The ghost kitchen industry is shrinking — here’s why that’s a good thing

During the COVID-19 pandemic, ghost kitchens were the ideal foodservice solution of the moment. Although they were around before 2020, they flourished thanks to the opportunity afforded by shuttered dining rooms and the delivery renaissance. But four years later, the virtual restaurant industry has struggled to find permanent footing — from Reef Kitchen’s legal and licensing woes, to the fast rise and fall (and sale) of Nextbite, to the lawsuits surrounding MrBeast Burger and Virtual Dining Concepts.

In the latest virtual restaurant industry news, SBE and C3 founder/CEO Sam Nazarian announced his acquisition of Kitchen United, just a few months after the ghost kitchen commissary operator quietly closed all of its Kitchen United MIX locations in Kroger supermarkets. Together with last June’s Nextbite acquisition, Nazarian has created an omnichannel “supergroup” company called Everybody Eats, and essentially dwindled its competition down to one: MrBeast Burger parent company, Virtual Dining Concepts.

Though Nazarian’s acquisitions have contributed to the ghost kitchen industry shrinkage, virtual dining has been changed and challenged for a long time now. Nazarian said he thinks of Everybody Eats as a platform of brands with many levers to pull—the least profitable of which, actually, is delivery:

“We got coupled in with this ghost kitchen craze of 2020 and 2021, but we’re not a ghost kitchen company and we never have been,” he told Nation’s Restaurant News. “I think fundamentally, if you’re a delivery-only business, it’s not a profitable endeavor…. We are a solution, that through brand, IP, and food, connects new audiences through different platforms.”

Besides delivery, those platforms include food halls, digital brand partnerships with established restaurants like TGI Fridays (which added C3’s Krispy Rice sushi to its in-house menus), and expansions in nontraditional locations like airports, stadiums, hotels, and even cruises.

“If you can bring a new customer to a new cuisine, that is a powerful thing to be able to do,” Nazarian said. “The way to differentiate is to be able to find the best collaborators that customers can connect with and scale [the brands] in a variety of ways…. For a brand to be relevant, you have to find great partners to amplify it.”

So, how will the three vastly different digital-first restaurant platforms under Everybody Eats work and collaborate together? Nazarian said that the acquisitions work by recognizing the strengths of each platform. C3 (whose original brands include Krispy Rice and Umami Burger) is a culinary-focused engine that’s more about full-service brands than just a menu with clever delivery packaging. Nextbite’s strengths, he said, are on the digital technology side, with a focus on casual-dining partnerships like IHOP. Kitchen United, meanwhile, became well-known for its expansion through grocery and convenience store channels.

Of course, this multi-pronged approach to the virtual dining industry is not new or exclusive to Everybody Eats. A year and a half ago, NRN reported on the rise of “visible ghost kitchens” like Oomi, which operate virtual food halls and foodservice experiences that actually encourage customers to come by instead of operating out of a “spooky warehouse.” This has been the writing on the wall for virtual restaurant companies for a while now: Omnichannel or bust.

“It’s about bringing people back to restaurants, not just opening up more channels for delivery,” Nazarian said.

Nazarian said that among the lessons learned from failed or struggling ghost kitchen companies, he has noted that too much of a focus on software and digital reach, or hinging the success of a brand on celebrity partnership before the food quality, will likely spell doom for an aspiring delivery-forward business.

Now, with the consolidation of three former competitors, the newly formed Everybody Eats is one of two major players left in the once-overcrowded virtual brand space. Virtual Dining Concepts had an announcement of its own recently, with the acquisition of the social media-famous Man Vs. Fries. Most of VDC’s concepts have their roots in popularity among Millennial and Gen Z social media scrollers, especially the company’s most popular brand, MrBeast Burger. VDC president and cofounder Robbie Earl emphasized that the company differentiates itself by “staying ahead of the curve and always staying relevant,” but also recognizes that omnichannel flexible is the future of the industry:

“We’ve retooled our business model to focus on what we call the omnichannel virtual brand,” Earl said. “Some various places a brand can live omnichannel are on the menu, on the core brand digital menu, on virtual channels and on pickup… there will continue to be consolidation in the space, and we will continue to look at opportunities to acquire success stories. If something is working to benefit restaurants, we are interested. We will take it and amplify it across the largest virtual restaurant network in the world.”

Contact Joanna at [email protected]