Turner/Contributor, A., Lee, A., Putnam, J., Spruill, R., Olson/Staff, J., & Davis, G. (2021, September 27). Restaurateurs embrace ghost kitchens in a spooky covid world. GREENVILLE JOURNAL. Retrieved October 6, 2021, from https://greenvillejournal.com/eat-drink/restaurateurs-embrace-ghost-kitchens-in-a-spooky-covid-world/.
How many restaurant concepts can operate in the same kitchen at the same time? Until more recently, the answer would likely have been rhetorical. But it’s 2021, and the obvious isn’t exactly so obvious anymore.
Now, thanks to the thriving ghost kitchen trend, there can be a half-dozen or more concepts with their own names and identities operating from the same kitchen. And Greenville has dozens of them. In fact, you may have ordered from one without realizing your food was being prepared under a different name in one of your favorite local restaurant’s kitchens.
A ghost kitchen, or “virtual brand offering,” is a professional food prep and cooking facility (restaurant kitchen) designed for delivery-only meals, mostly via third-party services like DoorDash or UberEats. Some ghost kitchens allow takeout or drive-throughs. But, they don’t include a storefront or indoor seating for customers.
They range from unique concepts developed locally by an owner or chef, such as at Saskatoon Lodge, which operates five take-out only concepts from its main kitchen, to major national brands, such as MrBeast Burger, which has multiple locations in the Upstate and 900 throughout the country.
So why are restaurants moving this direction? It’s simple — they need to make money.
Sasakatoon owner Edmund Woo says, pre-COVID, he had three thriving revenue centers with the restaurant, paleo meal prep service that had been operating for 10 years, and major events for hundreds of people.
“Fast forward, and bam! The pandemic hit,” he says. “All of a sudden, we don’t have a brick-and-mortar and events … so we made that foray into the ghost kitchen space.”
The first virtual brand Woo launched in summer 2020 was Wow Bao, an established concept by independent restaurant icon Richard Melman out of Chicago under Lettuce Entertain You Enterprises. Woo felt confident being aligned with an established brand with the marketing behind it would be the fastest route to success in uncharted territory. After it was indeed successful, Woo launched four of his own original concepts — Lodge Birds, Heavenly Cheese Melts, Lodge Dogs, and Farmstead Greens — based on gaps he saw in the market.
Adam Hayes, executive vice president of Larkin’s Restaurants, made a similar decision about how to best use the kitchen and staff at the Haywood Mall Grill Marks location once restaurants reopened in 2020. To bring in as much revenue as possible with as little change to the Grill Marks operations, he chose to go the route of MrBeast Burger, a smash burger concept his 10-year-old son had become obsessed with via the YouTube channel of MrBeast, Jimmy Donaldson. Both operate at the same time with similar ingredients, and if the restaurant itself gets too busy, they turn off the online MrBeast ordering. Grill Marks is still the priority, Hayes says.
While bringing in one or several national brands makes sense for some operators — like the former Foundations Grill 311 restaurant in the Landmark Building at 301 N. Main St. that is now mission central for at least six ghost concepts — for others, creating their own has benefits.
Executive chef Chris Coleman, a five-year euphoria Greenville veteran, opened up his new Charlotte, North Carolina restaurant The Goodyear House in February 2020. When the shutdowns hit only a few weeks later, he and his partners developed an original fried chicken ghost concept called Scratch House Chicken that became an instant hit.
They pushed pause on it soon after the main restaurant reopened, but one sandwich recently named the second-best fried chicken sandwich in Charlotte remains on The Goodyear House menu. As Coleman and his team looked to open their next restaurant in Rock Hill, they were able to apply what they learned from operating the fast casual chicken concept to successfully launch Old Town Kitchen & Cocktails in August.
“I would say that we definitely learned that we can’t operate two different concepts in the same kitchen,” Coleman says. “We did build a brand that we could possibly open in a food stall or hall should the opportunity present itself.”
Vincent Caradonna, owner of Le Petit Croissant in downtown Greenville, has been operating his own ghost kitchen concepts for eight years, starting first with a luxury chocolate delivery service in New York City, and now with four virtual concepts in addition to the regular bakery shop offerings.
Dan Pope of Mission Grill in Anderson began exploring ghost kitchen operations in 2018 while planning to launch new brick and mortar locations around the Upstate. He says it helped them build business in targeted areas and see where their customers were.
For his purposes, the ghost concepts are not the ultimate goal, but rather a means to an end because of the impact they can have on overall hospitality.
“Inherently, they’re digital. It takes a lot of the service out of food service,” Pope says.
With countrywide staffing issues, he’s committed to staff retention, and in his experience, if the service element is removed, he’d also lose the really good, talented staff.
“It’s not a rewarding career, anymore,” he says. “It takes the joy out of making someone else’s day. It’s a little bit of a double-edged sword. You broaden your reach and don’t have to add staff, but the staff that does like the service, you’re going to lose them to someone who does double-down on the service aspect.”
Once a ghost concept is launched, he incentivizes staff with the promise of taking it to a brick and mortar as soon as possible.
“If you want a staff that truly cares about what they’re doing and the success of their business, the worst thing you can do is put them in a job where they’re hidden behind a screen and don’t know who they’re interacting with,” Pope says. “I’d rather not operate a restaurant if I can’t give good service rather than further divide the fairly limited talent pool.”
Here are the Ghost Kitchens Greenville, South Carolina has to offer:
Host: Grill Marks Haywood Mall and Sonny’s Grill
Host: Sonny’s Grill
Host: Landmark Building
Le Petit Croissant – edible fruit arrangements, luxury chocolates, CBD chocolates, donuts
Doyle, T. (2021, August 26). What’s it like working in a ghost kitchen? we couldn’t get close enough to ask. . Eater. Retrieved October 5, 2021, from https://www.eater.com/22632677/ghost-kitchens-restaurant-industry-food-delivery-takeout.
The shift to off-premises has fueled rapid growth of virtual restaurant brands under a growing number of models. The attraction of offering menus for delivery only is clear: There’s a low cost of entry. A slew of turnkey brands are available and come with technology and marketing assets. There’s no need for costly real estate, and many are designed to help restaurant operators get more volume out of existing kitchens.
Some see such delivery-only operations as a new frontier for franchising — even though some virtual restaurant specialists do not present their brands as franchise offerings at all.
Attorneys warn that the world of virtual restaurant brand partnerships is still new and evolving. There are similarities between operating another company’s virtual brand and a traditional franchise, but the two can be very different and there are legal considerations that operators — whether as potential franchisor or franchisee — should keep in mind.
The landscape of virtual brands is “dynamic, extremely competitive and new,” and it’s not going away, said attorney Riley Lagesen, chair of the National Restaurant Industry Practice Group for law firm Davis Wright Tremaine. Fundamentally the question is, “Can all the parties in the chain make money with these models and, if they can, is it sustainable?”
Here is some advice for navigating this evolving landscape from attorneys and those working in the virtual restaurant space.
Is it a franchise?
The first step in looking at taking on a virtual brand is whether it is, in fact, a franchise.
Two of the largest virtual brand operators, Virtual Dining Concepts (MrBeast Burger, Tyga Bites and Wing Squad) and Nextbite (George Lopez Tacos, HotBox by Wiz Khalifa), offer multiple turnkey brands, but they do not see themselves as franchisors.
Nextbite calls the restaurant operators it works with “fulfillment partners,” for example, and Virtual Dining Concepts describes it as a “license to become a market partner for a specific territory.”
“There are legal requirements for franchising and the production of franchise documents that have to be filed, and signing-on fees. We do none of that,” said Robert Earl, Virtual Dining Concepts founder.
Nextbite offers George Lopez Tacos as a turnkey virtual brand, but it’s not a franchise. Restaurants are considered “fulfillment partners.”
Under the Virtual Dining Concepts model, for example, restaurant operators take on the turnkey brands that work best for their kitchen setup, including some launched with celebrities offering immediate brand awareness.
Operators pay 35–40% of sales to Virtual Dining Concepts, which handles everything from marketing to third-party delivery relations. From the remaining 60% of sales, the restaurant operators are estimated to have roughly 30% in food and packaging costs, leaving them with about 30% profit.
Unlike traditional franchising, the beauty of this model is the flexibility, including the ease of starting it up — and stopping if the brand does not work for the operator.
“We give you a market license that has no obligation on your side,” said Earl. “You can stop at any time.”
Other virtual restaurant brand providers, however, are offering a very specific franchise model.
The Local Culinary (El Taco Loco, The Chef Burger, The Green Kitchen), based in Miami, is a virtual brand franchisor, filing disclosure documents and following many of the same procedures — just without the obligations tied to opening a brick-and-mortar location.
“Today, we are the first — and still I think the only — virtual restaurants using FDDs,” said Alp Franko, founder of The Local Culinary, which offers a portfolio of about 50 in-house restaurant brands.
The Local Culinary’s franchisees pay an entry fee, then royalties and a marketing fee that amounts to 7% of sales. Most franchisees take on 10–15 brands, Franko said.
A franchise agreement offers the operator territory exclusivity. The Local Culinary offers training and support, like a traditional franchisor would.
“Yes, it’s a very regulated model. Yes, it’s very different, but I believe in it,” said Franko.
A rose by any other name
In addition to the platforms offering plug-and-play brands, many restaurant chains are also opening up their virtual menus to franchising.
Attorney Lagesen of Davis Wright Tremaine said he advises restaurant clients who are looking to expand virtual brands to approach it as if they are a franchisor if they want to avoid legal consequences.
Even though some operators might not call it franchising, it could be seen as a franchise relationship if it meets a certain definition under state or federal laws. For example, if a company is offering rights to a trademark, compensation for use of that trademark and marketing support or control over the operation, that could be considered franchising, he said.
“It doesn’t matter what you call it. If it meets the elements, it’s a franchise by law,” he said. And that could mean the franchisor has obligations to follow certain rules and procedures, like filing disclosure documents, although there are exemptions that could also apply.
“Arguably a lot of these don’t fit the definition of a franchise,” said Lagesen. “One can take a look at their own business model and develop it in such a way that you’re not going to trigger meeting the definition of a franchise.”
Attorney Andrew Sherman, who specializes in franchising for the law firm Seyfarth Shaw LLP, predicted that disputes about the franchising/not-franchising of virtual brands are inevitable in this new world.
To preempt such disputes, he also advises franchisors to follow the rules and procedures of franchising when building virtual brand partnerships — though such agreements should include elements specific to delivery-only operations.
“FDDs are designed to create an informed franchisee decision,” he said. “If you have people committing time and mortgaging their homes, I would argue you must file an FDD, no matter what you call them. And you need a separate ghost kitchen FDD. The terms might be very different.”
Growing the franchise family
Across the traditional franchising world, the growth of virtual brands is already having an impact.
Restaurant chains that franchise say they have started to think differently about their own agreements with new and existing brick-and-mortar franchisees who are increasingly interested in dipping their toes into virtual brand operation to boost their revenue.
Dickey’s Barbecue Pit is one of a growing number of franchisors that built its own virtual brands as an add-on option for its family of franchisees. Dickey’s has launched the delivery-only concepts Wing Boss and Big Deal Burger, for example, and soon will debut the new Trailer Bird, a hot chicken-and-tots concept.
Franchisor Dickey’s Barbecue Restaurants Inc. is preparing to open its growing portfolio of virtual brands to franchising, either as delivery-only or brick-and-mortar outlets.
The virtual brands have been so well received, Dickey’s is planning to open brick-and-mortar locations of those brands as well. And soon all of the brands will be opened to outside franchisees, either as virtual or brick-and-mortar outlets, said CEO Laura Rea Dickey.
For those who want to franchise the virtual brands, the company is planning to develop a separate FDD. Agreements for the virtual brand franchises will have shorter lease terms but protective territories will be the same, she said.
The sign-on fee will be the same as for brick-and-mortar franchising, along with royalty fees of 5%. But virtual franchisees will pay a marketing fee of 2%, rather than the 4% for brick-and-mortar operators, in part because franchisees could have third-party delivery costs — though Dickey’s offers the option of in-house delivery and guests can order direct from the Wing Boss or Big Deal Burgers apps, she said.
Doyle, T. (2021, August 26). What’s it like working in a ghost kitchen? we couldn’t get close enough to ask. . Eater. Retrieved October 5, 2021, from https://www.eater.com/22632677/ghost-kitchens-restaurant-industry-food-delivery-takeout.
Ordering takeout or delivery is a lot like watching Netflix. You can do both things on your phone, the options are seemingly endless, and nothing looks particularly good. You scroll and scroll and scroll until you can’t scroll anymore, and begrudgingly decide on some gauzy teen drama, or defer to whatever generically named chicken wing joint paid for the best placement in the app. You hit play or pay or both, and several hours later you mope off to bed a little annoyed (with yourself, with contemporary life) and a little dyspeptic.
With growing frequency, the food you order from a delivery app is being prepared in a ghost kitchen — or cloud kitchen, or commissary kitchen, or whatever you want to call it — by cooks working for a restaurant that doesn’t really exist, at least not in the traditional sense. There is no storefront, no dining room, and no front-of-house staff. In some cases, the kitchen functions as a hub for a handful of other so-called virtual restaurants; in others, the food from the virtual restaurant is prepared inside the kitchen of an established brick-and-mortar but with a separate name and menu. Either way, your burger or tacos or pizza could be cooked anywhere by anyone — which is what makes the ghost kitchen concept so lucrative and appealing to owners and investors.
These kinds of digital-only restaurants existed before the pandemic broke out, but they experienced exponential growth as people across the country were confined to their homes for more than a year, unable to safely eat inside a restaurant dining room filled with strangers. Some of them are run by independent operators looking for a cheap and easy way to try something new (and for extra revenue to keep the lights on as the industry continues to struggle); many more are run by a number of large companies making big bets on delivery being the future of the restaurant industry.
Take the Local Culinary for example, a ghost kitchen company that operates more than 40 virtual restaurant brands with generic names like Chef Burger or Pizza Mania. The Local Culinary launches digital-only restaurants — many of which serve burgers, chicken, pizza, or tacos — and franchises them out to operators with physical kitchen space. Its founder, Alp Franko, says he doesn’t have enough revenue data to predict too far into the future, but some research he’s seen suggests the market might “double or triple” in the coming years, while other reports predict that ghost kitchens could transform into a $1 trillion industry over the next decade.
As cities and states begin to reopen and restaurants begin to offer on-site dining again, Franko’s biggest fear is that diners will stop relying on takeout and delivery. But for now, and with the realities of the delta variant settling in, he says business is booming, and that the Local Culinary’s revenues are increasing in the double digits. In Franko’s ideal world, franchisees of the Local Culinary’s brands will sign up to offer as many of its virtual restaurants as their kitchens can handle. Some will operate out of kitchen spaces rented from dedicated ghost kitchen brands like CloudKitchens, enter into franchise agreements with companies like Reef, and others will operate out of existing restaurants — indies and chains alike — looking for extra revenue.
“We have plenty of those franchisees, and the reason is because they already pay the rent, they already have a kitchen, they already have all of the prep ability and equipment,” says Franko. “So for them to do a burger from Chef Burger, or any other menu item, it’s the same.”
Another major player in the virtual dining industry is Planet Hollywood founder and CEO Robert Earl, whose Virtual Dining Concepts has launched a handful of celebrity-branded digital-only restaurants in the past year. Like Franko, Earl — who says his budding virtual restaurant empire helped sustain his hospitality business during the pandemic — is looking to capitalize on some perceived spare capacity (space, time, equipment, labor) in restaurant kitchens.
None of Virtual Dining Concepts’s celebrity brands (not even Pauly D’s Italian Subs) have exploded more than MrBeast Burger, an online-only fast-food restaurant founded in conjunction with a wildly popular YouTuber named MrBeast. The digital burger joint launched with more than 300 virtual restaurants in more than 35 states last December. Now, there are nearly 1,000, and Earl says that number is set to double. About 20 percent of MrBeast Burgers operate out of brick-and-mortar chains owned by Earl Industries, like Buca di Beppo, while others set up shop in the kitchens of other chains or independent restaurants. On its website, Virtual Dining Concepts claims that restaurants that set up ghost kitchens to operate one or more of its brands can expect to see a 30 percent increase in profits.
Virtual Dining Concepts isn’t Earl’s only venture with ghost kitchens. Having previously collaborated on a fast-casual chicken sandwich restaurant called Chicken Guy, the mogul and loved/loathed chef Guy Fieri recently teamed up to launch Flavortown Kitchen. Like some outposts of MrBeast Burger and Earl’s other virtual restaurants, Flavortown Kitchen operates out of a number of chains he already owns, including Bertucci’s, a wood-fired pizza chain that originated in Boston in the early 1980s and is best known for its halfway decent pizza and warm dinner rolls. Now it doubles as a mass producer of Fieri’s “donkey sauce.”
At the end of the day, the goal of these virtual restaurants (for the franchisor and the franchisee) is no different than any other business: to maximize profits and minimize overhead. Why operate one restaurant in your kitchen when you can operate four or five or 12? The space is there and the equipment is there, after all. But then again, there’s also the cooks who suddenly have to memorize and execute all those extra menus. Does their pay increase? Will ghost kitchens add more staff to accommodate the increased volume? In conversations with C-suite and management types for this reporting, these questions went unanswered and danced around, but more than one source said issues of pay are determined by individual ghost kitchen operators. For his part, Franko was shockingly honest when pressed about labor in ghost kitchens.
“I want the franchisee making money,” he says. “So how to make money is to optimize the cost, and to optimize the revenue. So if the franchisee needs a new chef or a new line cook, or if they need to buy new equipment or more tools for prep, then for sure, they should invest to grow their revenue. But usually, my approach and the company’s approach is to optimize the current needs and the current team. We are not here to invest in more space or in bigger teams.”
Earl told Eater he initially tried to launch a cloud kitchen business to operate his virtual restaurants, but he found that “the economic model didn’t work.” Operating out of already existing kitchens with already existing labor forces was much less complicated — and much cheaper.
“When one had to have a separate labor force, the economics just didn’t add up,” says Earl. “If you look at the separate cost of labor, it kills the formula. So my thinking moved very quickly over to the realization that most restaurants in the world have spare capacity, meaning that the culinary side has capability of producing more food than that which is needed for the customers on the other side of the wall.”
Eater reached out to a number of Boston-area Bertucci’s directly in an attempt to speak with some of the cooks who are tasked with executing Fieri’s food on top of the restaurant’s principal menu. One kitchen manager said his staff was too busy to pull anyone off the line; several others declined outright; and one referred Eater to a vice president with the company. When asked if they could make kitchen workers available for comment, the vice president deflected, and instead said they could offer “something much bigger.” Several follow-up emails have gone unanswered.
Labor in ghost kitchens, like the concept itself, is often opaque. There are certainly instances when a brick-and-mortar opts into a ghost kitchen model, increases revenues, and is then better able to retain existing kitchen staff, or hire additional kitchen staff, but there are also instances when the opposite is true. Ghost kitchens put another barrier — a smartphone screen, in this case — between diners and the people making their food, hiding from view a workforce that was already next to invisible before anyone knew what a ghost kitchen was, one that has historically endured exploitation in the form of low wages, long hours, and various forms of abuse. And that’s only been exacerbated during the pandemic, especially for food service workers of color: According to a study from the American Journal of Industrial Medicine, Hispanic and Latinx food preparation and service workers in Massachusetts died of COVID-19 at a rate eight times higher than white workers between March and July 2020. Add to that the well-documented exploitation of the countless delivery drivers who work for the delivery apps — in California, apps such as Uber and DoorDash poured nearly $200 million into a ballot measure in last year’s election to deny drivers access to employment protections — who deliver all the food cooked in the ghost kitchens, or the fact that there are robotics companies that are out here trying to straight up replace workers in ghost kitchens entirely, and it’s clear that labor issues aren’t exactly top of mind in the booming industry.
Not all ghost kitchen businesses are inherently exploitative or obsessed with profit over labor — indeed, some may even be responsible for saving independent restaurants that might have otherwise gone out of business during the leaner moments of the pandemic without the extra revenue. Take Stillwater in downtown Boston, for example. During a typical dinner service, chef and owner Sarah Wade and her kitchen staff can be found whipping up plates of Ritz fried chicken or crispy Faroe Island salmon skin for the groups of hungry diners that have swarmed back to the restaurant since Massachusetts lifted its restrictions on indoor dining in May. But the Stillwater menu is no longer the lone focus in the restaurant’s kitchen — Wade and crew are also busy preparing orders for the Mac Bar, a mac and cheese-focused takeout and delivery restaurant she launched in November 2020 as a way to make ends meet.
“It’s a concept I’ve been rolling around in my head for a while,” says Wade. “And this was an opportunity to trial it and see if it worked, if we got a good bite on it, and if maybe someday I wanted to do it as a brick-and-mortar. So there were a lot of reasons why I started it. But mainly, of course, it was to make money and pay rent and staff during COVID.”
Still, Wade says she’s barely breaking even, and that she’s getting killed by the fees third-party delivery apps are able to charge. Massachusetts’s temporary cap on the fees expired in May, and city and state legislators haven’t moved to extend it. (San Francisco implemented a permanent cap in June, but the apps have already developed tactics to skirt the new regulations. Despite charging high fees that often hurt restaurants, none of the major players in the third-party delivery wars are profitable.) Wade needs to operate the Mac Bar for the additional revenue, and she needs to be on the delivery apps to market, sell, and deliver the Mac Bar product, but the delivery apps are digging deep into her cut. It’s a vicious cycle.
“It’s brutal,” says Wade. “Are you kidding me? After executing it and putting it in expensive to-go containers — because customers are very picky about their to-go containers — there’s not much left. But the way I see it is, the staff is still working, and we’re still putting a couple pennies into our pockets. And it’s all still moving along.”
She says she’s considering exclusive deals with some of the apps to get better placement and treatment. But the big players like Franko’s the Local Culinary and Earl’s Virtual Dining Concepts already do that, and have a lot more money, so it’s easy to see that those who benefit most from virtual restaurants — if they are indeed the future of the industry — are those who not only have the funds for their businesses to survive crises like the COVID-19 pandemic, but who can also afford to exploit opportunities that the crises present.
Does Robert Earl really need to partner with Guy Fieri? Does Guy Fieri really need to make an extra million or two? The answer in both cases is “probably not!” But the market is obviously there, so why not strike while the grill that is cooking 45 different things for 11 different restaurants is hot? Ghost kitchens may or may not be the future of the restaurant industry, but they’re definitely the present. And as the pandemic continues to surge, making diners more wary of eating indoors, they’re probably not going away anytime soon.