Ghost kitchens feeding revenue stream for virtual food brands

In the wake of the pandemic, ghost kitchens — also known as virtual kitchens or dark kitchens — have emerged as one of the fastest growing foodservice channels.

While posing a competitive threat to traditional foodservice operations, the ghost kitchen also offers an opportunity for companies already operating a kitchen to expand their delivery sales to include "virtual" brands.

Virtual brands are brands that customers order from delivery services that are not necessarily associated with brick-and-mortar foodservice establishments.

Sisto Perez, director of food and beverage for High 5 Entertainment, a Lakeway, Texas-based family entertainment chain, shared his experience taking orders for virtual brands by becoming a ghost kitchen during the recent Amusement Entertainment Expo at the Westgate Hotel in Las Vegas.

Sharing the stage with Perez was Kelly Grogan, vice president of sales for Virtual Dining Concepts, an Orlando, Florida based provider of a turnkey service for virtual food brands. Nathan Schneider-Smith, director of beverage for Toca Sports, a family entertainment center, served as moderator.

What's a ghost kitchen?

Grogan began the presentation by defining a ghost kitchen as a location not necessarily open to the public that creates virtual food brands.

"A virtual brand is going to be executed inside of that ghost kitchen," she said. "There's no physical location for that virtual restaurant."

From the existing foodservice provider's perspective, the goal of the ghost kitchen is to make better use of existing assets.

"A lot of times you're looking to cut labor during slow times," Perez said. "When you have these virtual brands, you're basically opening up other opportunities to have more revenue streaming at different times during the day … I feel like bringing these virtual brands in really help keep multiple streams of revenue coming into your building."

The expansion into virtual brands has enabled High 5 Entertainment to make better use of its labor, which today costs $16 to $20 per hour, he said.

"For me it justifies, when you're paying someone that dollar amount, that they're doing almost two to three jobs essentially," Perez said. "Essentially, you are cross-utilizing ingredients that would otherwise sit there."

The Virtual Dining Concept brands, which can be found on third party delivery service platforms, include MrBeastBurger, PardonMyCheesesteak, BuddyVsCakeSlice, MariahCareysCookies, RobertivinesAmericanHeros and RealHouseBowls.

Are they credible for customers?

Several listeners in the audience wondered whether customers question the credibility of virtual brands since they are not associated with physical establishments.

In response, Grogan said website addresses for these brands are posted on third party delivery platforms. The websites explain the food is prepared in existing restaurant kitchens.

"You can find exactly who's cooking that food and where that came from," she said. "As long as the food is excellent and has everything that they ordered, they're not necessarily worried about where the food came from."

Virtual Dining Concepts licenses the recipes and brands (including packaging) for foodservice establishments to make in their own kitchens. VDC also sets the pricing for the brands and offers online training for the partner kitchen staffs that includes tests in preparing the food.

The packaging is important especially for products carried by food delivery services, Grogan said. One reason is that customers post the products on social media.

The partner kitchen typically covers the food and packaging cost, which is 60% of the product cost, Grogan said, assuming the kitchen is also supplying the labor.

"The 40% that we withhold is used to pay all of the delivery fees … credit card processing," she said.

Multiple benefits

Perez, a customer of Virtual Dining Concepts for slightly more than a year, noted that the virtual brands can attract new customers to the partner kitchen, exposing them to the partner's own brands.

"If it is done correctly, you do have people who come to your establishment looking for that food," Perez said.

Another benefit is that the kitchen can capitalize on the popularity of the virtual brands.

Perez noted that one VDC brand, MrBeastBurger, has around 800 million social media followers.

"The kids see it, they get on there, they say 'hey mom I'm hungry, I want to order something to eat,' they get on Door Dash, they order it, the food comes (and) they don't know it's coming from High 5," he said.

Grogan said it is also possible for partner kitchens to offer virtual brands during the less busy times of the day.

"You're only driving revenue on those days and hours when you need it," she said.

How much additional revenue?

After adding one additional employee to prepare the virtual brands, High 5 Entertainment generated $400 to $500 per week in gross sales in the beginning, Perez said, which rose to $1,600 to $1,700 after about a month. Some weeks are as high as $2,400.

One reason sales were lower in the beginning was he was only offering one brand. To do it over, he said he would have offered three or four from the beginning. He now offers MrBeastBurger, BuddyV'sCakeSlice, Mariah'sCookies and PardonMyCheesesteak.

On Thanksgiving and Christmas, he said his establishment got flooded with virtual brand orders.

The average tickets are $25 to $35 per order, Grogan said. She said VDC expects its customer kitchens to generate between 24% and 30% profit.

Partner kitchens can also offer the virtual brands on their own menu. High5 Entertainment, for example, offers MrBeast Burger in its restaurant.

VDC provides a 3-mile exclusive radius to kitchens, meaning there won't be a competing establishment less than three miles away. There is no restriction on the delivery distance.

"That's money that wasn't there before using your product that would otherwise sit there," Perez said. "It has made a substantial increase."