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The Ghost with The Most (Profit) - Your Guide to Ghost Restaurants

It's a well-known and unfortunate fact that restaurants are extremely expensive to run, and a majority of new startups fail within the first year.  The situation is even worse right now, in 2020, with so much of the country under quarantine due to the coronavirus outbreak.  Restaurants, already struggling, are now limited in how many guests they can serve for an evening - if they're allowed to have any in-person customers at all!

The market, however, is ever adaptive and a new trend has begun to take off: ghost restaurants.  They promise lower overhead, better profit margins, and resistance to disruption due to external factors like disease outbreaks.  

If you're thinking of starting a new restaurant or looking for a way to rethink the business model of your existing eatery, a ghost restaurant might be the solution.

I.  What Are Ghost Restaurants?

Simply put, a ghost restaurant is a restaurant without any public customer-facing aspects.  There are no tables, no counter, often no publicly visible door that people might try to enter.  These restaurants, which are sometimes also called virtual restaurants, only make sales by phone or electronic order and only provide delivery options.  These deliveries can often be outsourced to third-party services to further lower costs.

At most, they might have a pick-up window, but even that isn't a requirement.

II. The Many Potential Benefits of Starting A Ghost Restaurant

For a thrifty-minded would-be restaurateur, ghost restaurants offer a lot of potential advantages.  

1. Low overhead

Ghost restaurants can fit into smaller spaces and require far fewer staff to operate.  They're faster and easier to clean, and generally need less upkeep since you don't have to worry about chairs getting broken, cutlery being stolen, or other costs.  

Running a ghost restaurant can be downright cheap, at least compared to most traditional types of eateries.

2. Make use of bad locations

Typically, a restaurant needs to have a prominent - and therefore expensive - location, which drives up your rental or mortgage costs.  However, there's no such requirement for a ghost restaurant.  Ghost businesses can be set up literally anywhere which city zoning will allow for, even somewhere far away from main roads that a customer would never be able to find.

If they're never going to visit you in person, it genuinely does not matter where your business is located, or what it looks like on the outside.

3. Run multiple brands 

Want to increase your exposure?  As long as you have the equipment to support the venture, you could potentially run two or more virtual restaurants out of the same physical location.  The customers literally won't know the difference.  That way, your virtual restaurants can look like they specialize - helping convince people to send in an order.  You can expand your range of menu items, and all it requires is new branding on your takeaway packages.

Some full-size restaurants have even begun creating virtual brands as well, such as a sit-down Italian restaurant also offering delivery-only pizza service under a different name.

4. Commissary kitchens are an option

Don't want to spend the money investing in a location and equipment?  If there are commissary kitchens in your area, you might not even need to own your own property.  Ghost restaurants can easily be run out of rented or shared commissary kitchens.  This will also significantly reduce your regulatory burdens as well since the owners of the kitchen would be the ones responsible for staying up to code.

5 - Experiment for cheap

Do you have an idea for a new type of cuisine, or want to bring ethnic food to an area, but you aren't sure if the market is there?  Start as a ghost restaurant!  Because they're so cheap to set up and run, it's a perfect way to experiment with creative menus that would be too risky to try in a traditional establishment.

III.  Potential Drawbacks to Opening A Ghost Restaurant

Of course, no business model is perfect, and there will be some significant new challenges if you choose to open a virtual kitchen instead of a traditional eatery.

1. Few opportunities to build customer loyalty

Most restaurants live and die based on their ability to pick up regular customers, and those regulars can be attracted by a wide range of features within a restaurant.  Maybe they love the decor, or they've made friends with some of the staff, or you have a great music selection.  None of these factors are in play with a ghost restaurant.  You'll live or die solely by the food you produce, and you'll be competing with plenty of other restaurants for those delivery orders. 

2. No visibility means higher marketing costs

Without a public storefront in an easily seen location, getting the word out about your ghost restaurant will require a lot of outreach.  You'll need a nice website for each virtual restaurant, as well as subscriptions to as many food directories and review listings as you can get.  You'll probably need to get very creative about your marketing if you're to build a customer list.

3. Some customers are wary of ghost restaurants

As a very new concept in eatery, many potential customers may not entirely trust the idea.  You'll probably have to fend off questions like "If your food is so good, why aren't you running a real restaurant?"  They might also question whether your sanitation and cleanliness is up to snuff when they have no way of viewing the kitchen.   You may basically need to go above and beyond to convince people your food is as good as what they can get anywhere else.

4. Being reliant on too many third parties brings new risks

What happens if you're renting time in a commissary kitchen, but the facilities become damaged?  How do you cope if your food delivery service suddenly shuts down, or becomes unreliable?  Outsourcing costs keeps the overhead low, but it also significantly reduces your level of power and control over those services.

If at all possible, you want a "Plan B" in place for any scenario where a third-party you rely on might become unavailable.

IV.  Setting Up A Ghost Restaurant

If you are interested in starting a ghost restaurant, the good news is that they can be extremely cheap to start.  If you're renting time at a commercial kitchen, you might not even have to worry about things like inspections and certifications.  

At a minimum, you will need:

A location.  That location can be practically anywhere which is zoned and has the power grid to support a kitchen.  As discussed previously, this could either be your own property, or a rented commissary kitchen.   Either way, it needs to be large enough to house the equipment you need to support your menu, but there's no need to be any bigger than that.

A great website.  Your website will be your primary storefront that customers see, so it has to be amazing.  Don't skimp and just use a template.  You'll want to spend the extra money creating a truly notable website that will attract attention while making visitors hungry for your food.

Delivery services.  Again, you can either outsource or handle this yourself.  One way or another, you need reliable people who'll be able to quickly deliver your food across your service area.  If you outsource, make sure your online ordering system is properly configured to notify your delivery service!

A menu.  Of course, with ghost restaurants, your menu doesn't need to be set.  You could change it every day if you wanted, or constantly rotate menu items based on what ingredients or equipment you have on-hand.  Since your website will be hosting the menu, there are no costs associated with updating it.

Marketing.  You have to get the word out, and that will require creativity.  Don't rely on Google alone to send you hits, particularly early on before you've started gaining good reviews.  You need to be highly proactive with your marketing and messaging if you're going to get noticed.

In short, opening up a ghost restaurant can be extremely profitable, while reducing the risks associated with starting an eatery.  They can be particularly helpful for novel or experimental menus, or simply for reducing the amount of startup capital needed to the bare minimum.  However, be prepared to put in plenty of work convincing people to give you a try and have backup plans in place if something goes wrong.

Shop Zanduco Restaurant Equipment & Supplies

Need equipment?  Zanduco Restaurant Equipment & Supplies carries everything you need to start a restaurant, including sanitation and cleaning supplies.  Click here to request a quote!