Effects on Underwriting

Ghost kitchens have changed the equation for lots of restauranteurs, entrepreneurs, and investors. Below I describe a few of the ways that underwriting of restaurants is affected by ghost kitchens:

1. Decreased costs upfront: Ghost kitchens do not need to be located in expensive, heavily trafficked areas like traditional restaurants. They often take advantage of distressed real estate so the purchase price for a ghost kitchen is relatively low. Kitchen United spends approximately $50,000 developing a kitchen, while the start-up cost for new urban restaurants is usually north of $1M. This means you can start a ghost kitchen for 5% of what it costs to start a new restaurant!
2. Decreased operating expenses throughout lifecycle: Ghost kitchens don't have a dining area so they don't need to pay for extra square footage, waitstaff, amenities, and other expenses. If they are a pick-up only kitchen, they also don't need to pay a cut to delivery services or operate a delivery service. Operating costs vary dramatically depending on the size and location of a restaurant, but some suggest that ghost kitchens pay approximately 40 percent less in operating expenses than a typical restaurant.
3. Increased profits in the long run: Ghost kitchen can monetize the data that they collect from customers. They can use the data to become more efficient and also sell the data for a profit.
4. Decreased costs in the event of M&A: In the future, we could envision the merging of food producers like ghost kitchens & distribution networks. Ideally, synergies across these companies would decrease costs.

The proforma below demonstrates what the underwriting for a ghost kitchen might look like. A ghost kitchen founder would need to raise equity primarily to buy distressed restaurants or other distressed real estate. They would likely start with one location and then continue to raise equity to open more locations in a few years, and with success more locations a few years after that.