Why Ghost Kitchens are the Future

Moving into a new age of food based entrepreneurship

Here in Shanghai, we’ve become use to a certain level of convenience and access without having to leave our homes.

In 2014 a new company was founded to take advantage of the growing change in consumer expectations. This company was called ‘Coffee Box’, and was a revolutionary company that changed the game for local competition.

It started as a locally owned and operated delivery company for international coffee stores, including both Starbucks and Costa. However once they had their footing, they branched off and started delivering their own branded coffee.

Coffee Box become one of the first successful ghost kitchen coffee suppliers in Shanghai. They radically shot into profitability, efficiently delivering hot coffee to customers in record time, and offering unique pricing structures. Customers could pay for their coffees a month or a year in advance, and save big. They could also schedule daily deliveries right to their desk at work, and schedule it to arrive at a precise time each day.

This was all possible because of the efficiency of their ghost kitchens.

What’s a Ghost Kitchen?

A ghost kitchen is simply a commercial kitchen that operates for customers who aren’t dining in the same location as the kitchen. Many businesses have run a form of ghost kitchens for a long time.

U.S based company ‘The Cheesecake Factory’ only makes its cheesecakes in a couple of locations. The deserts are then trucked to their restaurants around the country. This is the structure that has been operated for years, but the tide is turning.

Turning It Up a Notch

Instead of supplying some of their goods with a kitchen that runs independently, modern ghost kitchens run the entire business without a store-front.

The only way to order from a ghost kitchen based business is to find them on an online food delivery app, such as Uber Eats.

You find them on the app and they appear on the screen just like a regular business. You order your food just as you always would, and it’s delivered in a timely fashion. From looking at the app, you’d have no idea whether you’re ordering from a ghost kitchen or not.

There are no physical stores for Coffee Box, you have to find them and make your order online.

This way of business makes a lot of sense in a world where restaurants are closing faster than ever.

The Bleak Future

According to CNBC, 60% of restaurants close the doors in their first year. Making it even worse, 80% of the remaining restaurants don’t make it to 5 years.

The business is brutal because the overhead is very high, and competition is fierce. When you’re opening a restaurant, you’re competing against major players who are fighting for your market share. You’re also paying a ton of rent for the restaurant, expensive equipment, and a lot of labour cost.

A lot of people go into business because it felt good, which makes it devastating when it’s something as difficult to liquidate as a restaurant. Commitments on the lease and initial investment make walking away extremely expensive and soul destroying.

Ghost kitchens change all that.

Now people are getting into the game cheaply and easily. Professionals who can make great food can now rent space in a commercial kitchen and just pay for the time they need.

They can cook alongside people who’re working the same hustle, and can take advantage of existing cooking and delivery infrastructure.

A friend of mine makes amazing hummus. She wanted to be able to deliver her many different kinds of hummus over a delivery app here in China, so she found a kitchen. She rents the kitchen at cheaper times during the morning and makes all her hummus during those hours. She then hangs around at night and gives it to the delivery drivers who have received orders for delivery.

It’s easy, the overhead is low, and if she wanted to walk away she could do so at any time. The barrier for entrepreneurs has never been lower in the food industry than it is right now.

What’s Next?

There’s always going to be something new that makes the old obsolete.

For Coffee Box it was Luckin’. Luckin’ is a competing coffee chain that opened in Shanghai in 2018 to compete against Coffee Box.

Unlike Coffee Box, they have physical stores. However in spite of that, it’s still impossible to order your coffee from a person. If you go to a store, you still have to order your coffee from the app. Once you’ve ordered the coffee, it displays a QR code on your screen which is scanned by the barista who gives you your coffee.

Of course, the main method of profitability is still delivery.

Why offer an in-store option?

To me it seems that having physical locations is good marketing, which appears to be their only true purpose.

I’m often walking through a mall and am not sure what I want, but then I see a Luckin’ and realise I want coffee. I’ll then order the coffee on my phone and start walking to the store, where it’s waiting for me when I arrive.

The stores are very bare-bones to save on costs. There’s no-one being paid to serve you, only a barista. The locations often have no or very little in-store space for customers to sit. Interior design is very bare, with no expensive decorations anywhere at all.

Luckin’ have merged the two systems in an effort to make a more profitable futuristic model that works. A model that relies on less staff and more convenience.

Learning from this model, I’d say the future of business is more convenience, less people, and more reliance on existing infrastructure. Use what’s already there, instead of building your own space. Which is the equivalent to writing an article here instead of on your own site.

If this model works well enough, I’m betting it’ll start being used worldwide to save on costs. Will you be happy when a Luckin’ or a Coffee Box moves to your neighbourhood?