Corporations & Independents Alike Are Betting On Ghost Kitchens

Flying Pho service counter

Recently, kid-friendly entertainment venue Chuck E. Cheese was trending on Twitter, an odd occurrence even in these strange times. Although first reported in April, many consumers were just learning that the pizzas they had been ordering from Pasqually’s Pizza & Wings via third-party delivery services were being made at Chuck E. Cheese locations. 

A Twitter user in Pittsburgh, Michael Mark, commented, “Chuck E [sic] Cheese is selling their food as ‘Pasqually’s Pizza’ on food apps because no one wants to order Chuck E. Cheese pizza for delivery and I think this is nominated as the funniest part of this pandemic.”

Indeed, even Houston-area locations of Chuck E. Cheese are operating Pasqually’s from their kitchens and consumers have given them three-and-a-half stars on GrubHub. Though our email to parent company CEC Entertainment about the Houston locations, went unanswered, it sent a statement to Food & Wine saying that the company is testing a “premium pizza”

“Pasqually’s Pizza & Wings, named after another favorite member of Munch’s Make Believe Band, shares kitchen space with the Chuck E. Cheese restaurant, ensuring high-quality, fresh ingredients. Pasqually’s Pizza & Wings’ recipes use fresh, homemade pizza dough, just like Chuck E. Cheese, but it is a different pizza that features a thicker crust and extra sauce, giving consumers a more flavorful, more premium pizza experience.”

The attempt at establishing a new, more upscale brand comes as CEC Entertainment is attempting to pull itself out of a downward financial spiral that has been made worse by the COVID-19 pandemic. According to industry publication Restaurant Business, the company “has more than $900 million in debt and reported a net loss of $29 million last year.”

Through the Pasqually’s brand, CEC Entertainment has essentially established several “ghost kitchens,” which are food service providers without traditional dine-in services and sometimes even without publicly accessible storefronts. These businesses, also called “virtual” and “cloud” kitchens,  are a growing trend in the restaurant industry, especially with the arrival of third-party delivery services.

With increasing food and operating costs, rising rents (at least before the crisis) and restaurants enduring great financial hardship after the coronavirus shutdowns, it’s a concept that both small business owners and large corporations are examining with increasing interest.

Ghost Kitchens: A Boon For Independent Food Businesses

For independent restaurant startups with little capital, the ghost-kitchen business model can make the difference between having a food business or not. Labor costs are greatly decreased, as there’s no need for front-of-house staff. Smaller square footage — often comprised only of the kitchen and food storage areas — can mean lower rents and utility costs. Plus, there is no need to furnish a dining room or even have a sign out front. In addition, third-party delivery apps largely handle the marketing and public relations work.

Gabriel Medina
Thanks to his ghost kitchen, Click Virtual Food Hall, Houston chef Gabriel Medina can make whatever cuisine that he is both passionate about and will sell under an apt brand name. Courtesy photo.

One Houston small business that’s able to exist because of the ghost-kitchen concept is Click Virtual Food Hall. It consists of only a name, a minimal storefront exclusively for takeout, a kitchen — and the talent and labor of acclaimed local chef Gabriel “Gabe” Medina, who had worked at high-profile restaurants such as Aqui and Kata Robata. The chef teamed up with Steven Salazar of the Kirby Group — which operates Wooster’s Garden, Heights Bier Garten and Holman Draft Hall — and started turning out dishes that hail from a variety of cuisines — and virtual restaurant names — from a rented kitchen in the Rice Military district. A and J Provisions serves comfort food, Bowling Club focuses on Japanese-style bowls, 7000 Islands makes Filipino food and Sandwich Legends offers not only familiar burgers and meatball subs, but innovative fillings such as seafood croquettes and garlic-mashed yams. The flexibility of a cloud kitchen allows Medina to add more restaurant brands and add new cuisines as often as he likes. 

Sotanghon Pancit at Click Virtual Food Hall
Sotanghon Pancit, a dish from Click Virtual Food Hall’s “7000 Islands,” with shrimp, shredded chicken, rice noodles, sweet potato noodles, cabbage, snap peas and carrots. Courtesy photo.

“When Gabe and I planned on opening Click Virtual Food Hall, we wanted to be innovative and have the ability to incubate menus without limits,” said Salazar. “Doing delivery out of a virtual restaurant has allowed him to explore many culinary avenues. He can reach back to his French training, his time in Tokyo, the Philippines, and in Houston, and create menus with no conceptual bounds.”  

Flying Pho
This fall, the unique pho and decadent butter buns from the closed Flying Pho storefront are becoming available again thanks to Christopher Huang’s forthcoming ghost kitchen. Photo by Phaedra Cook.

Several months ago, Christopher Huang, who operates Houston’s Ninja Ramen, closed the storefront of his second restaurant concept, Flying Pho, which specialized in a northern Vietnamese version of the namesake dish — as well as incredibly rich, decadent Butter Buns. While a brick-and-mortar wasn’t sustainable, Flying Pho’s dishes did earn a substantial fan base, so Huang is reviving it as a ghost kitchen this fall. 

Big Businesses Are Getting Into the Ghost Kitchen Game

Despite the benefits virtual kitchens can provide small business owners, when a big company like CEC Entertainment takes advantage of the ghost kitchen model, consumers often react much more negatively. In the case of Pasqually’s, it’s probably due to the initial lack of transparency. Why not simply announce that Chuck E. Cheese is creating upscale pizzas that are more likely to appeal to adults instead of creating a brand with no indication of the company’s affiliation? Why did it take the company being outed on Reddit for this information to become public?

It seems entirely possible that Pasqually’s is an attempt to get out from under the shadow of the Chuck E. Cheese brand. The latter is marketed as a “Kid’s Birthday Party Place”, a byline that may not appeal to hungry workers looking for a quick, satisfying lunch. A restaurant, virtual or not, lives and dies by its branding. People do not expect a great hot dog from a sushi bar, though there is nothing stopping a sushi bar from producing one. It is expectations that drive sales. 

Chuck E. Cheese is not the only restaurant using its kitchens for multiple concepts. Neighborhood Wings operates out of Applebee’s, and Wing Squad shares its kitchens with Bucca de Beppo. All of these businesses started as brick-and-mortar restaurants, then added new brands to the mix.

Huang doesn’t see Chuck E. Cheese selling pizzas under the Pasqually’s moniker as a problem. “If I wanted, I could put three different pizza places on Uber Eats: one called ABC, one called XYZ, one called 123, and these could all serve the same food. These third-party delivery apps are basically marketing spaces. If the product can’t stand up, it’ll shake out in the ratings eventually. I think of it as the same thing as anytime any company goes through a rebranding, or a new brand in a new market. They’re trying to get away from their existing preconceptions. It’s similar to Old Navy and The Gap  — same manufacturer, different brand — or how people went to Seattle’s Best because they hated big, corporate Starbucks, only to find out that Starbucks owns it.”

A Massive Ghost Kitchen Facility is Opening In Houston

A new concept entering the market is that of the “mega-kitchen,” which can host multiple businesses under one roof, and even multiple concepts within each business. One of the fastest-growing mega-kitchen brands is CloudKitchens, which appears nearly ready to open Blodgett Food Hall at 2616 Blodgett in Houston. Some Houston food trucks, such as Quaker Steaks, have already been parking there for a few weeks. 

Our repeated emails to the company for information have so far been unanswered, but we’ve spoken with several vendors who are excited to have a new presence at the space. Some, eager to market their businesses within Blodget Food Hall, have started posting to social media about their new ventures. In addition, a search of the address reveals several food business listings. Some, including Oh My Gogi! and Wokker Food Truck, are well-established names in Houston food. Some businesses, such as Busta’s Burgers in Crosby, are establishing a presence in Houston thanks to the food hall. Still others, such as SendNoods, are brands established by CloudKitchens and replicated in other cities. 

Company information aggregator Crunchbase describes CloudKitchens parent corporation City Storage Systems as “a Los Angeles-based startup that focuses on repurposing distressed real estate assets like parking lots or abandoned strip malls and turning them into spaces suited for new industries, such as food delivery or online retail.” Founded by Travis Kalanick, the ousted co-founder of Uber, CloudKitchens has reportedly secured $400 million from Saudi Arabia’s sovereign investment fund (bringing its total capital to $700 million) and secured an agreement with Goldman Sachs to finance real estate purchases globally.

To get an idea as to how the Houston location may operate, one need only look at the CloudKitchen location in Los Angeles’ Hollywood district. Called Internet Food Court, it features 30 kitchens under one roof and 117 separately branded virtual restaurants. While most business owners want to spread the word about their new endeavors, Kalanick recently shut down a high-profile marketing campaign for Internet Food Court. An employee, who the company claimed had gone “rogue” and was acting without permission, hired ultra-hip branding designer Ryan Haskins to promote Internet Food Court. When word about the marketing campaign reached Kalanick, he shut the promotions down — but not the food court.

Blodgett Food Hall rendering
An architectural rendering of Blodgett Food Hall. Screenshot from The Kitchen Door website.

 

Several industry professionals told us that CloudKitchens required signing a non-disclosure agreement to even be able to tour the space (because of this we are not revealing our sources). However, we were sent a brochure geared to those interested in renting a commercial kitchen at Blodgett Food Hall, which can be viewed at this link. In addition, commercial real estate site LoopNet has a listing that appears to include actual photos from the location, not just architectural renderings. It’s interesting to note that both the brochure and the listings show limited diner seating, both inside and out front, which indicates that the space will indeed function somewhat like a food hall, as well as be host to dozens of ghost kitchens. (Traditional food halls host only customer-facing businesses that only go by one moniker.)

One vendor who declined to rent a kitchen space told us that Blodgett Food Hall will ultimately have about 55 different ghost kitchen operators. “It’s pricey but it is pretty impressive in there,” he said. “Especially after this COVID thing, that business model might be one of the safer ones, but as you know, delivery commissions are nuts, so it’s a tough decisions to sign up.” 

When weighing the benefits of ghost kitchens for small, independent restaurateurs like Medina, Salazar and Huang, it becomes clear that the idea is not only smart, but can be handled with the transparency needed to build consumer trust. It’s is also a model that may have more appeal to both Houston-area diners and independent operators as the area has adapted to takeout and delivery during the ongoing COVID-19 crisis.

However, as large corporations continue to start ghost kitchen businesses, consumers are likely to become more wary about who is actually making their food and who is really benefiting from these operations. The corporate mega-kitchen model could, if handled with the transparency and savvy of Houston’s better food halls, provide vendors with low-cost incubators for their business. However, it could also become akin to a corporate franchise model, but one that doesn’t provide the economies of scale or marketing power many national chains offer.

In the future, savvy diners will likely be Googling ghost kitchen addresses to find out if the business is host to an animatronic chef filling in for a friendly mouse or a talented upstart trying to establish a foothold in the ever-changing restaurant landscape.


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