Interview Synopsis

Ghost kitchen industry – restaurant & food delivery industry implications & long-term outlook

  • Private Equity
  • Consumer
  • North America

There will be a “tremendous influx” of ghost kitchens in the next 12 months, at least double the current US total, as more real estate becomes available and food delivery continues to surge, a C-level executive at Kitchen United Inc told Third Bridge Forum. 

Exponentional growth ahead in US ghost kitchens

“The penetration level right now is extremely low,” the specialist said, noting that there are still many “food deserts” around the US. There are approximately 1,300 ghost kitchens today, according to the Interview, but “we’re probably going to look at 3,000-4,000 locations in the next two years and from there on it’s going to level off”. COVID-19 has changed the demographic of food delivery customers, with more orders across all ages, and while there will inevitably be a drop-off once normal service resumes, the expert expects this shift will largely be permanent. 

Among other observations was that many restaurants were caught off-guard by the pandemic, unprepared for off-premise consumption physically and technologically, and therefore had no choice but to rely on service providers such as Grubhub, Uber Eats and DoorDash. However, for many businesses these operators are expensive and ultimately not worth the investment. This has given rise to new business partnerships whereby restaurants share platforms, drivers and delivery services.

Meanwhile, widespread closures of “mom-and-pop” restaurants and nascent start-ups have meant there is now an abundance of real estate suitable for ghost kitchens. “Now you’re finding a huge amount of real estate available, some of it completely fully equipped, some of it mostly new.” This has prompted companies such as C3, the ghost kitchen subsidiary of SBE Entertainment Group, to leverage empty spaces. The expert explained the two main kitchen concepts, ghost and virtual, and the underlying economics of each. 

What percentages of a ghost kitchen’s cost base would typically be attributed to rent, labour and utilities was also touched on. In terms of EBITDA margin contributions, it was estimated that if a brand previously made 15-18% profit, adding a virtual brand could lift this to over 20%. 

Concluding the Interview, the expert singled out C3, Reef, Virtual Dining, Nextbite, Ghost Kitchen Brands and Zuul as companies to watch in the space.

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The information used in compiling this document has been obtained by Third Bridge from experts participating in Forum Interviews. Third Bridge does not warrant the accuracy of the information and has not independently verified it. It should not be regarded as a trade recommendation or form the basis of any investment decision.

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