Ghost kitchen provider Kitchen United has taken its time to get here.
Founded in 2017 and one of the leaders in the U.S. ghost kitchen space, it may seem surprising that the company based in Pasadena, Calif., has just six active locations, much fewer than competitors like CloudKitchens and Reef.
But the company prides itself on a measured approach, and has actually been in growth mode for a while. By the end of this year, it will have tripled in size to 18 locations.
“Now that we know it works, and now that we’ve made the mistakes we need to make to learn the business ... we’re ready to scale,” said the company’s chief business officer, Atul Sood, on a Wednesday webinar hosted by Credit Suisse.
“I see this in every big city in America,” he said.
So what has KU learned, exactly, about the still-young business of ghost kitchens?
For one thing, the company was initially conceived as a way for restaurants to offload excess delivery and takeout volume. An early tagline was “We take off-premise off-premise,” Sood said. But as the business developed, a different scenario emerged.
“What we found is that the primary use case is an expansion use case,” Sood said. “We like to work with brands that have brand recognition in a particular market, and they use us to expand into an adjacent market.”
He pointed to the small chain Hawaiian Bros Island Grill, which began with four locations in Kansas and has since used KU to expand into Chicago and Austin, Texas.
“Midmarket brands scaling is a great use case,” Sood said.
Customers order at Kitchen United's Chicago Loop location. / Photography by Joe Guszkowski
The company has also learned that it’s not wise to bring in concepts much smaller than that.
“The success we see most is from operators who have more than five units,” Sood said. “So an independent with one or two units who wants to scale or become a regional brand, they generally don’t have the wherewithal to do so successfully if they haven’t successfully operated five restaurants or more.”
It has also identified revenue targets for its concepts that will allow both the restaurant and the company to be profitable.
“In general, we aim for restaurants to have an AUV of about $1 million,” Sood said. “We have some outliers who are at $4 to $5 to $7 million, which is pretty remarkable.”
Kitchen United charges its restaurants monthly rent and also takes a 15% cut of each transaction that comes through its proprietary Mix ordering system.
The company likes to offer a combination of large and medium-sized chains and emerging brands in its centers, with the breakdown being roughly 40% enterprise, 30% mid-market and 30% emerging, Sood said. That ratio can vary depending on the format of the outlet. In its new partnership with Kroger stores, for instance, its kitchens will be visible to customers, so the company wants to feature brands that offer a fun and visual experience.
“We have a ramen concept in there where it’s kind of cool to see the noodles and everything,” Sood said.
A rendering shows what KU's Kroger location will look like. / Image courtesy of Kitchen United
Its expansion strategy will continue to be omnichannel, featuring a mix of traditional kitchen centers, virtual food halls, grocery stores and malls.
“I think you’ll see, from us and other progressive-minded real-estate holders, many more announcements in the coming months with this type of thing,” he said.
New locations are in the works in Southern California, Texas, Florida and New York, according to the company’s website. In addition to targeting big cities like Dallas and Miami, Kitchen United plans to enter second-tier markets as well, Sood said, and will experiment with areas even smaller than that.
He noted that the company has been successful in a variety of environments, from dense urban areas like Chicago to suburbs like Scottsdale, Ariz.
“It’s working everywhere,” he said.