On the latest episode of Localogy’s This Week in Local podcast, one of the things my co-host Mike Boland and I discussed was margins. Small business margins to be precise. 

We discussed which small business categories have higher than average margins. You may be surprised that flower shops do pretty well. 

And of course, we got into which business categories have lower margins. No big surprise that restaurants and grocery stores are at the lower end of the range. Yet there is a range within restaurants depending on the type of restaurant. 

And can you guess which restaurant category has the best margins? It’s ghost kitchens. 

Ghost kitchens serve virtual restaurants. These are the restaurants that aren’t really restaurants. They are dining brands that only do delivery. And while the concept predates the pandemic, the pandemic thrust ghost kitchens into the public consciousness. 

And the fact that they produced best in category margins is one of the main reasons this subcategory of restaurants attracted so much attention. From chefs. From celebrities (see George Lopez Tacos). And from opportunistic entrepreneurs. 

And from this latter category, none is a better example than Travis Kalanick, the founder of Uber and the archetypal toxic tech bro. 

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A Template for Others

Back in 2016, having been nudged out of Uber (but still rich), Kalanick launched CloudKitchens, which because of its founder’s fame and its early entry into the space, became the bellwether startup for ghost kitchens. 

And the CloudKitchens business model more or less became the template for how this industry operated. A virtual restaurant entrepreneur would engage with CloudKitchens and use the company essentially as its factory. The virtual restaurant operator’s responsibilities were limited, essentially, to creating a food concept and building a brand. At least in theory. 

Other ghost kitchen platforms opened up. And some restaurants even used spare kitchen capacity to prepare food for other virtual dining brands.

The problem was that while many dining entrepreneurs wanted to launch a restaurant that actually threw off good margins, none of it worked without demand. 

Consumers like dining out. And once the pandemic receded and the masks came off, consumers flocked back to restaurants, hotels, even cruise ships. 

Fast forward to today. We seem to be watching the B-17 bomber that is the ghost kitchen industry corkscrewing into its final fateful turns. 

For instance, back in September, GhostKitchens slashed its staff and shuttered warehouses in a bid to trim costs. 

And last week we learned that its CFO, who joined the company in November 2021, has departed. Sure, C-suite executives depart for all kinds of reasons. But a CFO’s departure is always an attention-getter. 

Are ghost kitchens dead? Probably not entirely. As long as consumers continue to order food for home delivery, there will be space for some form of a virtual restaurant industry. After all, GhostKitchens is still here.

A case in point. We read recently that a new ghost kitchen space has opened up in downtown Raleigh. 

But the days of tech entrepreneurs, celebrity chefs, comedians, and rappers flocking into the space are probably over.