Approximately three in four Americans use food delivery services at least once a year. Fifty-six percent report doing so “once or twice” per month, according to The Restaurant HQ.

Are you one of them? If so, you’re probably familiar with popular food delivery apps like DoorDash or GrubHub. They’re the Uber and Lyft of food delivery (not necessarily in that order).

There’s a bit more to the story of how you get your dinner delivered, though. Your driver certainly isn’t preparing it in their home kitchen, and it’s not like the apps themselves run gigantic commercial kitchens of their own somewhere on the outskirts of downtown. It’s sometimes true that your food comes from the same restaurant kitchen that prepares food for sit-down diners — but this doesn’t happen as often as you think.

So, where exactly does your dinner delivery come from? In many cases, you can thank invisible but influential “ghost kitchen” companies like City Storage Systems, formerly known as Cloud Kitchens. With noted backers like Sky Dayton, founder of early Internet startup EarthLink, and Travis Kalanick, former CEO of ride-hailing unicorn Uber, City Storage Systems and its competitors have transformed millions of square feet of underutilized urban real estate into hundreds of commercial kitchens that prepare countless delivery meals every day. In the process, they’ve created opportunities for thousands of entrepreneurs.

Ghost Kitchens: What They Are (And Aren’t)

Also known as virtual restaurants or cloud kitchens, ghost kitchens are licensed commercial kitchens where culinary professionals prepare meals for delivery. Their users are often small-scale entrepreneurs who take advantage of their economies of scale to reduce the expense of running a food business.

“Using so-called cloud kitchens enables these restaurateurs to share facilities with others, and to do away with much of their other overhead,” tech writer Connie Loizos explains.

Ghost kitchens are not restaurants or food halls. They generally don’t have dine-in spaces and may not even be open to the public, although some allow customers to pick up food at the facility to avoid delivery charges and delays. They may have lobbies where delivery drivers (or customers) can wait for orders to be ready, but those aren’t the main attraction.

Transforming Underutilized Urban Spaces

The ghost kitchen is a fairly new idea, even as tech-enabled logistics concepts go. They take advantage of underutilized urban or peri-urban real estate — often older industrial or warehouse buildings that modern users increasingly find obsolete — that would otherwise sit empty, losing value.

“There are over $10 trillion in these real estate assets that will need to be repurposed for the digital era in the coming years,” Travis Kalanick wrote in 2019. Entrepreneurs like Kalanick and Sky Dayton, who was involved with several cutting-edge Internet and app-based businesses before linking up with Kalanick on the idea that would become City Storage Systems, had no trouble understanding the scale of the opportunity.

And that was before the COVID-19 pandemic hit. In the years since, the aggregate value of U.S. commercial real estate has fallen 12%, according to JPMorgan, as office users downsized and industrial/warehouse users pursued a “flight to quality” amid an e-commerce boom.

The ghost kitchen trend has helped keep commercial real estate values from falling even further. These facilities require a lot of space in central locations, often on the peripheries of major commercial business districts. While it might be nice to imagine every disused warehouse gaining a new life as an art collective, food hall, or maker’s market, that’s just not a realistic expectation — “boring” uses like ghost kitchens are necessary too.

Going Global: Ghost Kitchens Abroad

The United States isn’t the only place with underutilized urban real estate. In fact, the opportunity for ghost kitchens (and food entrepreneurs in general) is even greater in places like China, which has seen an incredible amount of overbuilding since 2010. 

In fact, according to Loizos, the scale of the China opportunity was key in Kalanick’s decision to spend $150 million to buy a controlling stake in the company. Sky Dayton and other high-profile investors remained onboard after the move, which saw several early backers (including venture capitalist and later “SPAC king” Chamath Palihapitiya) exit. They set about implementing a sunny shared vision of the future of food delivery.

Indeed, while the ghost kitchen concept might seem uniquely suited to high-income places like the United States, Canada, western Europe and Australia, there’s no reason it can’t work virtually anywhere with functional road and mobile phone networks. It certainly proved its mettle during China’s draconian COVID lockdowns, which lasted for nearly two years and forced hundreds of millions of Chinese consumers to increase their reliance on just-in-time logistics.

Beyond Ghost Kitchens: The Mobility Apps & Other Tech Infrastructure Supporting the Next Wave of Food Innovation

Entrepreneurs like Travis Kalanick and Sky Dayton were right about the rise of ghost kitchens, no question. Their thesis — that consumers would be willing to pay a premium for delivery convenience, and that owners of underutilized urban real estate would follow suit — has been borne out.

Maybe it’s no accident that Kalanick and Dayton were also right about earlier waves of innovation that directly or indirectly enabled the ghost kitchen phenomenon. For his part, Dayton played an important role in democratizing Internet access through EarthLink, and later helped expand wireless hotspot coverage through Boingo and mobile telephony through Helio (News - Alert). Kalanick’s role in scaling Uber into perhaps the most successful mobility app ever — not to mention the cornerstone of the “gig economy” — is well-known.

All of these technologies support the work done by food entrepreneurs in ghost kitchens today. Increasingly, AI plays a role as well, making delivery and logistics apps as well as ghost kitchens themselves smarter and more efficient. Who knows what the next 10 or 15 years of innovation will bring?

Whatever the future holds for the food delivery business, one thing is all but certain: Ghost kitchens aren’t going away anytime soon.