A chef at a Taster delivery-only kitchen in London hands food to a Deliveroo delivery driver
Food prepared at a ‘virtual restaurant’ in London is handed to a delivery driver. Ghost kitchens can operate at the same location, sharing equipment and staff and thereby cutting overheads © Charlie Bibby/FT

Dear readers,

The prospect is unappetising: food cooked in shipping containers on scrubby industrial land, boxed up into wrappers for virtual brands and sent out for delivery. Perhaps that is why ghost kitchens created for online delivery meals have yet to replace restaurants. 

The idea that food delivery companies can get customers hooked on eating restaurant food at home and then do away with restaurants altogether remains a fantasy.

Dining al sofa will never match the atmosphere of a destination such as Noma, Denmark’s famous foraging restaurant, or Rules, London’s oldest establishment. Nor is the food likely to be as cheap and nutritious as home cooking. But facilities designed solely for delivery can solve one important problem separating chefs from potential customers: proximity. Opening a new restaurant is costly and time consuming. Cooking food in a dedicated kitchen space is not. Ghost kitchens (aka “dark” or “cloud” kitchens) can rapidly expand the total addressable market of a restaurant. 

That is useful when food delivery companies seem perennially incapable of turning a profit. Not one of the four big food delivery companies in the US makes money. Right now their only plan appears to be gaining a bigger market share and knocking out competitors. That explains the recent rash of consolidation. Just Eat Takeaway is buying Grubhub for $7.3bn in an all-stock deal. Uber is acquiring Postmates for $2.65bn, also in stock.

They are fighting over a vast market. When Uber listed in 2019 it put the US spend on restaurant, takeout and drive-through food at close to $800bn, using Euromonitor International figures. 

Chart showing share of food delivery sales (rebase 100 =January 2018 sales)

How that might translate into profits is impossible to know while platforms are still subsidising customers via investors such as SoftBank (which has backed both Uber’s food delivery arm Uber Eats and DoorDash). Even when smaller competitors disappear, the top two continue to fight on rates and marketing. The odds of hiking prices look slim for now. Restaurants already complain about third party platform fees, which can reach 20 per cent and wipe out skinny margins. Customers moan about rising service charges.

Ghost kitchens might be one way to make money from food delivery through efficient expansion. Several ghost kitchens can operate at the same location, sharing equipment and staff and thereby cutting overheads. Algorithms can tell owners which meals will be most popular in their neighbourhood. Menus can easily be tweaked to meet changing demand. Virtual brands can be created that need no physical presence. In the UK, Clox Kitchen sells delivery-only fried chicken made in another restaurant’s kitchen.

A number of start-ups already populate the ghost kitchen sector. Eccie Newton, co-founder of Karma Kitchen in the UK, once told the Financial Times that her company’s plan was “WeWork for kitchens”. It is a reference she probably wouldn’t make today. But it was useful shorthand for the sector’s business models. Reef Technology imagines parking lots as new city hubs that can be used for anything, including kitchens. Rivals include Zuul in New York and California’s Kitchen United. Travis Kalanick’s CloudKitchens buys spaces and fits them out with kitchen facilities then rents them to restaurants. Uber Eats opened its own kitchen in Paris, then closed it during a broader attempt to cut costs and stem cash burn.

For some adults with strong disposable income in large cities such as London and San Francisco, food delivery is already ubiquitous. The pandemic has expanded its reach. As a recent New Yorker article pointed out, lockdowns have turned every operating restaurant kitchen into a ghost kitchen, unable to welcome diners inside. Perhaps the idea of eating professionally made food at home has become more palatable.

Yet even if ghost kitchens are a useful way to expand food delivery services, virtual brands are not the next evolution of dining. The atmosphere of a physical location, even if it is imagined only in lockdown, is still crucial to the restaurant business. Virtual restaurants will never replace the real thing.

Enjoy the rest of your week,

Elaine Moore
Deputy head of Lex

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