After a year of dashed expansion plans, closures and high-profile regulatory infractions, segment players may need brand awareness and expanded access points to thrive.
As reported by Aneurin Canham-Clyne from Restaurant Dive, companies rushed to try out ghost kitchens as the segment attracted significant funding in 2020 and 2021, but cracks soon emerged in the popular model. Low unit volumes, operational troubles and permitting problems have dogged the segment to the point that several experts now doubt the model’s efficacy.
A few major restaurant chains and provider platforms are pumping the brakes on their delivery-only investments. Chili’s closed its off-premise-only unit after two months of operations. REEF Technology saw The Wendy’s Company cut its projected REEF unit openings by more than 500. REEF later exited its Houston market and laid off 5% of its workforce amid low sales and a rash of permitting and safety violations.
Butler Hospitality, a company that combined hotel food service with ghost kitchens, imploded last spring.
The five-year-old company shut down overnight after a run of new openings, suddenly leaving hotel partners without food service and vendors without payment. CloudKitchens faced an exodus of restaurant partners in 2022 that culminated in corporate layoffs. C3 closed its Miami food hall, and Marc Lore’s Wonder, a van-based ghost kitchen company, abandoned its initial model entirely.
These well-publicized failures and sudden strategy shifts suggest a rocky future for the ghost kitchen model. But there could still be success stories, restaurant executives and experts said, as long as companies are equipped to face several ongoing challenges.
The model has problems driving sales, Restaurant Dive article reports.
Executives at restaurants that once tried ghost kitchens, such as FAT Brands Inc., are more hesitant than ever over embracing the concept, and say ghost kitchens don’t generate enough sales. The company operates some of its brands as delivery-only virtual concepts, based out of existing stores. FAT Brands Inc. did try a couple ghost kitchen units in the U.S., but Andy Wiederhorn, CEO of Fat Brands, said the company has hit pause on most of those, while international ghost kitchen units are doing well.
“I’m not a believer in [ghost kitchens] and never have been, I like virtual restaurants, but not ghost kitchens” Wiederhorn said at the ICR Conference in Orlando. “I don’t see the ghost kitchens, doing enough delivery volume per venue.”
Wiederhorn said delivery doesn’t add enough of the sales mix at QSRs to make ghost kitchens viable in that segment. Despite some savings on labor, real estate and development, he said, the delivery-only model does not produce sufficient revenue.