Ghost Kitchens, Client Alert

The introduction of meal delivery apps, including Uber Eats, GrubHub, and DoorDash, expanded e-commerce in the food industry and increased the size of the food delivery market.1 Over the last five years before the start of 2020, the delivery market had grown 300% faster than the dine-in market.2 As the delivery market expands, restaurants and brands struggle to keep up with the volume of orders and address margin challenges caused by rising rents and delivery service fees.

Food delivery is often expensive for restaurants as delivery and packaging fees considerably cut restaurant profits.3 As a solution, restaurants invest in off-premises locations, sometimes known as “ghost kitchens,” to reduce real estate and staffing costs. Initially, ghost kitchens were used by small and midsize restaurants to build brand awareness using a lower overhead model. However, as the online food industry continues to climb from $18 billion in revenue in 2019 to a projected $24 billion by 2023, more prominent brands are opening up their ghost kitchens to compete with the increasing delivery demand, enter new markets, and test consumer demand.4 Further, given the current COVID-19 pandemic, many restaurants are developing and expanding their delivery services out of necessity as many restaurants are required to close dine-in options.