- Ghost kitchens — restaurants that offer delivery-only service and often share kitchen and prep spaces with other eateries — have grown in popularity during the pandemic.
- Hady Kfoury, owner of an NYC-based chain of Lebanese restaurants, recently opened a ghost kitchen for $50,000 in startup costs, saving thousands from the estimated $1 million it would’ve cost him to open a new full-service location.
- It’s important to establish production goals early, customize the kitchen space to your restaurant’s specific needs, and experiment with personalized sub-brands, owners say.
- “Six months is good enough for us to evaluate the model,” said Koji Kanematsu, who opened a ghost restaurant with Cloud Kitchens in San Francisco and is developing two additional concepts to run out of the same kitchen.
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When Hady Kfoury was approached about opening a ghost kitchen in the summer of 2019, he didn’t know what a ghost kitchen was.
Since 2008, Kfoury had successfully grown his Lebanese restaurant Naya from one location in midtown Manhattan to seven. He was approached by ghost kitchen operator Zuul, a 5,000-square-foot space in Soho launched in September 2019 with ten separate kitchens, each dedicated to pumping out orders for delivery-only outposts of New York restaurants.
Zuul presented the opportunity for Kfoury to expand into Soho, a section of the New York market beyond Naya’s delivery reach, at a fraction of the start-up cost for a new restaurant.
At the end of December, Kfoury launched Naya’s ghost kitchen for about $50,000 in startup costs, rather than $1 million he estimates he’d need to open a new full-service restaurant. And his rent was just a third as much as rent at his most expensive location ($33,000 on Madison and 52nd Street).
His timing was on point. The pandemic has accelerated a simmering trend in restaurants: delivery as the primary source of revenue. While COVID-19 has reduced most of Naya’s sales to 30% of the previous year, Kfoury is happy with the ghost kitchen. Though forced to close from March until June, it’s currently doing about 200 orders a day.
Business Insider talked to Kfoury and others to learn these five critical steps to a successful ghost kitchen operation.
Ghost kitchens are harder for first-timers
“If you don’t have a solid brand, there’s a lot of risk involved,” said Kfoury.
For example, in early 2019, Kfoury sublet one of his brick and mortar kitchens to a friend, a former fast-casual dining CFO who wanted to try a ghost restaurant for his exclusively late-night, sauce-driven chicken concept. Despite zero start-up costs, and a serious attempt, including marketing, photoshoots, and influencers, the CFO gave up after two months.
“It’s much easier for a brand that already has some recognition.”
Kfoury, who turned down an offer to establish a ghost kitchen in Philadelphia, also cautions against moving too far beyond your market.
“I don’t have brand recognition in Philly. We have one store, but we’re not solid enough to be there.”
The key is to know how firm your reputation is and how much demand will be within the potential ghost kitchen delivery radius.
Read more: Ghost kitchens are pitching themselves as the future of restaurants. These are the 15 companies in the space that you need to know.
Experiment with sub-brands
After the pandemic forced Aki and Koji Kanematsu to close down most of their Onigilly operations in San Francisco, they opened a ghost restaurant with Cloud Kitchens. Their core product is onigiri, a triangle of short-grain rice, wrapped in nori, stuffed with things like pickled mustard greens or spicy miso beef. But the Kanematsus, who are developing two additional concepts to run simultaneously out of the same kitchen, encourage experimentation.
“If we have a sub-brand online,” said Aki Kanematsu, “Like Tokyo Poke house or Curry Ninja, we can operate with the same staff. Because they are simple operations. Same ingredients. Same labor.”
Be prepare to customize your kitchen equipment
Typical of ghost kitchens, Naya’s entire workspace at Zuul is under 200 square feet. No matter what combination of cooking equipment your business requires, that leaves little room for refrigeration, prep table, and packaging space.
Every step taken to grab an item beyond an arm’s reach is a second lost in cooking time in a fast-paced kitchen. While beef, chicken, tofu, and the extensive toppings needed to assemble sandwiches and bowls must be kept safely separate, they also have to be equally accessible.
The work table, refrigerator, sandwich table (the waist-high unit with all the inserts for toppings), even the shelves inside fridges all have to be custom-built. Every inch of the ghost kitchen is maximized, enabling a small crew to work using the least possible movement.
Establish a production goal
To make sure you’re not losing revenue due to the space restrictions, keep tweaking the set-up by setting a production goal.
“How much can they do per minute or hour? That’s how you decide what your sales are going to be at full capacity,” suggested Kfoury. “If you’re not able to do those volumes, it doesn’t make sense to be there.”
Use your current delivery numbers as a sales goal
The environment will skew the usual formulas for calculating rent, labor, and food costs (around 10%, 20%, and 30% respectively for a brick-and-mortar restaurant) as a percentage of revenue.
For example, you may let food cost go as high as 40% to price competitively, or, as Onigilly has done, raise prices 10% to absorb the cost of third-party delivery commissions.
To start, set a sales goal based on what you could achieve in delivery from a brick-and- mortar location. At Naya, pre-Covid, 34% of a typical day’s 1,000 orders were delivery. That became Kfoury’s sales target for the ghost kitchen.
“We’re going to a new market. There’s no walk-ins. We should be profitable at 34% of our regular brick and mortar. And that would represent about 300 to 400 orders a day. That’s how I based my business plan.”
Read more: The owner of a line of DC restaurants shares how selling inventory, streamlining menus, and upgrading tech helped his business stay afloat — and how much he made from each venture
Avoid a long lease to minimize risk
Typically, restaurants prefer long leases. Because restaurants can amortize the cost of renovations over a long period, they need time to earn back the money spent on renovations.
“You want your return on a million dollars,” said Kfoury. “Usually, if you’re profitable after year three, it takes at least two years to make your money back.”
Naya pays a flat rent. But many ghost kitchens, like Onigilly, pay a base plus a percentage of sales (in their case 3%). Though the initial investment is much lower, Kfoury wouldn’t have taken the risk if it came with a 10-year lease, the usual minimum in New York.
“It’s a one-year contract. Worst case scenario, you pull out after a year. The risk is so minimal.”
While one-year is typical, don’t be afraid to negotiate. If your business and its model are still in the experimental stage, avoid getting handcuffed to a lease. Because Onigilly leased three kitchens at once (so far, they’ve just opened the first, in Oakland), the Kanematsus were able to negotiate a six-month lease with Cloud Kitchens.
“This is just a reduced risk,” said Koji Kanematsu. “Six months is good enough for us to evaluate the model.”