To say things have changed in 2020 is an understatement. The COVID-19 pandemic has affected every facet of our lives in some form or another, and franchise businesses have been forced to find ways to adapt to the new normal or fade away. One of the hardest hit industries is the food industry, with restaurants feeling the hardest punch. One in six restaurants in the United States has been forced to close in the last six months with over 100,000 establishments closing their doors for good. Nearly three million restaurant workers are out of jobs, and the industry will lose an estimated $240 billion by the end of the year.
As devastating as these numbers are, there is hope. After all, necessity isn’t just the mother of invention, it also births innovation. One up-and-coming franchise model–the ghost kitchen–is starting to take off and may be the perfect option for prospective franchisees.
A ghost kitchen is a cooking facility that produces food specifically for delivery, with no dine-in or walk-in options available. For current restaurant owners, this is great news, because by joining the franchise they can use their current facilities and staff to prepare the food. Basically, what this means is that they’d be running another brand, or brands, out of the same location as their current restaurant, without any on-site customer interaction. It’s also an option for prospective franchisees who don’t own a restaurant, although they’d need more preparation to get it ready. The big question many franchisees have about ghost kitchens is, how does it work?
Buying into a ghost kitchen franchise entails the same basic steps as buying into any other type of franchise. The prospective franchisee does their research, makes their business plan and gets their finances in order before signing on the dotted line. From there, things are a bit different. A ghost kitchen franchise typically has several brands available to choose from. This means the franchisee can choose from different types of food to offer such as ethnic cuisine, pizza, breakfast, burgers, wings and more. They can choose one brand or several, it all depends on the amount of space they have, the number of employees, the market they are in and how many orders they think that can handle at any given moment.
Once the brands have been chosen, the franchisee will be trained by the franchisor’s staff and chefs on how to prepare the new menus. Food delivery is typically handled by a third party, which may or may not be the franchisor, which would be disclosed in the franchise disclosure document. Once everything is set up and ready, it’s time to start making extra revenue.
For many restauranteurs, investing in a ghost kitchen franchise makes a lot of sense. They tend to cost less to open, they can save money on occupancy and labor costs, and the franchisee can keep their original staff. It’s an easy way to diversify their brand, while increasing their net revenue. For those prospective franchisees who don’t own a restaurant, they can find a location within a thriving market seeking multiple choices of food, while saving money from needing a smaller space with no dining furniture. With less needs for the business they can save money not only on upfront costs, but ongoing costs as well.
While there are drawbacks to opening a ghost kitchen, such as having a difficult time making a name for the restaurant due to less customer interaction, the benefits outweigh the negatives and make economic sense. Especially during a time where fewer people are eating out but are instead seeking more options for ordering in.
As demand increases for food delivery services and diners become more comfortable with ordering in, ghost kitchens are becoming more popular. It’s a strategy that can help both small and large restaurants survive during the COVID-19 pandemic. Some are predicting that within the next 10 years that it could be a $1 trillion global industry, even taking permanent business away from such things as drive-thru and dine-in restaurants, as well as the pre-packaged cooking ingredients and ready-made meal industries.
When seeking a strong investment opportunity, investors are always looking for the next big thing. Something they can board on the ground floor. Ghost kitchens are looking like they are that opportunity, and something that should be investigated closely.