The Rise and Retreat of Ghost Kitchens: A Culinary Revolution Reconsidered

Several weeks ago, there was an onslaught of articles on the death of the ghost kitchen. 

The New York Times wrote:

“Customers using delivery apps like Uber Eats and DoorDash find themselves sometimes wondering where the food is being made as well as dealing with long wait times as drivers have to deliver multiple orders at a time. This leads to food quality issues. Uber Eats removed 8,000 ‘storefronts’ from its listings last year over complaints of poor quality, inaccurate orders or duplication, meaning multiple, nearly identical restaurants were operating out of the same location.”

The article confounds multiple issues, such as cloud kitchens and virtual brands, but the problem is clear: cloud kitchens are not delivering their promise to completely change dining and delivery.

“‘A lot of customers got burned at times during the pandemic receiving food that was not at the quality that they had hoped from these new virtual brands,’ Ms. Calba said. ‘It created a pretty bad perception of a number of the virtual brands.’”

Is this the end of a (short) era or just one more iteration in an inevitable evolution? 

Let’s delve deeper. 

The Rise …

I have written quite a bit about this topic, but let’s quickly recap and then add more on what has happened since. 

The concept of ghost kitchens, also known as cloud kitchens or virtual kitchens, gained significant traction during the pandemic. Traditional restaurants, facing the dire prospect of closing their doors permanently, repurposed their idle kitchens to cater exclusively to delivery orders. That gave rise to firms designed from the onset to function as ghost kitchens. 

This shift was also driven by a surge in demand for food delivery as people stayed home, initially due to the pandemic, and later as part of the “Work From Home” trend. This was, of course, coupled with the fact that many don’t know how to cook (or don’t want to learn), and became a tailwind for cloud kitchens.

Large chains and startups alike saw an opportunity in this new model. Investors poured billions into the sector, betting on its potential to transform the restaurant industry. 

High-profile endorsements and partnerships fueled the growth of ghost kitchens. Kitchen United became a prominent player, backed by Kroger with $175 million in funding. Fast food giant Wendy’s announced plans to open 700 ghost kitchens in a partnership with Reef. Even celebrities and influencers jumped on the bandwagon, creating virtual brands. For instance, YouTuber MrBeast launched MrBeast Burgers through a partnership with Virtual Dining Concepts, who aimed to tap into his massive online following.

I would argue that the problems cloud kitchens solved go well beyond the issues raised by the pandemic. They solved the problem of expensive real estate and limited reach for restaurants, allowing them to operate more efficiently by centralizing food preparation in lower-cost locations and focusing solely on delivery. By separating the cooking process from the dining experience, cloud kitchens offer a cost-effective solution for food businesses to scale without the overhead associated with traditional brick-and-mortar establishments, and without the need to juggle the different requirements of different customers. 

I highly recommend watching Episode 7 of Season 1 of The Bear. The narrative reaches a frenetic peak as the staff at the sandwich shop The Original Beef of Chicagoland faces a surge in online orders after one of the show stars signs up the shop on Uber/Doordash (no details are provided). This episode vividly and painfully illustrates the chaos and operational strain that traditional restaurant setups can experience, highlighting the potential advantages of cloud kitchens.

The episode starts with an influx of online orders due to a positive review and a new pre-order system. As the staff struggles to keep up (as seen in the image below), the kitchen descends into chaos. The lack of preparation, coupled with the sudden demand, and kitchen layout —ill-fitted for the need for speed— expose several vulnerabilities in the traditional restaurant model. 

This is a TV show, but the problems are similar to those experienced by any restaurant that tried to serve both its on-premise diners as well as customers on online apps:

The kitchen staff cannot manage the sudden volume of orders, leading to stress, mistakes, and a communication breakdown. This scenario shows how traditional kitchens can be overwhelmed by spikes in demand, affecting service quality and staff morale.

The limited space and resources exacerbate the chaos. Traditional restaurant kitchens, constrained by their physical layout and capacity, often struggle to scale operations quickly in response to sudden increases in demand.

The episode also highlights how traditional kitchens can become bottlenecks during peak times. The inefficient workflow and the inability to handle large orders simultaneously underscore the need for a more scalable and efficient solution.

The chaos depicted in this episode of “The Bear” is a fairly compelling argument for implementing cloud kitchens, as they are designed to handle high volumes of delivery orders and can address many issues highlighted in the episode.

Furthermore, cloud kitchens are the epitome of focus: tell me what you are not good at (experience) and how you use it to be great in something else (speed and cost). When designed from the first principles, they can be built to deliver exactly what they are designed for. 

… and Fall of Ghost Kitchens

Despite its initial success, the model faced several challenges that became increasingly apparent as the pandemic subsided and the zero-interest rate era ended. One significant issue was the lack of the dining experience —consumers missed the ambiance and social interaction of eating at a restaurant. 

Moreover, the quality of food delivered by ghost kitchens often fell short of expectations. For instance, MrBeast’s burgers received thousands of negative reviews, ultimately leading to a legal battle between MrBeast and Virtual Dining Concepts.

Operational inefficiencies further exacerbated the situation. Many ghost kitchens struggled to maintain consistent quality and timely deliveries. Uber Eats removed 8,000 ghost kitchens from its platform due to complaints about poor quality and lack of transparency, as customers often felt “catfished” when they discovered their food came from an unbranded, virtual kitchen rather than a reputable restaurant.

Many companies reassessed their ghost kitchen strategies as restaurants reopened and consumers began dining out once again. Kitchen United shut down, Wendy’s halted its ambitious expansion plans, and Applebee's closed its virtual dining option entirely. These retrenchments highlighted the inherent challenges of sustaining a purely delivery-based restaurant model.

Are They Truly Scalable?

Before we discuss the model’s evolution, let’s examine its fundamentals using the SCALE framework—Scalable, Constraint, Aligned, Leadership, and Efficient—to provide a comprehensive view of its strengths and weaknesses.

Scalable

Cloud kitchens are inherently scalable. By centralizing food preparation in lower-cost locations, these kitchens can quickly expand to meet demand without the significant investment required for traditional brick-and-mortar restaurants, which must focus on a limited time of day and a limited set of products.  

Constraint

The main growth constraints revolve around maintaining food quality and meeting customer preferences for transparency. 

1. Food Quality: Many ghost kitchens have struggled to maintain consistent quality. Since food is prepared in a centralized location and then delivered, it often doesn’t match the quality of a restaurant’s freshly-cooked dishes. This was highlighted by the negative reviews of MrBeast’s burgers.

2. Customer Transparency: Another significant constraint is the lack of transparency. Customers often feel deceived when they realize their food is coming from a virtual brand without a physical presence. This often leads to distrust and dissatisfaction, which is a major hurdle for cloud kitchens. 

3. Dependency on apps (and brands like Uber Eats, DoorDash, and Grubhub): These platforms act as the primary interface between cloud kitchens and customers, controlling order intake, customer interactions, and delivery logistics. This dependency can be a double-edged sword as it provides cloud kitchens with access to a broad customer base without significant marketing investments, but also makes them vulnerable to the policies, fees, and operational standards imposed by the platforms. Moreover, reliance on these apps means cloud kitchens often struggle to build direct customer relationships, which makes brand loyalty difficult. 

Aligned

As I mentioned above, the design, location, and technology investment of cloud kitchens are fully aligned with the value propositions of each of the cloud kitchen stakeholders:

• The customer value proposition—speed and consistency

• The value proposition of brands—access to new customers without the need to invest heavily in infrastructure

• The value proposition of apps—a wider variety.

Efficient

Cloud kitchens can operate at lower costs and higher margins by centralizing food production and eliminating the need for dining space. The ability to quickly adapt to changing demand and optimize delivery routes further enhances their efficiency. 

In conclusion, while cloud kitchens offer scalability and efficiency, their growth is constrained by challenges in maintaining food quality and meeting customer demands for transparency. Addressing these constraints through improved quality control and increased transparency will be crucial for cloud kitchens’ sustained success and expansion in the competitive food delivery market.

So, like any model, they had to evolve.

The Evolution

Nimbus Kitchen, founded in 2021 by Camilla Opperman and Samantha Slager, represents one type of evolution in the shared kitchen space.

Nimbus was born out of necessity when Opperman struggled to find affordable, flexible kitchen space for her food brand. Recognizing a broader industry gap, she partnered with Slager to develop Nimbus, a solution that combined shared commercial kitchens with community-driven retail spaces. Their mission was to empower food businesses to grow without sacrificing the spirit of hospitality.

Unlike traditional ghost kitchens that often lack consumer-facing elements, Nimbus prioritizes transparency and community interaction. Their facilities include front-of-house spaces where members can host pop-ups, dinner parties, and tastings, bridging the gap between off-premise kitchens and traditional restaurants.

Nimbus stands out by offering both hourly and long-term kitchen rentals, making it accessible for various food business sizes and stages, from nascent entrepreneurs to established brands. This flexibility is coupled with a commitment to maintaining state-of-the-art, clean facilities, enhancing appeal to potential members.

Nimbus’s economic model also differs from many competitors. By focusing on shorter-term rentals, Nimbus achieves a higher contribution margin, which, combined with stable longer-term operations, has the potential to be profitable. 

The real estate choice is also interesting; the firm is always located on the ground floor with open windows, so customers can see how the food is being made. Furthermore, only 20% of the businesses’ revenue comes from delivery. Many offer catering services or on-premise pop-up dining options. 

Nimbus’s expansion strategy has been quite deliberate. Starting in the Lower East Side of New York City, they quickly recognized the demand for premium kitchen space. This led to the opening of a second flagship facility in Downtown Brooklyn, which features a virtual food hall in partnership with DoorDash, and premium event spaces. 

In my opinion, one of Nimbus’s core strengths is its focus on community. By creating a co-cooking community rather than a typical ghost kitchen, Nimbus fosters a collaborative environment where food businesses can thrive. This community-centric approach not only supports the businesses that operate within Nimbus but also enriches the local neighborhoods by providing spaces for culinary events and interactions. In other words, it’s everything but a ‘ghost.’ Since food is so much about trust, this provides a clever solution for customer transparency. 

Nimbus Kitchen exemplifies how cloud kitchens can adapt and thrive by focusing on flexibility, community engagement, and high-quality operations. 

The Next Evolution

In the fast-evolving food delivery landscape, there’s an ongoing debate: Do people prefer their meals cooked in traditional restaurants, or are they comfortable with the new-age virtual kitchens? 

I understand that many diners appreciate the authenticity and trust of knowing their food is being prepared in a real restaurant. However, let’s be honest… Even when we’re not in the mood to cook, we don’t always want to dine in a restaurant. Personally, when I travel, I avoid sitting alone at a table for dinner. I feel socially awkward pretending to enjoy my own company. I don’t mind doing it over lunch, but dinner feels odd, so if I don’t have company for dinner, I just order online. I’m not sure why, but I’m sure I’m not alone. 

Assuming restaurants will continue to exist but can't depend only on dine-in revenues, and online food orders will only increase, we need a solution where food is made in real restaurants while also utilizing certain benefits that cloud kitchens offer.

Enter MealCo, which aims to bridge the gap between traditional dining experiences and the convenience of virtual kitchens. 

(Full disclosure: I’m an investor and a huge fan of the founder). 

MealCo developed a platform to streamline online orders from multiple food delivery apps, ensuring efficiency and quality control. This allows them to partner with both established real-world brands and exciting virtual brands.

MealCo’s collaboration with real brands includes beloved names such as Edzo’s Burger Shop —a personal favorite from my days at Kellogg. Edzo’s, known for its excellent burgers (better than 4Charles), brings a sense of nostalgia (and trust), making the delivery experience feel almost as authentic as dining at their restaurant. 

Conversely, MealCo also supports virtual brands like Hot Ones, the wildly popular YouTube series produced by First We Feast. Known for its celebrity interviews involving increasingly spicy chicken wings, Hot Ones has now extended its sweat-inducing experience to New York and Los Angeles residents through partnerships with MealCo.

While you won’t have celebrities dining with you, you can still enjoy the same fiery wings featured on the show right in the comfort of your home. This delivery includes a variety of spice levels, from mild to the daunting Carolina Reaper, and the wings are prepared by a local restaurant. 

MealCo optimizes food delivery by allowing restaurants to choose which brands to carry, connecting them to the brand’s supply chain, and providing a tablet with detailed instructions on how to prepare the orders. MealCo handles the onboarding, training, routing, and quality control for the orders, ensuring consistency and efficiency across all partnered restaurants. This comprehensive approach ensures that each meal meets the brand’s standards while streamlining the restaurant’s operations. The value proposition is similar to a cloud kitchen for the apps (larger brand variety). The consumer gets a wider variety of options, but one prepared by a real restaurant (even if it’s not the original one in which the recipe was invented). The restaurants get additional revenues with the same existing capacity, and so do the brands. 

MealCo exemplifies how food delivery can cater to both preferences: the authenticity of real restaurant brands and the novelty of virtual dining experiences, all while driving better efficiency and scalability throughout the value chain. 

And I’m sure there are even more evolutions just around the corner. 

Bottom Line

When buying a Harley Davidson Eau De Toilette (yes… such things do exist),

you don’t expect Harley is actually making it… It doesn’t make sense. The same is true for food. While visiting a high-end restaurant, I expect the food to be made on the premises by the promised chef, but this is not my expectation at quick-service restaurants.  

Whether virtual or not, cloud kitchens must be part of the solution. But, like any solution, it may take time to figure out the right product for the right market.