“Ghost kitchens” skyrocketed in popularity at the end of the 2010s. These online-only restaurants operate out of commercial kitchens with no storefront, lowering barriers to entry for new food spots and leveraging newly-formed food delivery networks and social media to grow their customer base. While initial concepts were promising, the end of low interest rates that fueled VC money, oversaturation of low-quality virtual restaurants, and renormalization of consumer patterns have left many ghost kitchen concepts feeling ghosted.
Venture Capital can’t stand the heat
Startups raised billions from VCs to tackle the online restaurant/takeout food space. When the 2020 global pandemic dramatically reduced dining in, ghost kitchens achieved a big foothold in an era when people couldn’t enjoy the ambiance of a restaurant interior. Many big names started to rapidly expand into ghost kitchens in response; in 2021, Wendy’s made plans to open 700 ghost kitchens with Reef, CloudKitchens bought $130M worth of commercial property in anticipation of surging demand for kitchen space, and delivery companies like DoorDash started vertically integrating by building their own ghost kitchens via licensed brand partnerships.
Reef Technologies and CloudKitchens (the latter founded by infamous CEO Travis Kalanick) were two of the top ghost kitchen startups, raising nearly $3B in funding between just the two of them. The issue was these startups were essentially real-estate plays. With urban commercial real estate values falling, higher interest rates raising the bar for expected returns, and less demand for tenancy than expected, both laid off hundreds of employees and were dealing with churned partners by late 2023. The sky-high promise of a trillion-dollar space had started to fall back to reality.
A burger by another name
As ghost kitchens grew alongside food delivery startups, consumers started to notice that many “new local restaurants” were at the same address, using the same food photos, and serving the same (often subpar) food items. YouTuber Eddy Burback’s investigation into these duplicate virtual restaurant concepts made national news for documenting just how extensive these copycats were, leading to delivery services publicly pledging to curtail the storefront spam.
The saturation of the market wasn’t just copycats; various name-brand restaurants and influencers all piloted their own ghost kitchen concepts. Denny’s created The Burger Den and The Melt Down, while Red Robin, Chili’s, and Applebee’s all created wing-themed virtual restaurant brands to make their menu items feel more upscale. Among the most famous influencer-driven restaurants was MrBeast Burger, presented as a way to help local restaurants across the US make extra income by selling MrBeast-branded meal options (theoretically with the same recipes used by all and coordinated by the ghost kitchen partner). In reality, complaints quickly came in about wide variations in quality. MrBeast and Virtual Dining Concepts are now involved in a lawsuit and countersuit around the ill-fated partnership.
Dining out bounces back
After a massive revenue hit in 2020, everything from fast food to fine dining has come roaring back as Americans spend more on dining out. Anecdotally, I’ve seen this happen across the East and West coasts — people like to seek out and enjoy their favorite restaurants, whether that’s breakfast and a coffee at a local cafe or going out to dinner with the family. Food delivery remains very popular, but people are ordering their favorites more than trying out new concepts (and given all the buzz around copycat restaurants, people are also more wary about restaurants they haven’t heard of). As consumers settle back into old habits, existing restaurants and name brands that people trust win out over untested options.
The future of ghost kitchens remains uncertain, but the pullback isn’t necessarily a bad thing. One of the original promises of ghost kitchens was a chance to help new restaurants test the waters without having to commit to finding and managing an entire restaurant space in addition to making good food. Perhaps instead of VC-backed real estate companies masquerading as tech startups, we’ll see the next generation of ghost kitchens really focus on innovation and inspiration for the next generation of restaurants, real and virtual alike.
Andrew Jabara 