The Gig Economy of Cloud Kitchens

The rise of food delivery apps has changed the restaurant game, with more people opting for takeout than sit-down service than ever before.  A few decades ago, pizza was the food known most widely for being delivered.  And, if you wanted food delivered, you had to make a phone call.  Today, apps offer customers a tremendous range of options when it comes to customizing, scheduling, and delivering restaurant food.  Traditional restaurants are on these apps, but the variety of available food and vendors grows regularly, including both national chains and local eateries.  

While most options on popular apps like Door Dash and Uber Eats appear to be restaurant chains, a growing number may be cloud kitchens, also known as ghost kitchens…which are not restaurants at all.  Rather, they are only kitchens without storefronts or dining spaces.  Instead of trying to draw patrons inside, they exist solely for external delivery orders.

History of Ghost Kitchens

The term “ghost kitchen” is a new take on an established idea: a restaurant entirely focused on producing orders for delivery and take-out.  In urban areas, some restaurants like these became very popular despite offering little or no designated seating.  Customers took their food to go or had it delivered.  The modern ghost kitchen model, however, only emerged around 2015, with the focus explicitly on creating food for delivery apps like Door Dash and Uber Eats.  By focusing solely on delivery app service, these ghost kitchens could be more efficient than conventional competitors.

When the Covid pandemic erupted in 2020, there was a massive surge of demand for food from delivery apps.  This created a boom for ghost kitchens, including some $3 billion in investor funding.  However, struggles in the ghost kitchen market have emerged since the lifting of Covid lockdowns, with many customers taking a renewed interest in sit-down service.  Inflationary woes and concerns about the economy have also caused many customers to return to tried-and-true brands, making it difficult for relatively unknown ghost kitchen brands to compete on the apps.

Economics of Ghost Kitchens

Lower Start-Up and Operating Costs

For those wanting to get into the restaurant business, ghost kitchens offer a chance at decent revenue for a fraction of the price.  Entrepreneurs do not have to pay for seating space, customer amenities, and complex advertising.  And, unlike full-scale restaurant space, many options exist to rent commercial kitchen space.  Those who feel they might make good restaurateurs can try their hand at running a ghost kitchen first.

Lack of Nonprice Competition

New ghost kitchens will have little brand recognition and must therefore compete initially on price, trying to attract customers with lower prices than close substitutes.  With no seating area for customers, ghost kitchens must compete entirely on their prices and quality of food; nobody is drawn in for the ambience or smiling waitstaff.  This can create intense pressure to improve efficiency and cut costs within ghost kitchens.  

One struggle of ghost kitchens is high commission costs of being listed on delivery apps.  This eats into the profit margins of ghost kitchens, making efficiency even more important than for traditional restaurants.  Some ghost kitchens run by family businesses, willing to sacrifice immediate profits in order to establish a customer base, may survive the initial struggle and expand.

Specialization Through Narrow Menus

To keep costs low, especially when facing commission costs to delivery apps, most ghost kitchens focus on making only a few offerings.  This specialization leads to efficiency and greater output per dollar spent.  This may also help generate a customer base, with app users knowing that a specific ghost kitchen (i.e., restaurant) is well-known for being the best at making a specific dish.  If the ghost kitchen tried to make more dishes, and was not known for a specific dish, it would be less likely to generate a loyal following.

Economic Struggles of Cloud Kitchens

Lack of Eating Options Limits Ghost Kitchen Demand

Well-known fast food brands like McDonalds, Taco Bell, and Panda Express are all over the delivery apps and the street corners.  Their physical presence in cities and towns gives them free advertising.  They can cater to customer whims to sit down and eat inside, pick up from the drive-through (or get food carried to their parking spot), or order delivery to their front door.  Ghost kitchens, by contrast, only offer delivery, limiting the circumstances under which customers can order their food.  

Without drive-thoughs or ordering counters, ghost kitchen cuisine cannot be picked up; it must be delivered to a specific address.  If a customer will not be around at the time of delivery, the food will sit and may get cold or be stolen.  Thus, the convenience of delivery apps may be overstated; people out-and-about during the day are more likely to prefer venues where they can swing by and pick up food.

High Risk and Low Profit Margins May Dissuade Workers

Established restaurants and popular brands are likely to be seen as reliable employers by prospective cooks.  Those willing to work for a ghost kitchen must have a higher degree of risk tolerance and, often, work for lower wages.  Some may worry that the lack of a storefront could lead the owners to skimp on cleanliness and safety, knowing that customers will not see poor conditions and report them.  Others may worry that lack of brand recognition could make it more difficult for them to secure their next job; employers may hesitate to hire cooks from restaurants they have never heard about.

Current State of the Market: Restaurants Struggling

The entire restaurant industry, including ghost kitchens, is struggling in the latter part of 2025 due to consumer fears of a weakening economy.  As non-essential spending, restaurants are among the first line-items to be reduced in family budgets.  High inflation in the years since 2020 have increased costs on restaurant owners, with supplies costing more and employees demanding higher wages to maintain their own purchasing power.  Attempts to cut costs by using cheaper or fewer ingredients has led to some customer complaints, including accusations of shrinkflation - the price stays the same but the quantity is reduced compared to previously.  This has led to reduced consumer demand even when prices have not risen; why eat out when you’re getting less than you were a year ago?