Virtual kitchen industry has opportunities for behemoths and startups

In December 2020, I wrote about ghost kitchens, also known as virtual kitchens, a concept that suggests a restaurant operation without the dining space, usually to customers who purchase orders online. Ghost kitchens began appearing in 2015, but the growth in this industry has skyrocketed since the onset of the pandemic. As we noted, there are some big players in the ghost kitchen space:

• Virtual Kitchen is backed by Founders Fund, a venture fund started by Peter Theil, a co-founder of Pay Pal; Thiel led a $20 million investment in virtual kitchen.
• Kitchen United has amassed $500 million in venture capital funding from Google Venture (now called GU), as well as Divco West and RSR.
• Cloud Kitchens is backed by Travis Kalanick, former CEO of Uber Technology. Cloud Kitchens has raised more than $400 million and has acquired real estate in two dozen cities for food delivery services.

Additional recent entrants into the ghost kitchen business include:

• Creative Culinary Communities:  In an effort to inject new life into aging food courts in malls, former hotelier Sam Nazarian is leasing space in Brookfield and Simon Malls across the U.S. The bet: If there is a buildout of both dine-in and delivery-only kitchens in a single location, the combination will be a blockbuster. So, look for a reinvention of food courts to offer a wide variety of dining options for in house dining and home delivery.
• Reef Technology: Reef is a Miami-based parking facilities company that has 5,000 locations in North America. Reef uses the parking facilities to enter the world of virtual delivery based cloud kitchens. 

As set forth above, business giants are plowing into the ghost kitchen space with energy, market savvy and capital – but, why? Many of us order food delivery to our homes least three times a month.Food delivery is exploding, and shrewd investors want part of the action.

Euromonitor, a market research firm, has estimated that delivery only restaurants could be a trillion dollar industry by 2030. That means there is plenty of room in the virtual kitchen space for the behemoths with unlimited capital and the start-up folks looking to make a name and a living. 

What is required of the person with a vision, grit and a limited amount of capital who wants to start a virtual kitchen?

According to Ashley Colpaart of the Food Corridor, here is what an operating virtual kitchen entrepreneur has to do:

Step 1:  Plan your concept to optimize for delivery; starting with delivery in mind from the get go is key. 

Step 2: Research and identify your niche.  Look for a gap in the market you want to serve. 

Step 3: Build your brand. As customers will be ordering online, investment in online assets is essential: logo, menu and other brand related assets must be developed and utilized. 

Step 4: Choose your virtual kitchen. Check out the Kitchen Door, which advertises available shared use kitchens in designated areas.

Step 5: Choose a delivery supplier. Don’t rule out local drivers; check out the national providers as well. The choice of a delivery supplier will require a great deal of research on how service providers perform in the geographic area of delivery.

Additional resources for the startup may be available at Franklin Junction, which creates “a customized solution for conducting a fee site analysis, matching your existing infrastructure with competing brands from our roster,” or Nextbrite, “an advanced brand curator, leading the industry with top of the line Virtual Restaurant brands built to drive revenue.”  Nextbrite targets operators who seek minimal startup costs.

Coming soon, we will report on virtual kitchen entrepreneurs big and small in Northeast Ohio.  Tell us your virtual kitchen story and advice for newcomers who want to build a brand.