Ghost Kitchens Can Boo-st Avenues For Fresh Produce Foodservice Sales
Ghost kitchens and virtual brands were a trend in the foodservice industry even before the pandemic. Ghost kitchens are FDA-licensed kitchens that offer only delivery, take-out or to-go service with no dine-in facilities. Virtual brands are those that exist in the digital world as delivery only, with no physical restaurant or even pick-up spot. Examples of virtual brands are MrBeast Burger, Tyga Bites (chicken nuggets), and Chef Bill Kim’s Pizza & Parm Shop, ranked as the top three of America’s 57 Most Exciting Virtual Brands, according to a May 2021-published article in QSR magazine.
“The COVID-19 pandemic served as a catalyst to increase the number of ghost kitchens in the U.S.,” says John Madigan, senior analyst for New York, NY-based IBISWorld Inc., which published its Ghost Kitchens Industry in the US – Market Research Report in January 2021.
Ghost kitchens and virtual brands let operators test new brand extensions and menu items, pivot quickly, cross-utilize ingredients, enter new markets, and make use of existing kitchen space, according to Mike Kostyo, senior managing editor for Chicago, IL-based market research firm, Datassential.
“Awareness is increasing quickly, from 35% of consumers who said they were aware of virtual brands last October to 50% of consumers saying the same thing in March of this year. Younger consumers are far more likely to be aware of and have ordered from a virtual brand, with 52% of millennials saying they have knowingly ordered from a virtual brand.”
Fast casual and casual dining for delivery comprises the lion’s share of sector’s revenue, according to IBISWorld’s Madigan.
Denny’s has launched two virtual restaurants, The Burger Den and The Meltdown, since the start of 2021. These virtual brands operate exclusively on third-party delivery marketplaces.
“We’re excited about these opportunities because they bring in new guests, drive incremental sales for Denny’s operators, and leverage a number of our strengths as a 24-hour diner with a varied menu,” says Gene Harris, senior purchasing manager and travel administrator for the Spartanburg, SC-headquartered chain, which has 1,600-plus franchised restaurants in the U.S. and a dozen countries worldwide.
US Foods was among the first foodservice distributors to offer a formal Ghost Kitchen program to provide restaurant owners a soup-to-nuts set of tools necessary to set up their own such operation. These resources included proprietary technology to help identify menu opportunities and a detailed playbook to guide decision-making and branding. In addition, the company provided free one-on-one support from company specialists.
“One of the key aspects of optimizing a ghost kitchen inside an existing and functioning brick-and-mortar restaurant is product optimization,” says Jim Osborne, senior vice president, customer strategy and innovation for the Rosemont, IL-based company. “In other words, looking at what products you are buying for your existing operation and finding ways to leverage those same products for the new ghost kitchen operation.
“So, if you are a sandwich shop and you already buy a variety of produce for your sandwiches, such as fresh lettuce, tomatoes, onions, and peppers for instance, that could potentially translate well for a ghost kitchen concept that focuses on salads.”
Ghost kitchens and virtual brands also allow operators to capitalize on trends quickly, says Datassential’s Kostyo. “If a dish starts trending, they can create a virtual brand that specializes in that dish virtually overnight. That’s why it will be so important to stay on top of the trends if you want to target this space.”
Overall, one of the largest challenges for fresh produce in this arena seems to be market access, according to IBISWorld’s Madigan. While fresh fruit and vegetables are available year-round and in a wide variety, ghost kitchens located farther away from agricultural production centers may have higher operating costs to secure that produce.
“Fruit and vegetable farmers can provide ghost kitchens with access to locally available, organic produce, not only capitalizing on farm-to-table and local eating trends, but also that of organic and sustainable eating. Perhaps most importantly, organic products sell at a premium, garnering ghost kitchens with more revenue per sale,” says Madigan.
Looking ahead, he adds, it is likely that ghost kitchens may service a larger portion of total takeout delivery demand since these kitchens have lower costs of operation since they do not have a storefront. Furthermore, these services may be combined with robotic delivery systems to further reduce costs.
