QSR January 2023


Several companies f lourished such as Kitchen United and REEF Kitchens, expanding at a crisp pace. But there have been roadblocks. Butler Hospitality, which was created in 2016, raised $50 million in funding, and provided room services to numerous hotels from central kitchens, shuttered in July 2022. Now that the pandemic has mostly settled and customers are venturing back inside restaurants, how are these enterprises faring? One expert says growth has stabilized, but several of these ghost kitchen organizations have garnered considerable financial investors and keep growing despite the dine-in boom. Without a doubt, the pandemic fostered the growth of vir tual and ghost kitchens, underscores Lee Schulman, president of Atlanta-based Panacea Management Group Consulting, a restaurant advisory firm. “When all of a sudden, people couldn’t dine out, with the expansion of delivery, it allowed independent operators [via ghost kitchens] to reach the people that formally were coming to them but couldn’t or wouldn’t,” he says. Schulman called it a “feeding frenzy” because growth was so rapid. “Everyone has a phone in their hands. People had access and it was easy to order,” he says. Since the pandemic ebbed, Schulman says there has been a “reset.” “Things have shifted because dine-in is back, though deliv ery is here to stay. People can dine out now, and they want to dine in with their friends and family,” he says. Many startup restaurateurs “aren’t ready to go brick-and mortar; they don’t have the reputation or f inancial backing.

But you can get your feet into the water [with ghost kitchens] at minimal cost, and discover ways to see if the consumer demand or desire is there. It offers exposure,” Schulman says. Yet only a minority evolve from startup ghost kitchen to full-steam retail storefront. Schulman estimates only about 20– 30 percent move into stand-alone eateries. But some turn into brick-and-mortar locations such as Citizens at Hudson Yards in New York City, and Burger Dandy in Franklin, Tennessee. Schulman adds many ghost kitchens don’t carry the extensive menus of in-dining eateries based on their tight kitchen layouts. Hence, they specialize in a “limited number of menu items that allow cross-utilization of ingredients,” he says. Established brands open ghost kitchens as well. In Schul man’s own Piedmont Park area in Atlanta, Wendy’s opened in a REEF Kitchen trailer ghost kitchen that enables them to get into a neighborhood, at low cost, and extend their reach. “It’s like a micro market,” Schulman says. Ghost kitchens have carved out a place, but Schulman believes “hospitality is still a touchy/feely business, and restau rants are here to stay. There’s a social aspect to dining out, and many people want to go someplace else, and not have every thing delivered to their door.” Yet Michael Montagano, the Pasadena, California-based CEO of Kitchen United, sees a bifurcation that could exist in tandem. “I don’t think going out to dinner and ordering in are mutually exclusive,” he says. During the pandemic, Montagano says, many people started ordering in at a higher frequency. And

it’s turned into a habit. “Now, they’re consuming the cuisine they like wherever and whenever they want it, and that happens to be in the convenience of their home,” he says. Kitchen United also secured $100 million in investment in July fromGoogle Ventures, Kroger, and Simon Property Group—a raise that will enable it to “continue to expand its footprint, improve its mature tech stack, and making the economics of delivery work for everyone includ ing restaurants and consumers,” Montagano says. As of press time, Kitchen United expanded from four locations in 2020 to 14 facilities in five states. It derives revenue from a monthly rental fee and a percentage of sales coming from its channels. When it debuted, it gravitated to aligning with established chefs, since they are more likely to suc ceed than startups, Montagano says. But recently, it expanded with local brands and upstarts such as The Impossible Shop and Pardon My Chees esteak, and established names such as Grimaldi’s and Hawaiian Bros. Thinking innovatively, Kitchen United reached a strategic partnership with Kroger that led to its opening inside locations in two supermar kets in Dallas and one in Houston. Montagano notes, “Kroger locations are ideally located for easy pickup or delivery, and it’s a great made to-order food offering for Kroger to bring to its




JANUARY 2023 | QSR | www.qsrmagazine.com

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