Ghost kitchens take on coronavirus-driven food delivery surge

More fast-casual restaurants are experimenting with ghost kitchens and other off-premise concepts

At Wingstop Inc., talks of a ghost kitchen preceded COVID-19, but the chicken wing icon moved quickly to launch its first domestic concept in June as its sales exploded, with April 2020 same-store sales growth at more than 33.4 percent and a 65 percent increase in digital sales.

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“We have a goal to digitize 100 percent of transactions as we drive to become a top 10 global restaurant brand,” Wingstop Chief Operating Officer Mahesh Sadarangani told FOX Business. “And we believe ghost kitchens are a great step for the brand as delivery and digital sales continue to increase.”

Ghost restaurants, or cloud kitchens, function as food service hubs that hinge on a delivery-only model, condensing the traditional brick-and-mortar and dine-in restaurant experience.

With the surge in delivery and takeout in the midst of the coronavirus pandemic, consumer preferences and behaviors are changing, and restaurants are adapting.

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Wingtstop's investments in digital platforms in tech stack, coupled with its small footprint and simple operating model, have enabled the Dallas-based brand to become more portable. Its newest ghost kitchen marks only the beginning of its off-premise innovation to come, according to Sadarangani.

More fast-casual restaurants are also experimenting with ghost kitchens and other similar off-premise concepts.

Beef O’ Brady’s, a franchise of family sports pubs owned by holding company FSC Franchise Co., also recently launched an off-premise concept to test out menu items for its upcoming restaurant, The Hatchery, set to open in Tampa, Florida, late August.

(Credit: Beef 'O' Brady's corporate team)

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WINGWINGSTOP INC165.85-2.83-1.68%

“We are getting a tremendous amount of learning now with this ghost kitchen concept, which we are doing out of our test kitchen,” Beef O’Brady’s CEO Chris Elliott told FOX Business. “We are able to sell the products and get consumer feedback, allowing us to tweak things. You think you’ve got it all right until you start selling it to customers. They help you find mistakes really quickly.”

After the pandemic postponed its original opening date in April, Beef O' Brady’s saw an opportunity to establish its virtual footing on food delivery apps, making available its premium chicken sandwiches, fried egg burgers and handmade lemonade “smashers,” among other atypical items, in order to fine-tune its menu offerings upon its hard launch.

(Credit: Beef 'O' Brady's corporate team)

The Tampa-based casual dining chain, with 150 units across the US, saw its overall off-premise business operations expand as 80 percent of its restaurants tapped into third-party delivery options. Its third-party delivery sales more than doubled from 10 percent of overall sales to 22 percent of overall sales.

Famous Dave’s, a full-service barbeque chain owned by BBQ Holdings with 125 locations in 31 states, already had the ammo it needed to open a ghost kitchen restaurant when the pandemic forced all restaurants to close in March.

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BBQBBQ HOLDINGS INC3.19+0.06+2.05%

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After spending three years working on its off-premise and delivery business, the coronavirus was the black swan event that catapulted its business to open its first ghost kitchen concept in Chicago, CEO of Famous Dave’s, Jeff Crivello, told FOX Business.

“We were forced to lay off around 85 percent of our workforce in one day, and that really forced us to make necessary changes to survive,” Crivello said. “Some of those necessary changes to survive were doing the things that we’ve already been talking about -- shrinking the footprint, shrinking the menu, finding ways to become way more efficient with labor, and finding ways to deliver more food more efficiently to more people.”

(Credit: Famous Dave's)

The Minneapolis-based franchise’s cloud kitchen shares a space with other national brands, each allocated 200 square feet, and offers Famous Dave’s core menu items. Its revenue has exceeded expectations.

The pandemic and delivery service sector has also fast-tracked the evolution of restaurant operations, hinging on less consumer-facing real estate and casting a wider net with a much more labor-efficient, hub-and-spoke business model that can bring food to where customers are demanding it.

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“Our best opportunity there is just to improve across the board our current off-premise and delivery executions,” Elliott told FOX Business. “That includes making it easier to order, getting the order there faster, making the packaging better so the food holds better while it’s in transit and finding a couple of more items that you can put on the menu that travel really well.”

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