Whenever you decide to start a business, you’re always facing some kind of risk. But if cooking is your passion, you may have heard that opening a restaurant can be quite risky.
In fact, as many as 60% of new restaurants close within the first year of opening, while 80% shut down within the first five years. That said, technology is allowing aspiring restaurant owners to open kitchens in a different fashion—by opening virtual restaurants.
Virtual restaurants, also referred to as ghost kitchens, are popping up throughout the country—giving existing brick and mortar restaurants an opportunity to revive their delivery options. Plus, the COVID-19 pandemic has also encouraged restaurant owners to revisit their current operations, making delivery and takeout service more prevalent than before.
If you want to learn more about opening a virtual restaurant, we’ll walk you through everything you need to know about this unique type of restaurant, as well as explain how to set up a virtual restaurant step-by-step.
What Is a Virtual Restaurant?
A virtual restaurant, also known as a ghost kitchen, is a restaurant that operates entirely (or almost entirely) through deliveries or takeout service.
Virtual restaurants streamline the delivery process, allowing you to quickly and easily order food through a mobile app. Ghost kitchens allow you to view menus, place orders, pay, and even track your food all through an app.
Overall, virtual restaurants can operate in a few different ways. Some virtual restaurants might have small eat-in spaces or an area for customers to directly pick up their orders while making most of their money through delivery orders. Most ghost kitchens, however, operate as delivery-only restaurants.
Although many virtual restaurants partner with third-party food delivery services (UberEats, Grubhub, DoorDash, Postmates, etc.), others might use their own delivery drivers and vehicles or operate as a food truck delivery service.
Pros of Opening a Virtual Restaurant
Although virtual restaurants are certainly in fashion right now, is owning one right for you? Here are a few benefits to consider.
- Virtual restaurants can reduce the need to hire a large staff. You’ll save money by avoiding hiring waitstaff, hosts, and bartenders.
- Ghost kitchens often operate in shared spaces or small kitchens, which can save you money on rent.
- By using data from your orders, you’ll be able to better improve and streamline your menu to cater to your customers’ preferences.
Of course, starting a ghost kitchen won’t feel the same as owning a brick-and-mortar restaurant, since you won’t interact with patrons one-on-one. However, your restaurant can still grow and become a staple of your community or city by connecting with customers via social media.
How to Open a Virtual Restaurant in 8 Steps
If you’re ready to open a ghost kitchen, we can help you with the process. We’ll walk you through each of the eight steps you can follow below:
1. Create a business plan.
Coming up with a business plan is an important first step in forming any new business. Your restaurant business plan will define your ghost kitchen’s goal, plans, and projections.
That said, this plan will not only be helpful to investors or financial institutions in the future, but it also can help you better organize your thoughts during the early stages of your business.
When constructing the business plan for your virtual restaurant, there are a few areas you’ll want to pay particular attention to:
- Market analysis: Here, you’ll want to recap research you’ve done on competitors and other virtual restaurants in your market. You can include growth stats, demand, pricing trends, and current challenges. With the popularity of ghost kitchens, you’ll want to ensure that you’ve secured a place for your restaurant idea, know how you can stand out against competition, as well as how you can continue to grow your business in years to come.
- Products and services: Menu and fulfillment will both be key for your virtual restaurant. You’ll want to think through what kind of food you’re going to sell, what kind of ingredients you’re going to use, how fast you’ll be able to make your items, etc. In particular, you’ll want to consider what types of foods are optimal for delivery services. Of course, you’ll also need to think about what kind of delivery services you plan on utilizing.
- Financial projections: If you’re new to the industry, this section will only include projections based on your market research. This can include projected monthly income, forecasts for cash flow, and funding details. In addition, you’ll want to make sure you think through your startup costs and break those down here. Although you won’t face the same costs as a brick-and-mortar restaurant, you’ll want to consider the different options you have (e.g. working with a delivery service vs. buying a food truck) and how those might affect your initial costs.
Ultimately, although creating a business plan is a lot of work, it’s an important first step in ensuring you’re ready to dive into building and launching your new virtual restaurant.
During this step, you’ll also want to select a business name and decide what type of business entity to form. Once you’ve chosen both, you’ll be ready to set up your business officially by filing with your secretary of state’s office.
2. Identify your market.
You might know what type of food your virtual restaurant will offer, but where will you sell your cuisine? And who will buy it? In this step, you’ll want to narrow down your key buyers and select the right market to launch your new ghost kitchen.
To figure out the best location and demographic for your products, it’s important to do some research. For instance, if the college town near you has a dozen high-rated pizza places, you might want to open your virtual pizzeria elsewhere, where there is more demand and less competition.
It’s also important to consider hours of operation when identifying your ideal market. For instance, even if the area you want to open in has several competing businesses, if there’s a need for a late-night option, you might be able to attract customers by offering late-night eats.
Lastly, it’s important to consider your food’s price point and likely buyers. If you plan to open a ghost kitchen specializing in custom burritos, for instance, you might target college students and young adults over families and upper-class buyers. This could play a role in where you choose to launch your business and extend delivery offerings.
3. Find kitchen space.
When you’re opening a virtual restaurant, finding kitchen space is key. If you do not plan to have a storefront where customers can visit, you can opt to rent kitchen space or even share kitchen space with other ghost kitchens. Doing this can save you money on rent and might even set you up with some of the equipment you’ll need to make your food.
You’ll want to look for kitchen space close to your delivery area to ensure your food remains as fresh as possible during transit. If you’re opting for a food truck-style kitchen, you’ll want to make sure the vehicle you rent or buy can house all of the kitchen equipment your restaurant will require.
4. Obtain all necessary licenses and permits.
Now it’s time to ensure you obtain all of the required permits and licenses you’ll need in order to operate in your state, county, and city.
Depending on the state you live in, you might need a general business license in order to operate. Industries also have their own specific requirements for licensing and permitting, which can also vary by state.
Most virtual restaurant owners will need to secure the below licenses:
- Food handler’s license. Typically, any restaurant owner and employees are required to obtain this license in order to demonstrate they understand general and state-specific laws and practices regarding handling food.
- Catering license. Some states require catering licenses for any restaurant that delivers food. This may not apply if you utilize third-party delivery services, but it’s important to check your state’s laws.
- Kitchen inspection certification. If you have a private kitchen, you’ll need to ensure your food preparation and cooking areas are inspected and comply with state laws. Shared kitchen spaces also must meet inspection codes, but may be handled by the building owner.
It’s important to review all of your state’s license requirements for restaurants to ensure no other permits are needed. In addition, you should always check with your local government office to find out if any county or city permits or paperwork are required to operate.
5. Set up tax accounts.
Next, you’ll need to set up your virtual restaurant to pay business taxes and adhere to all state and federal tax requirements. This includes obtaining an EIN (employer identification number) with the IRS.
Your EIN is used to identify your business and is essential for paying taxes, hiring employees, and opening business financial accounts. You can apply for an EIN directly on the IRS website.
If your virtual restaurant has employees, you’ll also need to set up a withholding account through the IRS and your state. Lastly, if your state collects sales tax, you’ll need to obtain a sales tax license and set up payment to your state as well.
6. Select suppliers.
Next, it’s time to select the suppliers for your virtual restaurant. You’ll first want to research and select distributors to supply you with the food, silverware, spices, kitchen supplies, food containers, and to-go bags. You might find one distributor to fulfill all of these needs, but many restaurants have more than one distributor.
This is also the time to decide how your ghost kitchen will deliver food to your customers. If you’re interested in using a third-party delivery service, you’ll need to do your research and learn about how these services work and how much they cost.
Many third-party delivery companies (like DoorDash, Caviar, Grubhub, and UberEats) charge as much as 30% in commission fees to restaurants who use their services. On the upside, your restaurant won’t have to worry about deliveries or payments, and you’ll be able to use your delivery partner’s app to post your menu.
If you decide to handle delivery on your own, you should look into developing your own delivery app or creating a business website for your restaurant that allows you to handle online ordering.
7. Secure funding.
Even the best-planned virtual restaurant needs to find a foolproof way to fund its launch. You’ll likely need startup money to purchase your first few supply deliveries, secure kitchen space, build a website or online delivery app, hire employees, and begin marketing your business.
Luckily, when you’re setting up a ghost kitchen you can consider funding options such as:
- Term loans: Between banks and online lenders, there are a variety of products available for standard business term loans for restaurants.
- Business lines of credit: Lines of credit allow you to only use the amount of capital you need, when you need it. You’ll also only pay interest on the amount you end up using rather than the full amount you’re approved to borrow.
- Small business grants: If you’re opening your virtual restaurant in a low-income area, designing your restaurant to improve the community, or aligning with local health and wellness measures, you might be able to secure a small business grant.
8. Establish branding and marketing.
Now that you have the financing you need to launch your virtual restaurant, it’s time to focus on marketing. You’ll want to develop your brand’s logo, establish set brand colors and font treatments, and decide on any slogans or catchphrases. This also includes launching a restaurant website and menu.
One major benefit of starting a ghost kitchen is that you won’t need to purchase physical signs or merchandise, though you can if they’ll help market your brand. You may want to purchase business cards or flyers to pass out that include your business website domain and where to find your food (i.e. Grubhub, UberEats, etc.).
You’ll also want to establish social media pages for your business on platforms like Facebook, Instagram, and Twitter. Be sure to include links to your website and online ordering page.
The Bottom Line
Opening a virtual restaurant can be a more efficient way to own your own eatery in 2020. Ghost kitchens allow you to cut the cost of labor and restaurant space, while still allowing you to promote your own cuisine.
That said, be sure to carefully consider how your virtual restaurant should operate and whether or not you want to use third-party delivery services to bring your food to customers and help market your restaurant. Lastly, to find success starting your ghost kitchen, make sure to consistently market your restaurant online using social media.
- BusinessInsider.com. “Why Restaurants Fail So Often”
- NYTimes.com. “Rise of the Virtual Restaurant”
- CNBC.com. “Doordash Eliminates and Reduces Some Commission Fees for Restaurants”