Hunton Retail Law Resource

Ghost kitchens are one of the hottest trends in food. Ghost kitchens (also known as dark kitchens, cloud kitchens, and virtual restaurants, among a slew of other flashy names) are delivery-only restaurants found almost exclusively on food delivery apps like UberEats and Grubhub. Rather than storefronts with dining areas, they usually operate out of existing restaurants, commissary kitchens or food trucks.

The major advantage to ghost kitchens is minimizing costs, particularly with regards to commercial real estate. Location is paramount for a successful brick-and-mortar and desirable locations tend to come with higher rents. With a ghost kitchen, a restauranteur can skip the premiums that lessors charge for visibility, aesthetics and curbside appeal, and focus on adjacency to areas with high delivery demand such as dense office parks. No dining areas means much smaller space requirements, which also cuts down on rent costs and increases flexibility in choosing a location, not to mention staffing and operating costs. A restauranteur may find that testing an online-only menu under a different restaurant name from an existing kitchen or renting space in a commissary kitchen are more cost-effective than renting a whole unit. For example, Jeff Crivello, CEO of Famous Dave’s of America, recently announced plans to open a chain of delivery-only fried chicken restaurants that will exist exclusively on Grubhub. The fried chicken restaurants will operate out of existing Famous Dave’s restaurants, but will be marketed under a different brand name and will offer a different menu. By adopting the ghost kitchen concept, Famous Dave’s can experiment with different restaurant ideas and menus at a fraction of the capital typically needed to open a new restaurant.

The advantages are clear, but restauranteurs should be aware of issues that may arise. Ghost kitchens require a different kind of visibility. Having an online presence through a third party delivery service app is a prerequisite for a successful ghost kitchen, but third party involvement makes assessing liability more unclear. Cold food is one thing, but who is at fault if an UberEats driver delivers food two hours late or if the temperature maintenance procedures on delivery packaging fails and a customer gets sick? If a restauranteur rents space from a commissary kitchen that houses multiple restaurants, how is common area maintenance and equipment maintenance apportioned and who is liable for issues relating to a health code violation in the restauranteur’s specific space? Restaurants usually contract with third party services through partnership agreements. When negotiating agreements with third party services, restauranteurs should be mindful of how food industry standards and safety apply in food delivery and how liability is determined.

The restaurant industry is, first and foremost, a service industry and demand for food delivery is at an all-time high. According to Rachel Wilson, principal with Technomic, food delivery is expected to increase by 12 percent per year over the next five years. On March 11, 2019, Bloomberg reported that Uber has quietly been leasing real estate stocked with kitchen equipment in Paris as part of a ghost kitchen leasing pilot program. Food delivery and relationships with third party delivery services such as Uber are here to stay and restauranteurs looking to create ghost kitchens will need to find ways to create beneficial partnership agreements to reap the many rewards.