What is a “Ghost Kitchen”?

Halloween has been over for a few weeks now, but there is a new type of business that has been a little scary to planning and zoning administrators. Ghost kitchens may be a little spooky at first, but communities have started to warm up to the concept.

In general, ghost kitchens are spaces that are equipped to prepare meals for delivery-only restaurants. Also known as cloud, dark, shadow, or even zombie kitchens, they don’t usually have a presence in a community as you can’t eat there, and you typically can’t pick up your food there either.

COVID-19 Impact

As discussed at length on Rural Resurrection, there are a number of impacts that COVID-19 has had on communities throughout the United States. Many of these impacts have long-term implications. Ghost kitchens are just one of these probable long-term impacts.

Last year we documented how communities should allow for carryout parking spots for restaurants in areas where restaurants utilize public parking. During the heights of the COVID-related lockdowns, some estimates calculated that roughly 90 percent of restaurant meals were taken off-site. This made for an ideal environment for the emergence of ghost kitchens. As people increasingly gravitated to Doordash, Uber Eats, and similar services the ghost kitchen trend caught additional momentum.

Some media outlets are even calling ghost kitchens the future of the restaurant industry.

Throggs Neck BID businesses on Wed.. May 12, 2021, State of New York MTA. Creative Commons 2.0

Entrepreneurial Draw

The draw of this new restaurant concept to entrepreneurs is quite obvious when you think it through. It is similar in popularity to what food trucks have enjoyed in recent years as the initial investment is relatively low compared to starting a full-scale restaurant in a commercial district. But instead of investing in a vehicle that needs regular maintenance and inputs such as gas, they are typically investing in lower-rent areas like industrial properties that don’t need the overhead costs of a food truck.

There’s no need to invest in facades that attract customers. You don’t have to invest in signage or the finishes needed for indoor seating. There’s also no need for wait staff and the increasing related overhead costs tied to them. The fiscal advantages overall are significant enough that these ghost kitchens can offer a product at a lower price with higher profitability.

Only in Cities?

Much like many other business concepts, ghost kitchens have mainly gained popularity in the cities where demand and the on-demand delivery structure are already strong. However, much like many other business concepts, it will eventually get to rural areas. The concept may just take some additional evolution in how it works to be a profitable endeavor in rural areas.

One area where this evolution may happen is related to how many restaurants they serve. Some ghost kitchens already prepare food for multiple restaurants in one location. Hence, a ghost kitchen could be preparing food for more than one separately branded “restaurant”. So in towns where those restaurants wouldn’t otherwise have the volume of sales necessary to survive on their own, they operate as a portion of the ghost kitchen’s product, limiting overhead.

Isaac Alonso. Chefisaacalonso. Creative Commons 4.0

Issues and Benefits to Rural Communities

Although ghost kitchens are an intriguing new business type, there are some possible issues to rural communities. Most ghost kitchens set up shop in low-rent industrial areas. As they come into your community, they’ll take up a portion of the already limited restaurant market share of your community. This means fewer restaurants in the commercial areas of your community. These same commercial areas are already reeling from the retail apocalypse that is leaving a number of structures empty.

However, this model allows for local entrepreneurs to get started in the restaurant business rather inexpensively. But they may desire to expand into in-person dining eventually. With this business model, they can wait until they’ve built up enough of a business following to afford the commercial space. So in a way, ghost kitchens have the ability to grow more businesses from scratch that may populate your commercial areas down the road.

It should also be considered that ghost kitchens are sales tax generators in areas that generally do not generate much sales tax. The industrial areas that many of these ghost kitchens set up shop in do not typically generate sales tax. This of course depends on how the local tax laws shake out, in many states sales tax is allocated at the point of delivery. But regardless, it is the addition of another business that provides additional sales tax.

Conclusion

Although ghost kitchens are not very prominent in rural areas at this time, it is a good idea to start preparing for them now. It is a good time to consider where you want to allow them in your zoning code.