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Ghost kitchens and virtual brands represent an exciting new trend in the restaurant industry. By totally reimagining their business models, some intrepid operators have embraced a creative, nimble, and cost-effective approach to capitalize on to-go sales and increase profits from this sector of their business.
In Part III of our Restaurant Reimagined blog series, we’ll take a deep dive into ghost kitchens and virtual brands. We’ll let you know how technology integrations and logistics planning has enabled them to revolutionize the industry and create new revenue streams for existing restaurant owners. We’ll spotlight some of the most successful ghost kitchen brands and strategies in the market today and see how the idea is playing out with consumers.
For restaurant owners interested in establishing their own ghost kitchens or creating a virtual brand for their to-go business, we’ll also discuss key considerations for commercial insurance coverage you’ll need to keep in mind.
- Restaurants Reimagined Part 1: State of the 2021 Restaurant Industry
- Delivery Service Providers and Restaurant Owners: Repairing the Rift
Increasing To-Go Activity Inspires Creative New Concepts
The COVID-19 pandemic and subsequent shutdowns dramatically accelerated an existing shift in consumer preferences toward off-premise and to-go dining. Consider the following statistics
- The vast majority (87%) of Americans who use third-party food delivery services agree that it makes their lives easier.
- Over 60% of U.S. consumers order delivery or takeout once a week, while 31% use these delivery services at least twice a week.
- Digital ordering and delivery have grown 300% faster than dine-in traffic since 2014.
- Most (60%) restaurant operators say that offering delivery has generated incremental sales.
- Delivery sales are expected to rise by an annual average of more than 20% to $365 billion worldwide by 2030.
It’s abundantly clear to-go sales are already playing an increasingly vital role in the constantly evolving “next normal” for restaurants. Ghost kitchen and virtual brand models have emerged as a creative way to capitalize on this trend.
What Are Ghost Kitchens and Virtual Brands?
You'll often hear the terms ghost kitchen and virtual brand used interchangeably. They revolve around the idea that you don’t need to have a brick-and-mortar restaurant to offer food to-go. Though they often operate from a kitchen in a traditional restaurant, many ghost kitchens and virtual brands exist exclusively online and with delivery as their only dining option.
Virtual brands (also referred to as virtual restaurants, cloud restaurants, or delivery-only restaurants) are new restaurant brands that operate from existing kitchens.
Just Wings is an example of a brand whose food is only available to order online. Their entire operation is run on digital sales delivered through third-party delivery companies, and their food is prepared in the kitchens of the large chain restaurants Chili’s and Maggiano’s.
Ghost kitchens (also known as cloud, dark, or virtual kitchens) also offer food exclusively for delivery online, but they don’t operate out of an existing restaurant. In fact, ghost kitchens often don’t have traditional restaurant space of their own at all, and instead, lease their kitchen space from a third party.
Mod Kitchen in San Antonio, Texas is one of the latest examples of a company built to facilitate ghost kitchen operations. Their website touts the operation as “a professional cooking space set up for the preparation of delivery-only meals. The orders are made in one location, picked up by a delivery driver, and delivered to the customer. Ghost kitchens use 3rd-party delivery apps such as Grub-hub, Favor, and Uber-Eats to source customers and deliver orders.”
Other big names in the food industry are getting in on the action, too. Wendy’s announced plans this summer to open 700 ghost kitchens across the United States, Canada, and the U.K. by 2025.
Other Ghost Kitchen Models
Restaurant operators and industry disruptors are taking the virtual brand and ghost kitchen models in many creative directions, like creating hybrid in-house and to-go concepts. For example, at Mod Kitchen, customers can order online or they can choose to visit the physical location, walk up to a kiosk, order selections from each restaurant on one ticket, and enjoy their meal on the premises.
Restaurant disruptors C3 (Creating Culinary Communities) recently created a partnership with an apartment community that will integrate ghost kitchens into their resident’s amenities, providing food services for all onsite dining venues, lobby cafes, bars, private pool decks, street-facing cafes, as well as delivery services for all residents. The partners say this venture marks the first time a portfolio of residential properties utilizes in-house digital ghost kitchens to offer residents convenient and diversified dining options.
In an interview with PYMNTS, SVP of Operations Joey Simmons elaborated, “During the pandemic, real estate space has been severely underutilized, which made us think about how we could reinvent these spaces in the most impactful way possible. Earlier this year, we started injecting digital kitchens into shuttered restaurants and underused hotel kitchens. Integrating our digital kitchens into apartment communities is a natural next step to continue unlocking the value of underutilized real estate.”
When it comes to creating ghost kitchens, virtual brands, and other off-premise and to-go dining experiences, the only limit seems to lie in the imaginations of restaurant operators.
Insurance Considerations for Ghost Kitchens and Virtual Brands
Ghost kitchens and virtual brands are a relatively recent innovation, and as with any new or unique business model, there are more granular and nuanced commercial insurance considerations operators must keep in mind.
If you’re interested in opening a ghost kitchen, here are some types of coverage you may want to consider increasing or adding to your existing policy:
If you are bringing your own kitchen equipment into a third party’s facility, you will need to be sure to include Tenants Improvements and Betterments (if it is attached to the building in any way) or Business Personal Property – to include restaurant equipment. Some insurance companies separate contents inventory, such as pots, pans, etc. from commercial restaurant equipment, like a pizza oven.
Be sure your policy extends coverage to include bodily injury away from the premises. Medical payments coverage is typically tied to bodily injury on the premises. If your products will mostly be consumed off-premise, you want to be sure your coverage follows through with extended off-premise exposure.
If you’re wanting to add a virtual brand to an existing restaurant, it’s a good idea to review your liability coverage limits, particularly for foodborne illnesses. The quality and safety of your product are at risk and often in the hands of a third-party delivery service once it leaves the kitchen, which could potentially impact your liability.
The recent explosion in to-go sales was made possible by improvements in digital technology such as online ordering apps and point-of-sale transactions. This increased reliance on technology comes with greater and more complex risk, particularly in the area of cybersecurity and data protection. Since ghost kitchen and virtual brand sales are conducted exclusively online, these operators should consider obtaining a cyber liability insurance policy.
We hope you’ve enjoyed and found the information in our Restaurants Reimagined blog series helpful. As a leader in the restaurant space, you need a commercial insurance agent with a sophisticated understanding of the market and your business goals. At SWBC, we know the unique challenges you face and have solutions to help drive success through the evolution of dining.
Gina Wallisa is a Commercial Lines Producer with SWBC Insurance Services. She is dedicated to helping her clients mitigate risk by offering a wide range of comprehensive insurance solutions. Gina has an extensive background of 30+ years in the insurance industry with roles ranging from underwriting and marketing to program management. Her expertise is in the Restaurant & Hospitality Industry and she is focused on providing business owners with viable, individually tailored insurance options designed to fit their needs, budget, and risk tolerance. Gina is an officer on the Board of the Greater Austin Restaurant Association. She is an advocate for restaurant operators and works hard to bring their issues to the forefront of the insurance industry.