For a small town of 4,000 people in New York’s Hudson Valley, Highland Falls punches well above its cultural weight. In more normal years, tens of thousands of tourists would descend upon the town to tour the U.S. Military Academy at West Point and nearby Revolutionary War sites. Billy Joel, a onetime resident, wrote a beloved B-side about the place. And late last year, Highland Falls became the chosen host of another national institution: Chipotle’s very first ghost kitchen, a new store model with no in-person ordering and no in-store dining.
On a recent winter afternoon, I trekked an hour north of New York City to see it for myself. From the outset, it was more or less what you’d expect at a Chipotle. Those familiar concrete floors and that minimalist steel-and-plywood design aesthetic, plus pop music overhead and the smell of grilled onions and peppers. One major difference, of course, is that it was eerily devoid of actual customers jamming themselves into small communal tables and lurking near seats that might open up. That this newfangled, online-only Chipotle didn’t even have a bathroom truly drove home the grab-and-go motif a little more forcefully than I would have liked, especially after a long drive. Still, the fact that this store debuted after a quarter in which Chipotle saw its digital sales triple from the previous year clearly demonstrates that something fundamental has changed.
By one industry estimate, there are now about 100,000 virtual restaurants in the United States alone, with many bearing suspiciously search engine optimized names like the Omelette Farm and Pizza of New York.
As I downed a chicken burrito bowl in my car, I considered the unintentional irony of Chipotle opening its first ghost kitchen just outside the gates of West Point. After all, the burrito bowl is practically the civilian equivalent of an MRE field ration, and the kitchen assembly line that produces Chipotle’s offerings has a martial drill quality to the operation. And just as the military continues to invest in drones, futuristic robot pilots, and even cyborg warriors to reduce the human footprint, so too are restaurants deploying tech to operate more efficiently and with fewer labor costs. One consequence of this lurch toward digital is that dining as we’ve known it may never look the same again. If that was the trajectory before the pandemic, then Covid-19 has since dramatically accelerated that shift — pushing it from fringe and experimental to the future of restaurants. It’s a new kind of underground culinary warfare not based on ambiance and real estate, but on crude, efficient optimization.
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The rise of ghost kitchens and digital restaurants — also known as digital kitchens, cloud kitchens, and virtual restaurants, depending on how deep inside restaurant industry parlance you venture — is perhaps the defining dining trend of the past few years. By one industry estimate, there are now about 100,000 virtual restaurants in the United States alone, with many bearing suspiciously search engine optimized names like the Omelette Farm and Pizza of New York. Research firm EuroMonitor predicts that ghost kitchens will be a $1 trillion industry in the next 10 years.
In the meantime, the ghost kitchen boom has already drawn in players as wide and varied as local family-run joints armed with nothing but grit and sweat equity to Uber founder Travis Kalanick’s ghost kitchen startup armed with $400 million from Saudi Arabia’s sovereign-wealth fund. For some, this expansion into the digital realm represents a lifeline in a shaky industry at a time when restaurants are struggling to stay alive and dining habits may be changing permanently; for others, it’s a lucrative new way to feast on consumer appetites and open infinite new restaurant concepts without ever having to scout out a new location or worry about foot traffic.
The emergence of ghost kitchens in recent years has been steady and subtle, with a fair share of false starts. Prior to the pandemic, the ghost kitchen model had been propelled in large part by growing online orders, delivery, and catering, generally lumped together as “off-premise dining.” Another related dynamic pushing ghost kitchens to fore have been rising rents, particularly in urban areas, which have forced some restaurants to operate from spaces strictly reserved for food preparation and delivery to offload demand from their traditional stores. Even fast-food chains like Chick-fil-A and Arby’s, which launched new outposts in several major cities in the past few years, did so with built-in kitchens designed for catering to supplement income lost by a lack of drive-thru windows. Altogether, the Netflix-and-chill era has been unkind for in-person traffic, especially in the casual restaurant sector.
Suddenly, legacy restaurants were chopping themselves up into crude, multiconcept SEO-driven commissaries through a diverse and shadowy bumper crop of new digital players.
According to pre-pandemic research by Darren Tristano, a longtime restaurant industry analyst and CEO of Foodservice Results, food consumed away from restaurants has been the only area of growth in the restaurant industry in recent years. “The forecast, based on consumer attitudes and usage, was that the dining experience wasn’t going to grow; that the same number of people will have the same number of dining experiences,” he explained. “All of the growth would come from off-premise delivery and takeout, including catering for business and for social occasions.”
Then, as we all know, Covid-19 hit, bringing in-person dining (and most restaurant revenue) to a near-total halt. As a result, the number of consumers using online food delivery services globally surged from 1.17 billion in 2019 to 1.46 billion in 2020, a jump of nearly 25% year over year. In other words, the equivalent of 90% of the U.S. population started ordering dinner online last year. Among the biggest beneficiaries were pizza chains and third-party delivery platforms like Grubhub, DoorDash, and Uber Eats, which in the past year alone have collectively found themselves getting acquired by huge conglomerates, going public in multibillion-dollar blockbuster IPOs, and creating celebrity-studded Super Bowl ads.
Another pandemic-related outcome is that countless restaurants — from chains like Chili’s and Ruby Tuesday to independent mom-and-pop bistros — suddenly needed to change their business models. With rents to pay, labor costs, and a surplus of underutilized space, many ceded their fine-tuned operations to a sprawling digital ecosystem of third-party delivery apps armed with troves of consumer data, software developers, kitchen logistics startups, and strangely named online-only restaurant concepts. Suddenly, legacy restaurants were chopping themselves up into multiconcept SEO-driven commissaries while empty hotels were renting their spare kitchen spaces and outsourcing room service, all through a diverse and shadowy bumper crop of new digital players. As 2021 gets underway, the U.S. restaurant scene is a jumble of old techniques and new tech, uneasily coexisting through a global tempest.
Back in April 2020, a brief boomlet of media outrage erupted after a woman in Philadelphia, hoping to support a local business during the pandemic, sleuthed her way into discovering that the Pasqually’s Pizza & Wings order she placed on Grubhub actually came from Chuck E. Cheese, the kiddie pizza chain and pioneer of animatronics and ticket schemes. While some news outlets suspected that Chuck E. Cheese was deploying “hidden” brands, others flat out accused the company of deception. (Twitter, as always, was even less forgiving.)
Despite all the outrage, Pasqually’s is just one virtual drop in an ocean of several hundred strange brands to emerge out of thin air in the past several months, often available only on delivery apps like Grubhub, Uber Eats, and DoorDash. For industry observers, sussing out virtual kitchen concepts has almost become a sport. “I was looking at my delivery app, and I noticed the name of a restaurant nearby that I wasn’t familiar with called Craftsman Bowls,” says Melissa Wilson, a Florida-based restaurant trend expert and principal at research firm Technomic. “I said to myself, ‘Well, I know nothing new has opened up on this major street.’ So I looked at the address, and it was the same address as III Forks Steakhouse. And then when I looked closer, I saw they also had Craftsman burgers. So this is an upscale steakhouse… and they have now started two virtual concepts.”
A new digital kitchen can be opened in an urban center for $50,000, roughly 5% of the average cost of a regular restaurant.
Whether a restaurant’s specialty is a porterhouse steak or porcini risotto, tacking on a virtual concept offers a chance to slice and dice their offerings in limitless, revenue-generating ways, especially with fine dining limited by the pandemic and economic uncertainty. “This is a potential opportunity, first, to showcase a more affordable option,” Wilson said. “III Forks has those same burgers on their menu, but you wouldn’t necessarily be thinking of ordering a burger from an upscale steakhouse, if that’s what you’re in the mood for.”
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In late January, I put my digital restaurant skills to the test by opening up my Seamless app and searching for wings, perhaps the most popular offering in the virtual kingdom because of their easy portability and high margins. Immediately, among some familiar entries, I saw listings for generic-sounding restaurants that almost always referenced wings in its names, a telltale sign of a virtual brand. Among the range of wing spots in the northern suburbs just outside of New York City were Neighborhood Wings (operated by Applebee’s), Alfonso’s Wings (a spinoff of a local pizza shop), Chicken Wing King (operated by a local bar), Wings Express (operated by a local diner), and Wings, Mac, & More (a ghost kitchen apparently willing to shlep wings to me all the way from New Jersey). Ultimately, all this research got the best of me and I ordered from Wings of New York, the option with the shortest delivery time.
From its logo and listing on Seamless to the branding and the containers, I would have had no idea that my Wings of New York order had originated in the kitchen of Nathan’s Famous, the venerable Coney Island–born hot dog chain. (From the spread of options on Seamless, only Neighborhood Wings, the Applebee’s spinoff, made the affiliation to its mother brand explicit.) Evidently Nathan’s Famous has long sold wings, but most of us simply don’t associate it with the place. Now was a chance for the company to spin out an entirely new brand at the flip of a switch. “We felt that wings are something we could do well and build an entire concept around,” James Walker, senior vice president of restaurants at Nathan’s Famous, wrote in an email when I asked about the absence of Nathan’s branding. “The idea of Wings of New York is big enough to be a brand, not just a menu.”
If enough people in a certain neighborhood were searching for burritos on their apps, an outfit like Uber Eats might approach an independent restaurant in the area and pitch them on opening a virtual concept that serves burritos.
The basic logic of ghost restaurant brands is that they take much of the risk out of a generally very risky undertaking. According to a handful of industry estimates, the median cost of opening a restaurant runs anywhere from roughly $450 to $525 per square foot. But by focusing on simple specialty concepts like burgers or omelettes, avoiding highly coveted real estate, and sharing kitchen space, equipment, resources, and square footage, the barrier to entry in a notoriously difficult industry drops considerably. Some of the bigger ghost kitchen outfits like Kitchen United and food service vendors like U.S. Foods claim that a new digital kitchen can be opened in an urban center for $50,000, roughly 5% of the average cost of a regular restaurant. Meanwhile, tacking on an additional digital concept to an existing store can be done for as little as $5,000.
Even before the pandemic, before everyone was ordering dinner online, there were other highly calculated behind-the-scenes efficiencies at play. “Virtual restaurants really started by following search engine optimization exercises,” Wilson explained. “The third-party aggregators [platforms like Uber Eats and DoorDash] were mining their search data and finding the most prevalent searches in a particular area where they didn’t have a partner.” That means if enough people in a certain neighborhood were searching for burritos on their apps, an outfit like Uber Eats might approach an independent restaurant in the area and pitch them on opening a virtual concept that serves burritos, she says. In 2017, DoorDash put this data to use by opening its own ghost kitchen facility in Silicon Valley, where it hosts four virtual restaurants, taking in both rent and a commission on orders, as well as delivering customers meals that fulfill the data-determined demand.
This extensive leveraging of consumer data has given rise to a staggering variety of ventures centered on digital ordering. According to a report by the Wall Street Journal, Uber founder Kalanick has spent $130 million in the past two years alone acquiring spaces for his ghost kitchen startup, CloudKitchens. The logistics and management software initially built by Reef Technology to optimize parking lots is now being used to build and run virtual kitchens out of shipping containers. (In November 2020, Reef raised $700 million from SoftBank.) In addition to serving as ad hoc offices, classrooms, and conference rooms, one of the many adaptations for hotels, which remain at limited capacity, has been to rent out their kitchens to digital-only restaurants.
Meanwhile, small, scrappy, swashbuckling upstart businesses have also gotten in on the act. Alp Franko is the CEO and founder of the Local Culinary, a Miami-based company led by restaurant veterans that franchises more than 50 ready-made digital restaurants with menus, recipes, branding, and hardware included. The concepts run a diverse yet familiar gamut: burgers (The Chef Burger), pizza (Pizza Mania), Mediterranean (Pita Stop), Sushi Burritos (Tokito), and Cuban sandwiches (Havana Mama). For a would-be entrepreneur, a business decision can be made on the basis of demographic data rather than a passion for, say, sushi burritos. “We do an analysis on your zip code, and from your location we can see whether you might have more pizza, more vegan, or more Chinese food customers,” Franko said. “And depending on the location, we adapt.” In theory, it’s as simple as licensing a branded concept, ordering from a food supplier, setting up the online system, and donning a toque. More than 40 independent restaurants have already signed on.
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Even with a coronavirus vaccine slowly coursing its way through the country, with brunching once again in sight, the restaurant scene that diners will return to has forever changed. In a notoriously tight-margined industry, the new popularity of delivery and the financial viability of the ghost kitchen model all but guarantees that much of the culinary innovation and experimentation ahead will be aggressively digital. Earlier this week, Nathan’s Famous announced it had opened its 100th ghost kitchen, with dozens more to debut in the coming months. The growth of Wings of New York and other brands like it comes in stark relief to the overall restaurant industry. A pandemic-themed economic impact report by Yelp in September 2020 noted that at the end of August, more than 30,000 restaurants on its platform had permanently closed their doors. That’s a total of 61% of the restaurant listings on Yelp, just above the national average of all shuttered businesses.
For now, the future of dining appears to be strange, literal-named entries on delivery apps and outfits like the ghost Chipotle in Highland Falls, New York, which has a dedicated entrance for pickup orders and another for catering. For everyone else beyond the orderly operations of established brands, there is also considerable chaos happening on the street level in the fight to keep going.