind of a victim of their own success. The pandemic gave the business model a false positive,” said Alon Lagstein, counsel at law firm Carlton Fields, a firm experienced with many restaurant brands and ghost kitchen firms.

The fall

After the pandemic, ghost kitchens continued to prosper as people took their time resuming regular life and dining in person. As businesses reopened and consumers made their way back to in-person dining, ghost kitchens experienced investor pullback and mass closings. While many restaurants continue to struggle in today’s competitive marketplace, the popularity of in-person dining continues to grow, rising over 10 per cent in Canada so far this year over 2023.

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“It is clear that the impact of ghost kitchens was overestimated,” said Evert Gruyaert, restaurant food and service leader at Deloitte.

Besides increased competition from other ghost kitchens and the reopening of restaurants, there were other factors involved in the downfall of the ghost kitchen model, including higher fees for delivery, hidden costs to cover expenses, inconsistent quality control, decline in the customer experience, and more. As well, as the real estate market began its recovery and landlords were eager to fill the spaces, many were offering restaurants cheaper rent, encouraging operators to occupy those spaces with diners and competing with ghost kitchens.

The evolution

Following the pandemic, many restaurateurs saw ghost kitchens as a cheaper way to start or grow their business than sit-down dining rooms, while restaurant traffic remained slow. As well, the concept offered big chain restaurants a way to test new menu concepts, items, and brands with lower rental fees and labour costs.

While there are still a few ghost kitchens seeing success, for many restaurateurs, ghost kitchens have evolved into one of the following models:

A shared kitchen space. In a shared kitchen space, more than one operator uses the kitchen, employing workers to prepare food from various restaurants. Typically operating as a ghost kitchen without seating, multiple brands come together to take advantage of local delivery service areas and work together. Shared kitchens offer chefs the opportunity to branch out without the extensive resources commonly associated with opening a restaurant.

A delivery-only virtual menu. Ghost kitchens may also operate with delivery-only virtual menus. In other words, customers cannot visit the space to place an order or dine in. This operation relies on orders that come from online ordering platforms, including both third-party and their own mobile ordering system. With only an online presence, this model increases operator visibility with third-party apps, often providing increased traffic and attracting new customers.

A “twinning” location. This means offering a brick-and-mortar location, along with an area dedicated only to pickup and delivery. The main differentiator in this model is that there is a dedicated lane for fulfilling to-go orders, without the option of placing a takeout order on-site, allowing for increased expediency in making and getting orders out to customers.

Ghost kitchens offered a solution for operators and consumers in an unprecedented time, and while they saw tremendous short-term growth, many locations just could not remain sustainable as the restaurant industry reopened. Taking into account the market, steep third-party delivery fees, reliance on local customers revisiting, and limited online promotion, today’s restaurant climate makes it a very difficult place for ghost kitchens to continue to compete and find success.