Ghost-kitchens, ghost-business and ghost-thinking

LONGITUDE N. 114

by Danilo Broggi

Not as replacement for in-person dining, but as an adjacent industry to incubate new ideas and keep others afloat while restrictions on mobility and travel are in place, a new model of food delivery has come to light. Heralding a business model that is reshaping an entire industrial sector. 

The pandemic has sadly accustomed us, for over a year now, to seeing restaurants closed and, at any time of day, a horde of "riders" on electric bicycles. Food delivery has replaced the sandwich lunch at the bar and dinner at the restaurant. Giving rise to the so-called phenomenon of "Ghost kitchens". 

Ghost Kitchens dedicated to the creation of virtual, delivery-only restaurant brands. Typically, an operator will own/lease the commercial kitchen space and sublease to multiple ‘virtual brands’ who will sell to clients via a delivery-only mode. So long, welcoming dining rooms, rarefied atmospheres: only chefs at work and ad hoc-packaging design. 

It is fair to say that the pandemic has not been good to most businesses, but one of the hardest-hit sectors has been the restaurant industry. 

The midterm effects have yet to be fully seen, but in the interim, the Ghost Kitchen (or Cloud Kitchen) model has emerged in an effort to help reinvent the restaurant business model. 

Internationally, according to a study published last year by Deloitte and Alma (International School of Italian Cuisine), the catering sector is expected to close 2020 with a loss in turnover of between 22.9% and 27.5%. In Italy, the estimated contraction is from 23.2 to 27.9%: a huge gap compared to 2019. “Overall, Foodservice is undergoing a revolution put forward by both hexogen and endogen factors all parts of the foodservice value chain will keep on experiencing the disruptive impact of the pandemic in the short and long term, leading to the need of rethinking business models and chasing innovation” the Report concludes. 

Jimmy Donaldson - aka "MrBeast"– is a 22-year-old boy from North Carolina, who since the age of 13 dedicates himself full time to the YouTube channel becoming its best "creator" 2020. On January 5, 2021 with his channel "MrBeast" he exceeded 50 million subscribers, with more than 7.5 billion views. 

Ultimately, not a chef not a restaurateur he opened an online fast food chain: “I literally just opened 300 restaurants all across America,” he said in one of his videos a few weeks ago. “MrBeast Burger is a fast food chain offering "smash burgers and fries. But we only serve people through delivery App.” 

MrBeast Burger is in no way comparable to MCDonalds or Burger King: any restaurateur, bar, cafeteria with a small kitchen, for a small cut of profits produces the hamburger and fries according to the MrBeast order, including logo, App, recipes, packaging (stickers only) and advertising. 

This is the “ghost franchise”, explained some weeks ago in the New York Times. In exchange for a cut of sales revenue, the brand supplies the name, logo, menu, recipes and publicity images to any restaurant owner with the space and staff to make burgers as a side hustle. When a customer orders from the MrBeast Burger in Midvale, Utah, the food is prepared at a location of the red-sauce chain Buca di Beppo, following a standardized MrBeast recipe. 

The same article describes the adventure of James Garofalo. Garofalo, 52, who grew up working at his father's diner in Illinois now runs 12 Nextbite “ghost franchises” (which raised $ 120 million from a Venture Capital fund) from the kitchen of his Brookfield café: digital orders only, Hot-Box branded with a single sticker. Recipes from Nextbite’s Colorado test kitchen are easy to follow, and the company recommends ingredients from the suppliers Mr. Garofalo already uses. Nextbite takes a 45 percent cut of sales, but handles all delivery-app fees, which would be, for Mr. Garofalo, as high as 30% per order. “In his best month so far, he cleared $20,000 across the 12 brands.” 

This business model hinges on deals the ghost franchises strike with retail giants like Walmart, whose Canadian branch recently signed an agreement with Ghost Kitchen Brand (GKB). Six Canadian Wallmarts will be able to offer their customers freshly prepared meals in their megastores over the next few months, ordered online for both on-site pickup and home delivery. 

The key point is that customers can choose from a selection of well-known brands such as Quiznos, Taco del Mar, The Cheesecake Factory Bakery, Amaya Indian Street Food, Red Bull, Nescafé and Ben & Jerry’s.

Marc Choy, GKB chairman, notes that the company's ultimate goal is to open a Ghost Kitchen within a 12-kilometer radius across Canada and to be able to "reach every Canadian, in every urban market, within 30 minutes, 24/7". 

The most interesting experience is perhaps that of Enrik Fisker, Danish by origin, an automotive veteran, designer of the BMW Z8 Roadster and Aston Martin Vantage. In 2013, in an attempt to create another Tesla, his Fisker Automotive went bankrupt. Today, eight years on, with his new company Los Angeles Fisker Inc. he produces at a design level "only", innovative models of fully electric cars made with recycled materials and created – one could say – by ghost factories. 

Contracts and partnerships with Foxconn – the well-known Taiwanese producer of Apple’s iPhones – and with Canadian Magna International, the world's largest contract manufacturer, are the bedrock of the first "factory-free" car manufacturers. Another pillar is the harnessing of batteries and motors developed by other companies; outsourcing spare parts and aftersales services. Customers will be able to obtain the cars using a lease agreement similar to a subscription which can be terminated at any time via the App. 

“I’ve taken a lot of lessons from Fisker Automotive...The last thing an EV startup should be looking to do is build its own factory”, Fisker said to The Wall Street Journal last February. 

In a nutshell, ghost-kitchens, ghost-franchises, ghost-factories and beyond. 

This is a paradigm shift in the industry, a real earthquake in the supply-chains, and a new frontier in the relationship between production and consumers, between digital and physical. 

Ultimately, it is the ghostly-result of ghost-planning and ghost-thinking.