Hot demand for 'ghost kitchens' rides on popularity of food delivery apps during pandemic

The "pick-up here" sign on a bright turquoise wall hints at what's bustling under the roof of a warehouse on an industrial street in East Vancouver.

Inside, 23-year-old Andrew Nguyen is making sushi pizzas for KOZU Sushi Pizza, his takeout-only restaurant — also known as a ghost kitchen. The concept has taken off during the pandemic as consumers turn to food delivery apps like Uber Eats, Skip the Dishes and DoorDash rather than cooking at home or dining out.

For entrepreneurs like Nguyen, it means watching electronic orders arrive online, preparing the food and packaging it for pick up or delivery. Others are doing the same in their separate small kitchen stations at the warehouse.

That means no brick-and-mortar locations, servers, dining rooms or parking lots, says Tim Silk, assistant professor at the University of British Columbia's Sauder School of Business, and all the accompanying cost savings in an industry of wafer-thin profit margins.

"Trying to set up a restaurant, you're going to be paying really high rent, you want high visibility and good traffic," said Silk. "If you're just cooking, and not worried about running a restaurant, you're better off operating a commissary kitchen in a lower rent district."

A commissary is shared commercial kitchen space equipped with everything a restaurant needs for food preparation, from ovens to refrigerators and freezers — but no dining area.

Nguyen, whose sushi pizza business operates at Coho Collective commissary kitchen on East Georgia street, started to think about the virtual restaurant concept when he was an Uber driver, observing how the pandemic burdened the restaurant industry.

"There were so many struggling restaurants in Vancouver that only had their kitchen open," he said. "All the chairs were stacked on the tables and I realized that you can start a business out of just a kitchen."

While the model relieves owners of the high costs associated with a traditional restaurant, some food entrepreneurs and experts say the importance of sanitary conditions can't be stressed enough in the highly competitive sector.

Cutting costs

Neither B.C.'s Ministry of Health nor Vancouver Coastal Health have data on how many ghost kitchens operate in B.C.

But price comparisons show the potential savings. At Coho's kitchens, rental prices range from $750 to $1,800 a month depending on the size and requirements of the space.

"You're not putting all the money for the equipment, you're not waiting for your building to be built, you're not putting hundreds of thousands of dollars in," says Amrit Maharaja, chief operating officer of Coho Collective

Meanwhile, leasing a restaurant space in Vancouver could range from $2,400 per month for 470 square feet in Kitsilano to $10,000 per month for 1,900 square feet in the Granville Street area, according to Jean Seguin of Restaurant Business Broker.

Increasing demand and competition

So many people want a piece of the action that Gopal Patel, who runs a commissary kitchen on East Kent Avenue in Vancouver, says he rejects four to six queries a week because it's fully rented.

"I have to keep saying no just because I only have one kitchen," he says.

And the Coho Collective has a waiting list of nearly 40 ghost kitchen hopefuls, says Maharaj.

Entrepreneurs Tushar Tondvalkar and Evan Elman launched their virtual Indian restaurant Urban Tadka out of their rented space at Coho during the pandemic to help cover the costs of their separate private chef businesses, which were severely hit by the pandemic. But they found the competition fierce.

"We were just so saturated, like everybody's favourite Indian spot is there ... that's why we sort of went back to the drawing board."

The entrepreneurs then started their second virtual restaurant, Frankie, over the summer selling Indian street wraps, out of their ghost kitchen. Now they operate four food businesses from the same space.

Ghost kitchen rules similar to regular restaurants

The procedure to open up a ghost kitchen is similar to a traditional restaurant, the Ministry of Health told CBC News.

Ghost kitchen operators need to obtain their own operating permit, successfully complete food handling, sanitation and work safety courses, and develop their own food safety plan.

Safety and sanitation should be a key priority for virtual restaurants operating out of ghost kitchens especially during the pandemic, Silk says

"I think these young entrepreneurs … realize that if there's one slip up, they're going to be out of business. And I think they take that very seriously."

For Nguyen, his business enabled by a ghost kitchen is a start in his entrepreneurial journey.

"Because we are online, we can change up our menu, we can test different product items. We can start several brands … just kind of play around with the market and see what's best."