CREJ

May 2021 — Retail Properties Quarterly — Page 19 www.crej.com Trends I n addition to accelerating e-commerce, the COVID-19 pandemic has brought about a fundamental change in how Americans are ordering food from restaurants. A new concept known as virtual kitchens is on track to become a $1 trillion indus- try by 2030. Euromonitor, a market research firm, projects astronomical growth for virtual kitchens in the coming years and the pandemic has only accelerated that timeline. Also known as a ghost kitchen, a virtual kitchen is essentially a res- taurant without the dining space. In other words, it is a commercial kitchen solely occupied by chefs or restaurant owners who prepare food intended for pickup and deliv- ery only, without a dine-in store- front. These virtual kitchens partner with third-party delivery apps like GrubHub, DoorDash and Uber Eats and often house more than one food vendor. The virtual, or ghost, kitchen model has two common forms. The first is rented commissary spaces in which restauranteurs/ chefs rent from a shared kitchen space – often alongside 10 to 20 other delivery-only restaurants. Although commissary and shared kitchens have been around for quite some time, new entries by giants like Uber Eats and ex-Uber CEO Tra- vis Kalanick have been transform- ing this concept. Uber Eats and partners have opened approximately 1,500 virtual restaurants in the U.S. and Canada, with an additional 1,000 across the globe, while Kalanick’s new startup, CloudKitchens, received more than $300 million from Saudi Arabia’s Public Investment Fund. CloudKitch- ens now buys inexpensive real estate and builds shared kitchens for restaurants to rent while also running its own delivery- only restaurants. The second com- mon format is established restau- rants running secret back-of-house delivery-only concepts from their existing locations. Fatburger in Los Angeles has started several ghost kitchens for its Florida-based sister brand Hur- ricane Grill & Wings on the West Coast. While Chipotle now has nearly 2,500 ghost kitchens in many of its existing restaurants. Other notable brands launching virtual concepts include Dog Haus, Apple- bee’s and Nathan’s Famous. Data from Upserve shows digital ordering and delivery have grown 300% faster than dine-in traffic since 2014 and at least 60% of U.S. consumers order delivery or takeout once a week. That’s where virtual kitchens come in. According to Restaurant Business, sales via ghost kitchens from 300 facilities in the U.S. are projected to increase by 25% each year for the next five years, result- ing in estimated annual U.S. sales of $300 million. Virtual kitchens first began emerging in the U.S. prior to the pandemic in areas like San Fran- cisco, Chicago and New York, where high real estate prices and labor costs have forced restaurateurs and chefs to seek lower-cost alterna- tives. Now, more chefs and restaurants are beginning to see the lure of a virtual concept. A virtual kitchen will bring in sales at a fraction of the normal startup cost, as most of them only require between 150 and 250 square feet. It also offers expanded customer reach with a higher profit margin. As restaurants across the nation have lost billions in revenue due to pandemic restrictions, several eat- eries across the Front Range have shut their doors permanently after experiencing crushing revenue loss- es. Last year in Denver alone, clo- sures included neighborhood favor- ites like The Denver Diner, Hearth & Dram, Acorn, Lena Vesta, Brasseries Ten Ten and 12@ Madison. Research from the National Restaurant Asso- ciation reveals 17% of restaurants and bars in the U.S. closed perma- nently or long term in 2020. Even prior to the pandemic, tradi- tional restaurants already were fac- ing severe challenges and razor-thin profit margins. Virtual kitchens: Restaurant landscape reinvention Hannah Pearson Assistant operations manager, research, National Valuation Consultants Inc. Please see Pearson, Page 27 Uber Eats Uber Eats and partners have opened approximately 1,500 virtual restaurants in the U.S. and Canada, with an additional 1,000 across the globe.