How the pandemic accelerated the US ghost kitchen market ‘5 years in 3 months’

The COVID-19 crisis has restaurants ‘running to catch up’ to delivery demand, but experts now see potential for permanent changes to business models as dark kitchens gain steam.

Part 1 of a 6-part series by Emma Liem Beckett, originally published in Restaurant Dive, October 5, 2020

The pandemic is gutting the restaurant industry’s traditional dine-in business, but the crisis has also presented an opportunity for digital income channels to accelerate growth — especially for ghost kitchens.

The budding segment was on the rise prior to COVID-19’s upheaval, buoyed by the steady gains made in the food delivery space. Between 2014 and 2019, global delivery sales more than doubled, according to Euromonitor. That growth has spiked this year, as government-mandated dining room restrictions and consumers’ lingering fear of eating out has fueled a triple-digit increase in delivery spend year-over-year, Cardlytics research shows. Uber Eats’ revenue is up more than 100% over last year, while Grubhub’s revenues are up by over 40%, for example. And the NPD Group found that while overall restaurant traffic dropped 22% in March, delivery orders increased almost 70%.

Consequently, ghost kitchens, or delivery-only restaurant facilities with no storefront or seating areas, are experiencing a parallel upswing. The segment’s allure isn’t new. In 2015, Grubhub and Seamless were already operating about 10% of their New York City restaurants out of ghost kitchens, and digital-savvy restaurants have been turning to shared-use commercial kitchens for about a decade in a bid to reduce occupancy and overhead costs.

Now, there are estimates that the ghost kitchen segment could create a $1 trillion global opportunity by 2030, according to a recent report from Euromonitor.

Pandemic exacerbates consumer demand for convenience

Consumers are busier and more connected than ever before, according to Nielsen. That connectivity has driven double-digit growth of digital ordering habits throughout the past five years, crystallizing an on-demand economy.

“Younger consumers are especially conditioned to a level of technology-enabled convenience. They want what they want when they want it. This was already happening pre-COVID. All of a sudden we moved into a broader consumer set — a whole new section of consumers wants delivery. That has quickly become the expectation,” said Geoff Madding, CEO of virtual kitchen marketplace Nextbite.

Delivery used to be a differentiator largely for just pizza and Chinese restaurants, but growing diner demand for speed and convenience throughout the past few years has necessitated the adoption of delivery throughout the industry.

“People love to sit at home and order food from their favorite restaurants. Brands are trying to figure out how to get their products to consumers faster,” said Vlad Rikhter, CEO of automation platform Zenput. “Everyone wants to be Domino’s.”