Ghost kitchens is one of the break-out trends facilitated by this pandemic and is now a part of the new wave of delivery-only restaurants. According to data from Euromonitor, this new industry could be worth $1 trillion within ten years.

Essentially ghost kitchens are a professional food preparation and cooking centre made for delivery-only services, without having the overhead restaurant costs, such as waiting staff and rent for restaurant space associated with it, thus allowing for a higher profit margin. They have no physical premises that customers can enter, so they serve as kitchens for multiple delivery, only restaurants that may operate out of, thereby sharing facilities. In addition to lowering overhead costs, this concept also provides flexibility and response to sociality changes. These changes show that now more consumers are ordering goods and services out of their own homes. Within the U.S., food delivery services have grown 300% more than traditional dine-in services since 2015, and that workplace culture now dictates ordering in rather than dining out.

There has also been an increase in vacancies of hotels during the pandemic, which now have seemed to join forces with ghost kitchens. As the situation stands, the commercial real estate prices associated with the largest cities in the world have made it difficult for small restaurants to sustain themselves, especially as in most cities, restaurants can only offer a takeaway service due to COVID restrictions, so they have little to no use for the seating space. As hotels also have reported lower ADR and occupancy rates, they have little use for their kitchens. Hence, the concept of setting up ghost kitchens in underutilized hotel kitchens benefits both parties where restaurants can make money by selling food whilst hotels are receiving income by renting out their F&B infrastructure to ghost kitchens. This allows increased efficiency, the standards to be maintained and benefit financially.

A major pioneer in linking the ghost kitchen with hotels has been Butler Hospitality, where they spotted the hotel dining facilities' inefficiencies. Thus, they started the company as a platform that provides room service on demand and serves as a ghost kitchen for hotels. The model of room service from a financial standpoint is volatile due to unreliable order schedules from customers, so hotels lose revenue by providing this service with the high labour costs associated with it.

However, hotels are continually offering this service to stay competitive within the area, which may benefit the brand. As most delivery requests come from dense built-up areas, Butler Hospitality took over kitchens in underutilised hotels and used that facility to deliver to other consumers and even hotels. Consequently, they utilise a business to business to consumer model, where customers in hotels can place their request via Butler Hospitality and communicate directly with them. They keep 90% of the revenue, and then the corresponding hotel is keeping 10%. The company has been rapidly expanding and now employs up to 250 full-time staff and works with major hotel operators such as Marriott, Hilton and Choice Hotels and allows integration at a deeper brand level.

C3 has also outlined their intentions to take over foodservice in 6 graduate hotels by Q3 2020 and convert kitchens to a shared space for national brands such as Umami Burger, Krispy Rice and Sam's Crispy Chicken for their hotel's guests. Here, there is no delivery service, but the set-up benefits the hotels in-room dining and catering and extends the hotels reach to the local community. The hotels will receive revenue from the community up to 30 minutes away from them without employing a full-time team for in-house dining and room service.

Overall, this hybrid digital concept of allowing ghost kitchens in hotels has been accelerated by the global pandemic where businesses aim to create synergies whilst reducing costs. These can develop profitable restaurants and make in-house dining more profitable due to the lower costs of real estate, flexibility and speciality of ghost kitchen operators and allows a streamlined workflow, and this fresh perspective considers the ever-present online purchasing customer.

Korosh Farazad
Founder and Chairman of Farazad Group of Companies
Farazad Group Ltd.

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