By: Cam Kollar

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One of the latest innovations in food is the trend of ‘Ghost Kitchens.’[1] Also known as dark kitchens, cloud kitchens, and virtual restaurants, they are an extension of the gig economy.[2] A Ghost Kitchen is a restaurant that has been created only for delivery or take-out.[3] A growing market, online food ordering had $26.8 billion in sales last year with a growth of about 20% each year.[4] Some restaurants are sharing their kitchens with these virtual restaurants, while other business models are where the physical kitchen is for online ordering and delivery only.[5] Although often used interchangeably, there are differences between a ghost kitchen and a virtual kitchen. One key difference between a virtual restaurant and a ghost kitchen is that virtual restaurants do not sublet kitchen space and instead use their own established brick and mortar locations or food trucks to create specialty menus filled with items available exclusively online and for delivery.[6]

It is easy to see the appeal to businesses, there is a decreased overhead because you do not require waitresses, or tables, you see a decrease in dishes used (because they limited to what was cooked with -not the dishes for each patron), and you have the flexibility to easily modify a menu based on interest and fresh ingredients, and there is minimal need for expensive aesthetics or large volumes of square footage.[7] Driving the opportunities are the various food delivery apps that many rely on such as UberEats, DoorDash, Grubhub, or Postmates.[8] In one business model, the brick and mortar ghost kitchen operates for new restaurants or menu concepts in a similar way to how business incubators help tech startups.[9] The shared fixed expenses between several new entities, thus decreasing start up costs, can inspire new creativity into a chef’s work of art, but also has the potential to go drastically wrong. In a kitchen that is simultaneously shared by three or four entities, who is responsible for the licensure? The maintenance of the equipment? And where a third party contractor is delivering food, who is responsible for food poisoning? The restaurant industry has safety standards that need to be accounted for when planning to start a Ghost Kitchen.[10] For instance in California, ghost kitchen operators must still comply with the state’s business licensing and commercial kitchen requirements.[11] Additionally, each person involved in food prep and handling has to obtain a California Food Handler Card.[12]The best time to plan for these contingencies is in the beginning-such as when beginning negotiations with third-party delivery services, and/or the licensed kitchen.

As someone who enjoys food, and has little time to cook between law school classes, having access to new menus has significant appeal. Growing up, my options (way back when) were limited to pizza and Chinese food but now delivery competition can be fierce, exciting, and invigorating. With the potential for hundreds of virtual restaurants available on Uber Eats[13], the convenience of delivery makes this a great option during finals when you are glued to your study spot.

[1] See Jimmy Bui & Mark R. Vowell, Ghost Kitchens: Considerations in Negotiating Agreements with Third Party Delivery Services, Hunton Andrews Kurth: Tech. & E-Commerce (Mar. 21, 2019), https://www.huntonretailindustryblog.com/2019/03/articles/technology-e-commerce/ghost-kitchens-considerations-in-negotiating-agreements-with-third-party-delivery-services/?utm_source=Mondaq&utm_medium=syndication&utm_campaign=View-Original.

[2] See id.

[3] See Alexandra Olson, The Rise of ‘Ghost Kitchens’: Here’s What the Online Food Ordering Boom has Produced, USA Today (Oct. 21, 2019), https://www.usatoday.com/story/tech/2019/10/21/ghost-kitchen-virtual-restaurant-heres-how-works/4053659002/.

[4] See id.

[5] See Bui & Vowell, supra note 1.

[6] See Guide to Ghost Kitchens (2019): All You Need to Know, Roaming Hunger (Sept. 27, 2019), https://roaminghunger.com/blog/15623/ghost-kitchens-everything-you-must-know.

[7] See Bui & Vowell, supra note 1.

[8] See id.

[9] See Olson, supra note 3; see also Maggie Hennessy, Are Ghost Kitchens the Future?, QSR (July 2019), https://www.qsrmagazine.com/technology/are-ghost-kitchens-future.

[10] E.g., Bui & Vowell, supra note 1.

[11] See Thompson Coburn, Ghost Kitchens: A Scary-good Real Estate Opportunity in California, Lexology (Oct. 7, 2019), https://www.lexology.com/library/detail.aspx?g=4e1257e2-33a0-407a-ab63-3b526a57a917.

[12] See id.

[13] See Shannon Bond, Delivery Only: The Rise of Restaurants with No Diners as Apps Take Orders, NPR (Dec. 5, 2019), https://www.npr.org/2019/12/05/783164944/delivery-only-the-rise-of-restaurants-with-no-diners-as-apps-take-orders.

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