Inflation puts pressure on ghost kitchen model


In the aftermath of the COVID-19 pandemic, the use of ghost kitchens and delivery-only virtual brands boomed. However, as the cost of food continues to increase, more consumers are turning to grocery options to save money, causing ghost kitchens to lose momentum. For example, casual dining brand Chili’s recently closed down its pickup and delivery-only concept in Dallas. This closure is part of the brand’s plan to “strengthen the core Chili’s business and focus on innovation within our four walls.”

The quick-service restaurant (QSR) chain The Wendy’s Company also discussed closures of its virtual locations on a recent earnings call. CEO Todd Penegor, noted that “A lot of it has to do with REEF and cleaning that adventure up for us.” Although The Wendy’s Company partnership with the ghost kitchen company remains active, the 50 virtual locations the brand has opened through the collaboration are much lower than the 700 delivery-only dark kitchens the restaurant planned to launch across the United States, Canada, and the United Kingdom by 2025.

Consumers’ desire to save on food expenses due to rapid grocery and restaurant inflation has led to a significant shift. The U.S. Bureau of Labor Statistics reveals that, in December 2022, food prices increased by 10% year over year, well above the all-item inflation rate of 7%. In response, 78% of consumers are eating at home more often to save money. According to PYMNTS‘ Restaurant Digital Divide study, anywhere from 67% to 88% of diners, depending on generation, report having made changes to their restaurant spending in response to inflation. The most popular change cited was purchasing from restaurants less often, followed by opting for restaurants with lower prices.

However, some companies are ramping up their ghost kitchen efforts in light of these changes. For example, virtual brand company Nextbite recently announced the appointment of Vikram Raghavan, as its new Chief Digital Officer. Nextbite is somewhat protected from the industry-wide shift by relying not on delivery-only locations but on brands that supplement kitchens’ existing operations. According to Nextbite CEO Alex Canter, “We’ve really wanted to help these restaurants to maximize their underutilized kitchens, ’cause every restaurant has these opportunities to sell more food if they had that demand to do so.”

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