Ghost kitchens are dead – why multi-brand restaurants will be ubiquitous
The tech-driven future of restaurants will still center on food quality and human connection
Delivering a better model for diners and chefs
As an engineer on the founding team at DoorDash, I saw firsthand the rise of food delivery. Over the past decade, restaurants have had their e-commerce moment, creating massive convenience for guests but leaving behind some of the food quality and humanity that has always defined the restaurant experience. Meanwhile, it’s only become harder than ever for independent restaurants to scale against rapidly rising costs, leaving chefs grasping for new ways to build their business and embrace the demand shifting to digital. Diners and chefs deserve better than the status quo.
At Local Kitchens, our vision is an entirely new kind of restaurant – serving multiple brands under one roof to bring the world’s beloved chefs to every neighborhood, powered end-to-end by technology to automate the kitchen and power natively digital guest experiences. Ghost kitchens were invented to solve these problems but were ultimately a false start for the industry because they didn’t create a win-win-win for guests, chefs, and staff alike. Instead, multi-brand restaurants can bring the best of all worlds – convenience, food quality, and human connection – by controlling food operations directly and prioritizing hospitality. In doing so, multi-brand restaurants will create efficiency to be reinvested in food and people, while enabling chefs to scale their brands globally without running operations themselves.
Food is a trillion dollar industry with a huge impact on our lives, so a lot is at stake – it’s important that we build a future of restaurants that works for everyone. Read on to learn why we just raised a Series B to continue scaling our vision.
Food is the final frontier for e-commerce
Let’s start with some background on food. Each year we spend a bit more on food prepared away from home, and spend a bit less on groceries. This trend has been going on for a very long time as restaurants save us a dramatic amount of time compared to cooking.
In the 2010s and 2020s, the Internet and digital ordering has finally come to food, although we are still very early. Food delivery unlocks the same selection and convenience revolution that drove retail e-commerce over the past few decades, creating an unbeatable value prop that is being adopted by diners at a rapid clip.
The pandemic of course acted as a massive accelerator for food delivery - and unlike other short-lived pandemic trends, food delivery is here to stay, and has continued to grow its position as a lifestyle necessity rather than a sporadic luxury especially for Millennials and Gen Z.
Despite all of this rapid growth, the status quo in food delivery is broken. Third-party food delivery marketplaces were built as a bolt-on to traditional restaurants, creating structural inefficiencies since the restaurant format is not optimized for delivery - which ultimately limits variety and service quality for diners. And for restaurant owners, costs for food, labor, and construction and real estate increase relentlessly and squeeze margins, creating a need for new efficient business models to service this influx of digital demand without the overhead of traditional brick and mortar restaurants.
The ghost kitchen boondoggle
Through the pandemic, there was an explosion of new solutions across the restaurant stack aimed to address some of these problems for guests and chefs. These solutions were broadly called “ghost kitchens”, but actually operated at very different points in the stack – some providing digitally-optimized real estate and kitchen infrastructure, some actually operating the kitchen and preparing food on behalf of other brands, and still others creating virtual branding to sell food from existing restaurants.
A fundamental challenge in food delivery is that you have small transactions of perishable, labor-intensive products changing hands a number of times in a compressed time window – there is no room for more middlemen.
And so most ghost kitchen models took shortcuts to squeeze out a role for themselves in the ecosystem. Some skimped on the customer experience, sacrificing culinary integrity and quality control. Others skipped sustainable unit economics and blitzscaled with an upside down financial model. Most invested heavily in technology but neglected the food itself, hospitality, and the guest experience. Investors poured billions of dollars into these models to grow quickly during the pandemic era, but when capital dried up most players failed or consolidated to niche markets, failing to deliver industry-wide impact.
Introducing the multi-brand restaurant
Despite the failure of ghost kitchens, convenience dining will only continue to grow – and the wheels of the market will continue to turn towards better business models. Rather than point solutions, the right answer is for more vertically-integrated models to tackle the whole stack and create value for diners and restaurants alike by simplifying complexity in the system end-to-end.
While “ghost kitchens” were envisioned as behind-the-scenes infrastructure, this new model can be thought of simply as multi-brand restaurants – serving many food brands under a single roof with a focus on takeout & delivery. Multi-brand restaurants will deliver variety and convenience to guests while providing a new growth model for food creators, all enabled by an end-to-end technology platform.
Let’s consider some principles for what a better future of restaurants should entail:
Exciting menus designed by the world’s most talented chefs
Fresh, tightly controlled food preparation
Real estate that supports dine-in, not just delivery
End-to-end technology powering seamless ordering and efficient operations
Prioritizing human connection – hospitality and community
Multi-brand restaurants will deliver high quality, additive variety to communities that need it – with ability to mix-and-match across cuisines for couples & families. They are more efficient on labor and rent and use technology to automate high throughput kitchens optimized for digital ordering, creating more opportunity to invest in fresh food preparation and last-mile delivery service without jacking up prices. They can create real convenience with digital ordering natively integrated into the operation and featuring dining rooms to support dine-in in addition to takeout and delivery, meeting guests wherever they choose to order and eat. And most importantly, multi-brand restaurants can preserve the magic of food as a means to bring people together by participating in their local communities rather than acting as “dark” digital-only infrastructure.
No matter how much technology disrupts restaurants, the foundation still rests on great food and humanity, and those principles should never be compromised even as we build towards greater and greater levels of convenience.
The future (of food) is already here, it’s just not evenly distributed
We believe this type of model has the potential for rapid growth and will be as disruptive to the restaurant industry as fast casual led by Chipotle in the 1990s and before it fast food drive-thru led by McDonalds in the 1960s. At Local Kitchens, we’re building towards this vision and accelerating with 1 in 10 households in the San Francisco Bay Area served, profitable unit economics, collaborations with beloved local restaurant brands and nationally acclaimed chefs, and now $75m in financing. The first wave of ghost kitchens may have been a phantom, but the opportunity – when built with customers and sustainable economics in mind – is real.