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Wednesday, Dec 7, 2022
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‘Virtual’ Eateries

Rapid growth in off-premise dining has led to a new business model for restaurants—one that doesn’t involve tables, waitstaff or a brick-and-mortar storefront. Dubbed “headless” or “virtual” restaurants, these eateries exclusively fill delivery or pick-up orders placed online, over the phone or through apps like UberEats and Postmates. And rather than spend capital on prime retail real estate—where building a kitchen from scratch can easily cost six figures—these restaurants are finding low-cost homes in shared kitchen facilities, or “ghost kitchens,” which are warehouses that contain as many as 20 commercial kitchen spaces and lease them to multiple food preparation tenants at the same time. The San Fernando Valley boasts several such facilities. One is Fulton Kitchens, nestled in an industrial neighborhood in North Hollywood. Formerly a fish warehouse, Fulton contains 20 commercial kitchens of varying sizes. Each is leasable by the year and comes equipped with a hood, three-compartment sink, grease interceptor, walk-in cold storage space and the necessary regulatory permits. Best of all, they’re offered at industrial lease rates. Tenants include caterers, meal preparation companies and consumer products—a popcorn brand runs its manufacturing and packaging operations there—but delivery- only restaurants are based there, too. Startup launchpad The Original Coley’s is such a tenant, a family-operated restaurant and catering business that has served home-style Jamaican food to Valley customers since 1982. Fried fish, curry goat, oxtails, beef patties and cornmeal porridge are menu mainstays. Coley’s wasn’t always delivery-only. For decades it was a charming and popular sit-down restaurant called Coley’s Jamaica’s Best Cuisine on Magnolia Boulevard in North Hollywood’s Arts District. But chef and owner Don Coley shut it down in 2016 when he retired. Now the Original Coley’s is captained by his daughter Candice. “My daughter insists that she wants a restaurant. I’m just kind of guiding her,” said Don Coley. They moved into Fulton Kitchens in February and plan to open a brick-and-mortar spot when the timing and location are right. “(Retail) is so expensive, everybody wants like $4 per square foot,” Coley said. In this case, Fulton Kitchens serves as an incubator for Coley’s, a business with a proven concept that fills a gap in the market—Jamaican eateries are few and far between in North Hollywood—but doesn’t yet have the capital to stand up a traditional restaurant. With retail rent rates rising around the country, more and more chefs and restauranteurs are finding themselves in similar situations. “There’s a market for health department-approved kitchens all across L.A. and probably California and the whole country, in any major metropolitan city,” said Fulton Kitchens’ owner Yossi Berrin-Reinstein. Fulton Kitchens is Berrin-Reinstein’s second shared kitchen facility. In 2015, he launched Fishburn Kitchens in downtown L.A. with 17 units. And this year he expanded his footprint to San Diego by opening Hollister Kitchens with 24 units in Chula Vista. Means of expansion Ghost kitchens can also serve as a means of expansion for traditional sit-down restaurants and chains. These are the types of businesses targeted by Kitchens United, a Google Ventures-funded fledgling network of commissaries all over the U.S. It currently has two operational kitchen facilities: one in Pasadena and one in Chicago’s River North neighborhood, offering 240- and 320-square-foot kitchens. “Our business is about helping successful restaurant brands make the change into this new world of off-premise,” said Vice President of Sales Anthony Green. “We’ve now got a borderline insatiable appetite for the convenience of delivery.” The Pasadena facility’s tenants include gourmet hot dog chain Doghaus, fast-growing Mediterranean chain Halal Guys, and Canter’s Deli, a long-standing Jewish delicatessen on Fairfax Avenue in Los Angeles. For these already-profitable brands, outsourcing delivery and pick-up orders to an off-site kitchen helps fill increasing demand and keeps clutter out of kitchens and front-of-house areas that aren’t designed for the heavy foot traffic of pick-up customers and delivery drivers. Though Kitchens United currently has just two facilities, they’ll begin to sprout up in droves over the next few years. The company is working to open locations in Atlanta, Denver, Seattle, Columbus, Ohio and elsewhere. Pricing is dependent on regional markets but will always be competitive with retail spaces. “The goal is 400 kitchen centers in four years. It would be the biggest restaurant buildout in history. That equals about 5,000 individual kitchens,” said Green. “That would actually service 50 percent of the population of the country.” It may sound like a lofty goal, but it’s possible in light of increasing demand. Prepared meal delivery has grown by 40 percent in the last five years, and that growth will continue according to a recent report from CBRE Group Inc. The food delivery industry was valued at $18 billion in 2018 — CBRE estimates it will grow to $25 billion by 2023. “On average, 50 percent of a restaurant’s sales come through delivery,” said CBRE Senior Associate David Freitag. “The idea is not that shared kitchens are going to step on the toes of the traditional restaurant model, but rather they are going to further provide a revenue stream and buoy business for a [delivery] segment that hasn’t changed.”

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