The COVID-19 pandemic has had a tremendously negative toll on numerous industries across the globe, most notably, on the restaurant industry. The combined losses by restaurant in the US for the months of March through May is estimated at $120 billion, with projections showing that this could increase to more than $240 billion by years end.  

These huge losses faced by the industry are because of multiple challenges, which included the coronavirus-imposed lockdown that was in place earlier this year, resulting in the forced closure of restaurant dining rooms across the country. This was followed by other local and state laws calling for social distancing in public places, and the limited use of restaurant dining areas. With the appearance of what seems to be a second and much larger wave in progress, these losses are only expected to continue their climb over the next few months.

With the rules that are set in place, accompanied by the fear of getting sick, restaurants have seen a sharp decline in the number of customers dining out. According to Statista.com's research on consumer behavior in restaurants the year-over-year decline in the number of diners seated out at restaurants was a staggering 52.24 percent as of July 18, 2020.

Many would argue that a large number of restaurants were already teetering on the brink of irrelevancy and extinction prior to the pandemic, which essentially sped along the process. Based on a survey done by the National Restaurant Association (the NRA), about 3% of the total restaurants in the United States (more than 30,000) had already closed their doors as of March 31^st, with an estimated 110,000 (approximately 11% of the industry) expected to permanently go out of business. These findings were further supported by the UBS, that gave mention of a study done by JPMorgan Chase Institute which found that only half of restaurants had cash reserves to keep their restaurants going past 16 days.

The question now arises, will ghost restaurants be the next logical move for small local restaurateurs moving forward?

The ghost kitchen model has seen growing interest from cost conscious restaurateurs in recent years due to its low overhead and higher profit margin. But no one anticipated at the start of the year that virtual kitchens could become a primary option, and possibly a survival necessity, for restaurants around the globe. Almost overnight, the rapid outbreak of COVID-19 triggered a lockdown and closure of restaurants. The proceeding months have seen rise to social distancing rules and other public safety measures across the country, forcing many restaurants to close their doors permanently, with others immediately pivoting to a delivery and takeout model just to survive.  

Ghost restaurants (also called virtual kitchens, cloud kitchens, dark kitchens, or headless restaurants) are restaurants with no dining space, built to focus on online orders for catering, delivery or pickup only. They are different from the conventional brick-and-mortar restaurant concept, having no storefront, seats, or wait-staffs, and exceptionally low overhead. 

Why Should I Consider Opening a Virtual Restaurant?

Studies show that while almost the entire restaurant industry threads water, fighting for survival; virtual restaurants have become more profitable than ever. According to research done by Technomic on 300 locations, virtual restaurant sales in the United States are projected to increase by 25% over the next 5 years, representing estimated yearly sales of more than $300 million.   

With the current uncertainty surrounding the future of the market, restaurateurs need to remain agile in order to adapt and remain open. The novel coronavirus (COVID-19) and social distancing measures have completely changed the landscape of the restaurant industry, with more people opting for delivery and pick up versus dining in.   

Although no one knows what the post-pandemic world will be like for restaurants, many anticipate that the current situation will drag out for months, with many customers remaining timid to return to normal, even after a vaccine has been created. Considering this to be one of the better scenarios, the industry is on a long painful road to recovery.

The advantages that the virtual restaurant model comes with should be under serious conditions for the remainder of this pandemic, and afterwards during recovery. The models low OPEX (operational expenditure) and CAPEX (capital expenditure) costs could help many small local restaurant owners who were forced into a premature closure, a way to re-enter the market.     

A Few Benefits To Operating A Ghost Restaurant?

Lower Startup And Overhead Costs

Virtual restaurant owners are unburdened by front of the house costs and instead focus on order fulfillment, customer satisfaction and further growth. 

One of the major hurdles for new restaurant owners is the startup costs. Data shows that the median cost just to open the doors of a new restaurant ranges between $275,000 - $500,000. This includes the purchasing of new equipment, furniture, and a brick-and-mortar location. Once the doors are open, owners face the additional challenge of bringing in the customer to support that investment. In a Covid world, this has become next to impossible for most restaurant owners.

In contrast, a restaurateur looking to open a ghost kitchen can get one up and running for approximately $20,000. The also avoid the front of the house costs such as staff, restaurant seating, decoration, and maintenance. An infrastructure can be created at minimal costs, and an on-demand team can be easily utilized to provide great food and memorable service. Two objectives that every restaurant owner strives to achieve. 

A pivoted move for restaurant owners who are now struggling to keep their doors open could be the renting and sharing of their location with other concepts. This would mean the splitting of real estate costs and could help alleviate some overhead for both parties.  

Online Orders Are Skyrocketing

Going back to 2014, online ordering has seen a 300% faster growth than dine in traffic. Over the last five months, throughout the Covid pandemic, the number of people ordering online has more than tripled while dine-in traffic has come to an almost complete halt. A survey from Statista showed that during the most recently passed lockdown, only 29% of customers said they were unlikely to order food online during the lockdown.

Over the last few years most restaurants have adapted the online ordering concept and have benefited from its explosive growth, while others have recently taken the plunge and forced to think creatively for survival. Still overall all, this gives restaurants a great opportunity to tailor their businesses to capture as many off-premise sales as possible.

Converting your existing location into a virtual restaurant (and maybe a shared space) could help you optimize your business to take advantage of online ordering growth. For newcomers, a ghost restaurant offers a low barrier entry into the industry, that also comes with room to experiment. This is a growing opportunity, with no glimpse of a solution in sight for the corona virus, and with the evolving demands of millennial's (the group driving off-premise sales) who spend and average of $2,639 annually on restaurant dining.     

Become More Data Driven

Developing your restaurant in a virtual construct can help you take advantage of information gathering that is not possible with normal paper menus and a standard brick-and-mortar operation. In an increasingly tech-dependent world, you can predict trends and base business functions, such as marketing and pricing 100% on data gathered from your customers in real time conditions. You can determine what customers are ordering, at what times the do and how much of the order. This can help you take advantage of dynamic pricing based on heavy and light traffic time, seasonal changes, and other changes in demand.    

This data that you gather can also open the doors to other opportunities such as testing other dishes and menu items. You may also be able to increase your delivery zone for certain menu items that may travel better than others. A virtual model and its availability of comprehensive data opens your business up to many ways of expanding your clientele, maximizing revenues, lower costs, and take home more profit at the end of the day.

Will Ghost Restaurants Be the Way Forward for Small Local Restaurants After the Pandemic?

Ghost restaurants can offer a nimble alternative in a rough climate, which can help you shed some costs and hall in more profit. The restaurant industry lost more than $120 billion in the first three months of the pandemic, with more than 30,000 restaurants already permanently closed, and an additional 80,000 to follow by the end of the year (some estimate more).

Now with cases over 3.8 million, and spiking in states such as Florida, New York, California, and Texas; restaurants more than ever are holding on for survival in an ever-changing storm and wishing for a lifeline. Many wish this lifeline will come in the form of an approval on a “A Blueprint for Restaurant Revival” recovery fund (Vote Here), being led by the National Restaurant Association.   

This will still only be a band aide on a growing wound. What industry operators need are creative ways to optimize their restaurants and take advantage of online ordering and other off-premise consumption. Virtual kitchens offer this as a packaged alternative. A business that can operate in up and down economies, with low front of the house costs and the ability to hire on-demand staff when needed. This could be the way to turn your local taste into a well-known and profitable brand, during and post-pandemic.