The ghost kitchen industry reached a milestone earlier this month when Wendy’s unveiled plans to open 700 of the delivery-only outlets through a partnership with Reef Kitchens.
The deal is significant for a few reasons. It will be a big expansion for Wendy's, which currently has about 6,800 stores. It will get the brand into urban markets, where it has less of a presence. And it will make Miami-based Reef the largest Wendy’s franchisee by a wide margin—and one of the world's largest restaurant operators, period.
It is perhaps the most prominent sign yet that U.S. restaurants are ready to embrace ghost kitchens with open arms. And while Wendy’s has made the biggest splash, it is far from the only company pursuing the model. In a recent survey of 250 operators, Restaurant Business sister company Technomic found that a whopping 70% of restaurants had used a ghost kitchen, and 69% said they planned to open more.
Notably, their top reason for doing so was to test out new concepts. Forty-five percent said that was their motivation, followed by 37% who wanted to use the kitchens to test new markets. The lower barrier of entry associated with opening a ghost kitchen compared to a traditional brick-and-mortar makes them a logical channel for trying new things.
Source: Technomic
Speaking of low barriers of entry: Restaurants are also continuing to double down on the ghost kitchen-adjacent strategy of running multiple delivery-only brands out of their existing kitchens. One of the leaders in that effort has been Brinker International, the parent of Chili’s and Maggiano’s, which said last week that it is launching a second virtual brand. Maggiano’s Italian Classics will complement the successful It’s Just Wings concept in 900 Brinker restaurants by the end of the fiscal year, the company said.
Brinker sees the brands as a way to continue capitalizing on consumer demand for delivery and takeout, which now makes up 30% of its business. Its requirement for virtual brands is that they generate at least $100 million in annual sales, a number both concepts are on pace to meet.
“Obviously, Wings has proven that,” said Brinker CEO Wyman Roberts on the company’s quarterly earnings call last week. “And we think Maggiano's Classics will build through the year as we roll this thing out over the next few quarters.”
On Friday, the owner of TGI Fridays aired its own plans to bring virtual brands into its restaurants. TriArtisan Capital Advisors will do that via a $10 million investment in digital restaurant company C3, which has about 40 digital-first brands across brick-and-mortar restaurants, ghost kitchens and other locations. TriArtisan hailed C3’s business model as “brilliant.”
"The future of this industry lies in leveraging extra capacity in restaurant spaces to maximize all-day revenue potential,” said Rohit Manocha, co-founder and managing director of TriArtisan, in a statement. The company hopes the additional brands can optimize its kitchens as well as make its restaurants relevant to a younger audience. TriArtisan also has ownership stakes in P.F. Chang’s and Hooters.
The $10 million was part of a larger $80 million funding round that included contributions from none other than Reef, which will bring C3 concepts like Umami Burger and Krispy Rice to 500 new locations. (For those keeping score, that’s a total of 1,200 outlets for Reef between Wendy’s and C3 alone.)
Ghost kitchen investments, 2021
Source: Restaurant Business
Investors are seeing the opportunity as well, providing another measure of ghost kitchens’ rise. Tech companies that focus on ghost kitchens or virtual brands have raised nearly $180 million this year, according to a Restaurant Business analysis. C3’s $80 million leads the way, followed by ghost kitchen providers Local Kitchens, All Day Kitchens and JustKitchen.
“We see an opportunity for the restaurant industry to consolidate food preparation and considerably lower the cost, bringing consumers an affordable, faster and more convenient experience,” said General Catalyst, the PE firm that led the funding round for San Francisco-based Local Kitchens, in a blog post. “This should be a unique moment for restaurant brands willing to take the jump to invest in a centralized approach.”