Ghost Kitchens Discover a House in Empty Accommodations

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Ghost Kitchens Find a Home in Empty Hotels

Richard Zaro always wanted to open a chicken schnitzel eatery inspired by the deli sandwiches in northern New Jersey, but the challenge was finding the capital required. The pandemic finally gave him an opportunity.

Mr. Zaro’s family has a long history in the restaurant business. In 1927, his great-grandfather Joseph Zarobchik founded the Zaro’s Bakery chain, which is now a staple for New York commuters with storefronts at Pennsylvania Station and Grand Central Terminal and across the city.

But he wanted to develop his own concept, and in the pandemic he found a solution: The hotel industry, which, after months of hanging on to a financial thread, rented its empty kitchens and banquet rooms to restaurateurs who were looking for cutlery to evaluate space.

Ghost kitchens, also known as digital kitchens, are cooking facilities where food is only made for delivery or to take away. And as U.S. cities jump from one lockdown to the next and the dining rooms of restaurants remain closed, demand for the concept is booming. Euromonitor, a research firm in London, predicts that ghost kitchens will be a $ 1 trillion industry in the next 10 years.

So it is perhaps not surprising that the hotel industry, in which the occupancy rate has still fallen by 30 percent compared to the previous year, is joining the trend. Hotels have become adept at reusing their spaces during the pandemic. They have offered their empty spaces as housing for the homeless and temporary offices for executives. They even turned their conference rooms into classrooms for kids learning from a distance.

The concept isn’t entirely new: Founded in 2016, Butler Hospitality was one of the first to streamline in-room dining by running food and beverage service for multiple hotels through a single neighborhood kitchen. Analysts now estimate that fewer than 5 percent of hotels in the US have ghost kitchens within their properties, but the number is expected to increase.

“Hotels see this as a profit center,” said Frederick DeMicco, director of the School of Hotel and Restaurant Management at Northern Arizona University. Branded restaurants in particular can add value to a difficult hotel.

“It complements existing menu options in the hotel and expands respected restaurant brands as a partner in the hotel,” he said. “Consumers recognize and approve of it.”

The pandemic has opened the business model to more entrepreneurs. To turn his sandwich concept into a business, Mr. Zaro started renting space at Four Points by Sheraton Midtown near Times Square in July and paid $ 6,000 per month for a fully equipped catering kitchen. In comparison, average restaurant startup costs for brick and mortar locations can range from $ 200,000 to more than $ 1 million.

Within four months he had generated enough sales – and created a sufficiently large base of loyal customers – to move to an independent location. His new store, Cutlets, opened in a former Tender Greens restaurant near Gramercy Park on December 1st and is set to expand.

Testing from a base in a Times Square hotel is the ultimate risk mitigation, Zaro said, adding that the hotel also benefited: “It was nice that they were generating income.”

And the situation removed many of the stumbling blocks that new restaurateurs face. “We were able to do good business on the first day, be open to next to nothing and test the market,” he said.

Mr. Zaro found his rented kitchen area through Use Kitch, an online commercial kitchen market that compares to an Airbnb for the restaurant industry. Dan Unter and Aaron Nevin launched the platform last January. They estimate that half of their rental kitchens, almost all in New York, are in hotels.

They plan to cut that percentage, but it is ideal for the company’s introduction to rely heavily on hotel kitchen surfaces, Nevin said.

“Hotels are already used to having third-party providers on their premises, so it is no stranger to them,” he said. “The bigger restaurant industry has yet to take care of that.”

The combination of ghost kitchens and hotels has potential as a long-term business model, said Sam Nazarian, founder and CEO of SBE Entertainment, a hotel and restaurant management company. The brands include the Mondrian and Hyde hotels, as well as restaurants by chefs such as Wolfgang Puck, José Andrés and Katsuya Uechi.

In 2019, Mr.Nazarian launched C3, a food hall platform with a focus on delivery and a mix of ghost and stationary kitchens. C3 has eight virtual brands including Umami Burger and Krispy Rice. The hotel model begins this month in partnership with Graduate Hotels, a collection of more than 30 boutique hotels with a thousand-year focus in university cities across the United States.

“Nobody wanted to unleash the power of dormant real estate,” said Nazarian, who estimates that many hotels only use their kitchens 15 percent of the time and lose valuable income as a result. “Now we can use this kitchen with an efficiency of 80 or 90 percent and deliver our brand to this millennial generation.”

The joint venture will begin at Graduate Berkeley near the University of California at Berkeley and then expand to locations in Minnesota, Arizona and Iowa before being incorporated into the full chain. Graduate Hotels provide the banquet and catering rooms. C3’s restaurant brands offer in-room dining, delivery and takeaway for the community.

“When you think about the angle at which millions of college kids develop their appetites and brand loyalty, it makes sense for both Sam and us,” said Ben Weprin, founder and CEO of AJ Capital Partners, the Chicago real estate company who is behind Graduate Hotels. “I think it will be profitable. It’s a great differentiator. “

The right partnership is critical to the success of the business model, said Kim Stein, principal at KLNB, a Washington commercial real estate services company.

“If you are trying to make your business survive, you have to find a partner to help you,” she said. Her clients, she said, include buyers who are looking for a full kitchen for delivery and execution, but who don’t want to pay for more than 1,000 square feet. (Restaurants are typically 1,200 to 10,000 square feet, including kitchens and dining rooms.)

“From a real estate perspective, it is almost impossible to find a thousand square meters with a fully equipped kitchen,” said Ms. Stein.

Hyatt, which has more than 900 properties, sees another benefit in installing ghost kitchens in several of its hotels: a small business support system.

In November, the company launched Hyatt Loves Local, a partnership program that provides resources – including kitchen space – to local businesses struggling during the pandemic. To date, 60 Hyatt hotels have participated.

Hyatt offers its space to small businesses free of charge. The program adds to the appeal of hotels by expanding their dining options and supporting the neighborhood, said Amy Weinberg, senior vice president of Hyatt.

“Our hotels are part of the community in which they operate,” she said. “If the neighborhood has problems, it’s not good for anyone.”

Through the program, the Hyatt Regency Atlanta gave Anna Bells Mac a kitchen; A Hyatt Regency in Dubai offered Fables UAE, a pastry shop, both a kitchen and a shop front. After pedestrian traffic slowed significantly at Hawaii’s Hana Farmers Market, he moved to the Hyatt Hana-Maui Resort, which provides vendors with space for a kitchen and refrigerator to prepare food.

The unification of hotels and local allies is a trend that is likely to continue, Ms. Stein said.

“Hotels are able to maintain the convenience of some kind of catering service and the restaurant is able to reach new customers through delivery and execution,” she said. “It’s really a win-win situation.”