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"Ghost" Kitchens Cook Up New Market

The explosion in restaurant delivery services has given birth to a new type of dining establishment – off -site commercial kitchens that can accommodate to-go orders without compromising operations in brick-and-mortar facilities. These virtual or "ghost" kitchens bring multiple restaurants under one roof to cook up food intended only for pickup or delivery.

After a few failed attempts by the first wave of delivery-only pioneers, a second generation is gaining traction, with more than a few variations on the business model. These include CloudKitchens, a company launched by former Uber CEO Travis Kalanick. The European food delivery service Deliveroo opened a virtual kitchen in a warehouse in Paris last year.

One of the more ambitious entrants is Kitchen United, a startup founded in 2018 that operates two virtual kitchens, one in Chicago and the other in Pasadena, California; both house between ten and 20 restaurant brands. Lease agreements have been announced for new Kitchen United facilities in Atlanta, Columbus, Austin and Scottsdale.

FreightWaves spoke by telephone with Kitchen United vice president of business operations Jen Henriksen, whose previous experience includes working as head of sales and marketing for Vanguard Logistics Services. Henriksen talked about expansion plans, kitchen logistics and how restaurants can get the most out of food delivery apps.

(Interview excerpts have been edited.)

FW: Ghost kitchens cater to customers who order restaurant food to go. Tell us how your model works.

Jen Henriksen, Kitchen United

J.H.: The concept is that a restaurant can put one or two cooks in a kitchen and be up and running. We provide front of house and back of house staffing and have fully equipped our kitchen with commercial equipment. The brands share labor costs; membership includes fixed costs like rent, kitchen maintenance and cleaning. We have a small front-of-house pickup center that can welcome pickup delivery drivers and consumers taking food to go.

We work with large national brands as well as innovative, up-and-coming regional brands – Canters Deli, the Halal Guys , Dog Haus.

FW: Describe your relationship with food delivery services – Uber Eats, GrubHub, Postmates.

J.H.: We recommend that our partners work with all the brands you talk about, and that they work with catering platforms to drive volume out of the kitchen center. We are not specifically a technology company. We are here to enable the growth of restaurants and support them in their effort to grow this market.

FW.: Delivery apps are facing scrutiny for eating into the profits of brick-and-mortar restaurants. What is your take on the winners and losers in the food delivery wars?

J.H.: When it comes to the cost of those platforms, absolutely, the bigger you are the greater your buying power. As we expand and grow we want to leverage that buying power in our centers and help improve earnings before interest, taxes, depreciation and amortization [EBITDA] for our restaurant partners any way we can. In our view, the restaurant owns the consumer. Our kitchen centers are not brand-forward. The restaurant brands are out front for consumers and the marketplace to see.

There is always going to be a on -premise dining experience demand. People are always going to want to go out for birthdays, anniversaries, date night.

FW.: The food delivery market is changing rapidly. Has your model changed at all since launch?

J.H.: It's kind of the Wild West, and everybody in this space is trying to figure it out. Our founder saw the delivery and off-premise dining market beginning to grow quite rapidly a couple of years ago. He had several years of restaurant experience, and he had the foresight to lean into the phenomenon and see it for what is was – a market opportunity here to stay. I've been with the company since December [2018], and the way we operate is pretty different than it was even six months ago. So it continues to evolve.

FW: For example?

J.H.: When I first started, our sales cycle for bringing restaurants into our spaces was a bit more around inbound inquiries. That has evolved to where we work with more established and educated brands that are operating multiple facilities, that understand the off-premise opportunity and are open to finding ways to serve that consumer base.

The other thing that we've learned has been on the operations side. Five months ago, we were looking at opening our River North facility [in Chicago]. I would sit in meetings, and we would talk about how the supply chain works, how the logistics work. One of my thoughts was ‘if we have 12 restaurants here, what happens with all the delivery trucks. They don't all use the same food distribution system.' So these are things we're working on, so when we do scale and we are ramping up and opening more facilities at a much faster pace, we don't have obstacles to getting those operations up and running.

FW.: How do you manage parking?

J.H.: We find facilities that have multiple parking spots and strong access roads for freight delivery, for consumer pickup and for the Uber Eats and GrubHubs of the world to come and pick up.

Going forward, we're looking for properties that have access to freight distribution system for the drivers and access for the consumer. We're also thinking about what happens in three to five years or whenever it happens that autonomous vehicles [AVs] are picking up food – how are we going to facilitate that? So we think about reaching as many consumers as possible in the immediate area, and can we build this facility in a way that will address evolving delivery platforms.

F.W: Are partnerships with AV companies on the horizon?

J.H.: Absolutely. But I don't have enough time for that right now. (She laughs.) It's all about managing priorities. It's all on our radar.

FW.: You came to this industry from the logistics space.

J.H.: My background is primarily in tech, and I worked for a couple of years at Vanguard, one of the first in the space to consolidate less-than-truckload shipping. The company had been through a bunch of mergers and acquisitions, and they needed someone to come in and streamline some of their sales and marketing.

I work with a lot of companies across the supply chain and technology, and I think one of the things that stands out for us is that we are restaurant people. The entire leadership team comes from the restaurant space save for me. I'm consistently impressed by the depth of our management team, that they reach these top brands and bring such expertise to scale their businesses.

FW: How do you feel about the "ghost kitchen" moniker?
J.H.: My only hesitancy with the term is there was a time when restaurants would try this delivery model in kind of a back alley, dark. with no signage. We are not dark; we have a consumer-facing front-of-house, and we're branded with the restaurants.

FW.: Talk about your expansion plans.

J.H. I kind of want to say: stay tuned!

The off-site demand is one-fifth what it will be in five years, and demand in the U.S. is one-fifth of demand internationally. We are looking at having 100 facilities open by 2021. We will see what is happening with permitting and construction, but there is no issue filling our facilities. Typically the restaurants are well-versed in what we do at this point. It's a really exciting time. If I had a bunch of money, I'd be throwing it at this space right now.

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