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By Michelle Forman ’20
Virtual kitchens, also known as “ghost” kitchens, are restaurants where all food is prepared for take-out delivery or pickup by customers. Venture capital dollars have been pouring into this sector in a response to the rapidly growing food delivery market, which has become a $30 billion marketplace over the past three years.
In his presentation, “Virtual Kitchens: Strategic Partnerships and the Impact on Commercial Real Estate,” Jim Collins, CEO of Kitchen United, explained the market dynamics that have led to the rise of virtual kitchens and provided insights into Kitchen United’s approach to serving this growing need in the marketplace.
Collins opened his discussion on the subject by discussing how the restaurant industry is in a “giant state of turmoil” as consumers are increasingly choosing to eat restaurant cuisine at home. He discussed how the last major innovation in the restaurant industry was 45 years ago with the creation of drive-throughs, which is currently a $40 billion business. Comparatively, it only took the online restaurant delivery business 3 years to become a $30 billion business. He emphasized that restaurants are struggling to meet this growing demand as restaurants were built for people to come in and dine onsite rather than for delivery by a third party. He noted that large, medium, and small size chains are all impacted by this rapid shift in the industry.
Collins then went on to discuss Kitchen United’s unique approach which allows restaurants to expand to new markets without building a dining room. He explained how Kitchen United uses robust data to determine site selection for its virtual kitchens. Site selection parameters include psychographic segmentation, population density, and disposable income to name a few. Collins highlighted that distressed retail properties present a great opportunity for Kitchen United to acquire prime spaces at a low price. The entire property is typically 6,500 square feet, with each restaurant occupying a kitchen of 250 to 350 square feet. Collins elaborated on how Kitchen United has invented a process of creating prefabricated kitchens in a few days at low cost.
Collins then went into further detail on how Kitchen United facilities are curated with the best brands in order to create a superior experience for the consumer. Anchor tenants include national brands like Chick-fil-A, Uber regional brands like BGood or Naf Naf and even local concepts who are looking for ways to grow faster. Consumers can choose to order in-person or remotely and can order cross-content, providing them with significant flexibility. As Collins noted, “consumers are choosing how the consumer will consume.”
One of the most significant takeaways from the talk was a discussion on how Kitchen United is driving improved EBITDA margins for its restaurant members. Member benefits go beyond the physical space and include marketing, shared back house labor force, a specialized technology stack, and optimized delivery access which is all provided by Kitchen United. Collins explained that the only way the business model succeeds is if members are more profitable out of Kitchen United facilities than out of their own restaurants using the delivery marketplace.
Collins concluded the presentation by commenting on Kitchen United’s expansion plans. He highlighted that virtual kitchens represent a significant opportunity, especially in high density areas such as college campuses, and they have only just begun to revolutionize the restaurant industry.
Michelle Forman is from Riverdale, New York, and graduated from Columbia University in 2009 with a BA in Economics. After graduation, Michelle joined Bank of America Merrill Lynch, where she worked in investment banking in the Technology, Media, and Telecom sector for three years. Following BAML, she joined MESA Securities, a boutique investment bank serving digital media clients. Most recently, Michelle was a Vice President at Houlihan Lokey in their TMT investment banking group. Michelle is a second-year student at Columbia Business School pursuing opportunities in commercial real estate investment.