Why Cloud or Ghost Kitchens Might Be Good News for Real Estate Investors
Gastronomy was hit directly during the pandemic. Aside from creative solutions for al fresco dining, which relied heavily on available space and weather forecasts, many restaurants relied on delivery and take-out orders to stay afloat.
According to eMarketer, food delivery app users increased from 36.4 million in 2019 to 45.6 million in 2020, an increase of 25.2%. Therefore, it makes sense that a growing number of restaurant owners and investors are turning to an emerging business model known as cloud kitchens to fulfill all of those orders for the delivery of food.
What are cloud kitchens?
Cloud kitchens, sometimes referred to as ghost kitchens or virtual kitchens, are commercial spaces where one or more restaurants place food orders for fulfillment of delivery via DoorDash (NYSE: DASH), GrubHub (NYSE: GRUB), or some other partner delivery app or service. These kitchens are purely functional and exist only for the purpose of delivering food. Think of storage rooms filled with kitchen appliances, prep space, and technology to take the orders, not restaurants with bars, seating areas, and waiters.
An appetizing opportunity for investors
Before the pandemic, there were cloud kitchens to keep pace with the already growing trend of ordering app for food delivery. In 2019, former Uber CEO Travis Kalanick poured millions into a start-up called CloudKitchens, but there have been other initiatives like Kitchen United. However, during the pandemic, ghost kitchens are rapidly growing out of the need to save restaurants. The “Reopen for Delivery” initiative recently launched by DoorDash is helping selected restaurants to switch to delivery models in order to stay open.
Commercial real estate investors have many reasons to be hungry for ghost kitchens. Here are just a few.
It’s a much lower initial investment
A restaurant in New York City can make you a million dollars while a cloud kitchen can be open to business for $ 100,000. And they save time too: the CloudKitchens website states that a kitchen can be ready for orders in a month.
It costs less to do business
Running a cloud kitchen costs only a small fraction of the cost of running a stationary restaurant. This is mainly due to the fact that there is no need to employ staff in front of the house. Think of all the cost savings when there are no hosts, servers, and staff in the bar. For every restaurant in the cloud kitchen, there is a kitchen staff who usually share the cleaning and security services of the cloud kitchen operator.
The business model is efficient
While stationary restaurants had to optimize their menu for delivery, cloud kitchens are delivery-friendly from the start. The kitchens themselves are configured for their needs, including storing the groceries for easy pickup by delivery staff. Multiple brands of restaurants can be operated from the same space, allowing ingredients to be shared and processes to be optimized for faster food preparation.
The location is not that important
Since it’s only delivery people who pull up to take orders, setting up a store in a trendy part of town isn’t as important as setting up a stationary restaurant. Of course, consumers still need to know that there are restaurants to order from – brand awareness is everything to ghost kitchens. Restaurants will have to pay for better visibility of the delivery apps, but the money is likely well spent.
There is room to grow / pan
If a traditional restaurant’s menu is not well received by customers, it can take a lot of time and effort to make changes. With a cloud kitchen, access to supply and demand data in real time via the delivery apps enables better adaptability with regard to operating times and staffing.
The final result
The coronavirus vaccine will likely help us get back indoors in the future, but it doesn’t help that many restaurants have already closed their doors for good. The cloud kitchen business model could help keep more restaurants from going under completely, and newbies can make their claim in the ever-growing grocery industry.