On Thursday, Just Kitchen Holdings Corp. (TSXV: JK), an operator of ghost kitchens in Taiwan, will make its public debut on the TSX Venture Exchange in Canada. The company believes it is the first ghost kitchen operator to debut on a North American stock exchange, but it also provides a first glimpse into the faith the markets have on a concept that has exploded since the onset of the COVID pandemic.
U.S. food delivery sales surpassed $19 billion in 2019, but that is just the start. Tracking firm Euromonitor predicts that ghost kitchens may generate $1 trillion in revenue by 2030.
Ghost kitchens are an outgrowth of the food delivery app boom, and they saw significant growth in 2020 because of the pandemic and the resulting restrictions on in-person dining. Over the past five years, food delivery has grown more than 300% faster than in-person dining, according to Upserve, which also found that 20% of consumers spend more on off-premise orders than dining in at restaurants, and 60% of U.S. consumers order delivery or takeout at least once a week.
Major restaurant chains such as Applebee’s are investing in ghost kitchens, which are kitchen-only operations designed for delivery only, and digital-only brands. The company is running ghost kitchen pilots in Philadelphia (two locations), Los Angeles and a soon-to-open test in Miami, as well as recently launching virtual brand Cosmic Wings.
Even college campuses are getting into the trend. Chartwells, one of the largest operators of college campus dining halls, is rolling out ghost kitchens in its network. Chartwells said its culinary teams have been working with several schools to create meal concepts for delivery or contactless pickup, while also taking into account local students’ preferences and hours. Schools must sign up for the program to participate. Among the schools where the pilot has been tested are Seattle University, SUNY Buffalo State College, University of Utah, University of Texas at Dallas and San Jose State University.
“Our goal is to continuously give students access to a variety of dining options and menus, and ghost kitchens are a great solution since it offers them a completely new and unique dining experience,” said Lisa McEuen, CEO of Chartwells Higher Education, in a press release announcing the effort. “A benefit to the program is that many of our campuses are already well-equipped to implement ghost kitchens at a low cost. They don’t have to replace any meal concepts or shut down a location; all they need is kitchen space and they can have a ghost kitchen up and running very quickly.”
For smaller restaurants and the growing number of businesses operating only ghost kitchens, this new dining approach represents a lower barrier to entry. According to a U.S. Foods blog, the cost to open a new restaurant can run to $1 million. Utilizing a ghost kitchen provider such as Kitchen United brings that cost down to about $50,000. U.S. Foods offers an even cheaper option, it said, allowing businesses to convert unused space into a ghost kitchen for as little as $5,000.
Just Kitchen, though, represents a new foray, one in which investors vote with their wallets.
“The listing of our common shares for trading on the TSX Venture Exchange is a great milestone and a tremendous honor for our company. We believe that Just Kitchen is the first ghost kitchen operator of its kind to become a public issuer in North America,” said Jason Chen, co-founder, CEO and director of Just Kitchen, in a statement.
“The rapid growth of our business and the entire ghost kitchen industry are very exciting, and it is a privilege to bring the Just Kitchen story to the public markets,” he added.
The company also hopes to list its common shares on the OTC Markets “QB” exchange in the United States as well as on the Frankfurt Stock Exchange in Germany.
How Just Kitchen fares could factor into the potential for other ghost kitchen providers on public markets. But it will be unlikely to determine the fate of the ghost kitchen trend.
“There’s a certain component of pre- to post-COVID trend shifting [and] revenue mix shifting that is here to stay, and I don’t think we are ever going back from that,” said Brad Reynolds, COO of Creating Culinary Communities (C3), on a recent Pitchbook In Visible Capital podcast. “If you were doing 70% on premise, 30% delivery pre-COVID, post-COVID, even as the world is back to normal, you may be doing 50-50. I think this is the most opportunistic time we’ve ever had, at least in my time in the industry.”
C3 partners with chefs and celebrities to launch virtual and ghost kitchens by utilizing underused space in what Reynolds termed “back of the house.” He said he considers C3 a “diversified food and beverage platform.”
“When we think about what is working in ghost kitchen space, or the virtual kitchen space, what’s working is the ability to optimize the same old square footage in the back of the house,” Reynolds said.
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Alex Frederick, senior venture capital analyst for Pitchbook, told podcast host Lee Gibbs that food delivery apps like DoorDash (NYSE: DASH) and Uber Eats (NYSE: UBER) have benefited from ghost kitchens, and vice versa.
“The long-term trend is that consumers definitely are adopting these food delivery apps and placing more orders through them rather than visiting restaurants, and we think that is only going to accelerate in the long term as restaurants continue to position themselves more for delivery and pickup,” Frederick said, adding that “we’ve seen ghost kitchens benefit from this surge in demand for food delivery in the pandemic. Ghost kitchens have been able to add capacity for those restaurants who have really exceeded their ability to fulfill orders through food delivery apps.”
Gibbs noted that $31.3 billion has been invested in food delivery apps and marketplaces since 2017. Investment in ghost kitchens reached $2.3 billion from 2018 to 2019 before slowing in 2020 to $184 million invested.
Reynolds said the perception that ghost kitchens are hurting traditional restaurants is not fully accurate.
“People say, ‘Don’t you think ghost kitchens are XYZ-affecting the industry this way or that way? Don’t you think it is good, bad or negative for chefs and restaurants?’” he said. “[The fact is] everyone is doing it. Meaning you have probably ordered from a virtual kitchen or ghost kitchen and you had no idea. You have probably ordered from a brand that you’ve never heard of that is operated out of the back of a restaurant you’ve heard of.”
Reynolds doesn’t see the ghost kitchen trend slowing.
“We’re never going back from the on-demand nature of food,” he said. “I don’t think there is any going back to a world where we don’t pick up our phones and say ‘I want XYZ cuisine and I want it in 25 minutes.’ That’s here to stay. That was here before; it’s been accelerated, and it’s never going away.”