The Rise and Fall of “Ghost Kitchens”

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These days, the pandemic might be starting to feel less like a recent memory and more like a ghost story: scary and filled with twists and turns. One such twist: the rise of “ghost kitchens.”

Even if you have ESP, there’s a good chance you never heard of ghost kitchens. The trend was practically designed to fly under the radar. Ghost kitchens are restaurants that appear normal on delivery apps like Uber Eats (UBER) or DoorDash (DASH), but in actuality operate exclusively for delivery, with no physical space for customer seating.

Ghost kitchens found massive venture funding during the pandemic. While these pandemic-era startups still exist, investment in ghost kitchens is stagnant and the once-sizzling business model has grown cold.

Fizzling Out

The pandemic created a unique set of circumstances for the food industry. Stay-at-home orders and social distancing protocols made no space for customers more of an attractive feature than a shortcoming. Plus, delivery-only kitchens could operate on a leaner budget than traditional restaurants, while attracting the same demand.

Between 2020 and 2022, ghost kitchen startups collectively raised over $3 billion. Even major players like Uber founder Travis Kalanick got in on the hype.

The economic conditions that made these startups ideal have changed rapidly once again over the past year. Today’s consumers are itching to enjoy meals out — and increasingly weary of overpriced delivery platforms.

Beware the Buzz

The future of the ghost kitchen industry looks grave. None of the most prominent US-based ghost kitchen startups have raised a round of funding since 2021. And major corporations like Wendy’s (WEN), which teased plans to open 700 ghost kitchens by 2025, have reportedly exited the space entirely.

Ghost kitchens are far from the only example of an industry that garnered significant hype but has yet to live up to it. A few other pandemic-era examples include e-scooters, meal kits, and “connected fitness” startups like Peloton (PTON).

For investors, ghost kitchens are a perfect example of why it pays to be skeptical of the proverbial Next Big Thing. If a buzzy startup’s growth forecasts seem too good to be true, don’t forget, there’s always the chance it might ghost you.

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