Could Ghost Restaurants be the Way of the Future?

February 27, 2017 Jackie Prange


 

The internet has come alive with tales of ghostly restaurants haunting urban city streets, delivering dishes on-demand to hungry patrons, but with no trace of a storefront in sight.

 

Ghost restaurants first scandalously hit the headlines in 2015. Competing for business, it was alleged that some restaurants were moonlighting under multiple names and locations on delivery apps like Seamless in order to up the odds of landing a customer. Which didn’t exactly sit well with consumers who like to know where their food is being prepared. This controversy prompted Seamless and other delivery apps to develop more stringent rules and validations to ensure the legitimacy of the restaurants they feature.  

 

Now, however, a new breed of ghost restaurant has apparated onto city streets. These particular haunts have no tables, chairs, or maitre’d. No host stand, bar, or patio. But they do have an address. And they do abide by health standards, employ a slew of cooks, use fresh ingredients, run a fleet of delivery couriers, and fulfill hundreds, even thousands, of orders placed daily.


 

What Defines a Ghost Restaurant?

The ghost restaurant –  otherwise known as the digital restaurant or delivery only restaurant - is the natural offspring of over-saturated delivery apps. They emerged out of sheer competition and the double struggle to meet delivery needs and the demands of a brick and mortar dinner service. Companies like Green Summit have set up multiple restaurants that run elbow-to-elbow in commercial kitchens around New York, Brooklyn and Chicago. Green Summit has eight “locations” in total, all which serve their own speciality, from healthy greens, to Mexican, to old faithful grilled cheese.

 

While the concept may seem jarring to some the question remains: are ghost restaurants the next big “thing”? Let’s find out. Here are the benefits and challenges of running a ghost restaurant in order to better understanding this burgeoning trend.

 

 

Benefits

Minimal Footprint: The cost of rent in city centers just keeps going up. Many ghost restaurants use commercial kitchens and have no seating area. Space is maximized so that there’s more room for food prep and food output, which is what enables multiple menus to share the same commercial space. According to Fast Company, “Peter Schatzberg, Green Summit’s cofounder, says that a restaurant like Chipotle or Pret A Manger has to dedicate 75% of their space to seating, while 90% of their customers just grab and go. By comparison, a company such as Schatzberg's can open inside a kitchen with as little as 200 square feet of space and operate a viable restaurant business with a minimal footprint.”

 

Less Food Waste and Fresh Ingredients: Ghost restaurants have the unique opportunity to not just guarantee freshness, but to eliminate food waste, and pare down their ordering costs as well. Green Summit Group seems to have this down to a science. They operate a number of restaurants from a single commercial kitchen and have strategically crafted their many menus to reuse ingredients. Staff can be trained to prep dishes according to dining style, but the nuts and bolts of the dishes remain the same across brands. The group’s co-founder, Peter Schatzberg was quoted as saying, “You don’t have to source new ingredients; you just train staff to cut fish differently or prep rice differently. That ability to maneuver and build new brands is exponentially easier on a cost basis.” 

 

More Agile Concepts: Because ghost restaurant menus exist solely online, changing, shifting, and adapting to trends is no sweat. There’s no re-design or re-print of menus needed. They simply have to adjust what’s available online to reflect their new offerings. This means that food trends – like Hawaiian poké bowls or sushi burritos – are easy to introduce, or remove when the trend declines. The agility of ghost restaurants goes beyond the menu itself – it extends to the entire concept.

 

Less Risk: We’ve all heard the doomsday stats of restaurants that fail. Sixty percent close or change ownership in the first year of business. Eighty percent fail within five years. Hundreds of thousands of dollars are at stake. This is not the case when it comes to ghost restaurants. The cost of a failure is extraordinarily small. As Crains New York reported in a discussion with Schatzberg, “A Mediterranean-food idea that the partners scrapped totaled about $25,000 in sunk costs, as opposed to the $100,000 to $500,000-plus that a small midtown retail operation would absorb, by Zagor’s estimate. Though it brought in about a half-million dollars, Schatzberg said, he believed that the kebabs and hummus were not maximizing revenue for their square footage. So he shuttered the spot.” The repercussions? A relatively small financial hit and clicking the “remove” button on Seamless.

 

 

Challenges

Delivery Errors: Seamless, GrubHub, or in-house services – whatever your delivery poison – come with their own set of complications. From cold food, to erroneous deliveries, and long wait times; like all delivery operations, these are challenges also felt by delivery-reliant ghost restaurants, especially those operating from a multi-concept kitchen. For digital restaurants to rise up to this challenge, communication and a tableside level of customer service is needed, especially as volume continues to expand. But maybe the answer to this conundrum lies in the Domino's ethos of “becoming a tech company that happens to sell pizza”: some virtual restaurants, like Savoury, have introduced concierges to help answer questions and process customizations.

 

Food Standards and Consistency: You know the phrase, “too many cooks in the kitchen”? Many cooks, dealing with many brands, that are dealing with many orders: it’s a recipe for inconsistency, even despite ingredient standardization. When food is inconsistent, it compromises the concept’s ability to secure repeat customers. Plus, additional layers of complexity are added onto food standards when modifications are considered. This disconnect in an increasingly gluten-free, allergy prone, meat-conscious world could lose them. But hey, maybe they’ll just order from another concept under the same company.

 

Returning Customers: For ghost restaurants, ironically, the biggest challenge is being visible. Online delivery channels are saturated with restaurants hawking their wares digitally. With exceptional service and ambiance, a storefront restaurant has the chance to make a lasting impression on guests. Digital restaurants are restricted to the memory of their convenience and food quality. If meals are late or not as ordered, there’s little restaurants can do to redeem the customer experience. With numbers already stating that, “70% of previously loyal customers are "at-risk" and unlikely to return”, there is little room for error when it comes to customer satisfaction. Thus, ghost restaurants have to rely heavily on marketing and quality meal output in order to keep customers coming.

 

Sans Booze: It’s no secret that restaurants make a large portion of their sales from marked up alcohol. But in most places, ghost restaurants don’t have this option, so they have to find other ways to make up for the loss of revenue here.

 

The Question of Longevity: The jury’s still out on whether or not digital restaurants are here to stay. Maybe with more hands-on customer service, fewer brands or more kitchens, some of these challenges will be muted. Maybe drones will be the cure all...novelty for the win!


 

Perhaps Peter Schatzberg was right when he said: “There’s a misconception that what we’re doing is innovative, when in fact it is incredibly difficult. By no means do I think this is necessarily a big, broad future for the business or the industry in general.” But who knows. Maybe ghost restaurants are just getting started.

 

 

Read more about the takeout takeover! 

 

 

 

 

About the Author

Jackie Prange

Jackie is a Content Marketing Specialist and Social Media strategist at TouchBistro. She covers the latest food, dining, and technology trends for the restaurant industry. A lover of all things coffee, Jackie’s hobbies include breakfast, lunch and dinner.

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