What Ghost Kitchens Mean for the Future of San Diego’s Dining Scene

In other words, it’s a logical place for CloudKitchens—a future-of-food concept whose inaugural location was built across from a Los Angeles cemetery. Nondisclosure agreements prevent anyone associated with CloudKitchens from saying so, but the DBA (“doing business as”) in the paperwork makes it clear: “Barrio Food Hub” is their regional alias.

At Willie Wingz, “Willie P” Stewart and his family sold out on their first day operating at the Hub.
Photo Credit: Valerie Durham

CloudKitchens’ idea is to round up the country’s ghost kitchens. On third-party delivery apps, ghost kitchens look and read like traditional restaurants. They’ve got a name, a logo, a menu. But at the physical address, there are no chairs or tables, no dining room, no humans except the kitchen staff. Ghost kitchens are, essentially, restaurants whose front-of-house positions have shuffled off this mortal coil.

Opened in February, Barrio Food Hub’s 10,000-square-foot warehouse is lined with 25 cooking cubicles, each about 200 square feet. The warehouse resembles a self-storage facility where the door to each unit is open and, instead of Grandma’s furniture and sad-clown art, there are stoves and fryers. Some call the model “WeWork for restaurants.”

Photo Credit: Valerie Durham

For now, BFH is home to mostly small operators. Willie Wingz is an Asian-style chicken concept started by local cook and rapper “Willie P” Stewart with his uncle and grandmother (her recipe is the star). Spring Valley’s Cali Comfort BBQ has an outpost here, using BFH to expand distribution of their barbecue to downtown San Diego, which would’ve been logistically impractical from their East County location. There’s a popular vegan startup, Cultivated Greens. A former chef for the San Francisco 49ers is R&D’ing a Hawaiian-food spot called Big Kahuna Grill. All of them cater almost exclusively to the booming third-party delivery market dominated by Uber Eats, Grubhub, Postmates, and DoorDash.

Even the flip-phone people know what DoorDash is by now. The pandemic made sure of it. Quarantined, hungry, and personally offended by the dishwashing requirements of self-sustenance, Americans more than doubled their spending on food delivery apps in 2020 ($2.5 billion to $5.5 billion, according to MarketWatch). Enough for some of the world’s largest companies to place their bets that our food spending habits have permanently changed. Last year, Amazon invested $575 million for a 16 percent stake in Deliveroo, a ghost kitchen hub in the UK. In the US there’s Kitchen United, backed by Google’s venture branch, GV. And Barrio Food Hub—aka CloudKitchens—is backed by Travis Kalanick, former CEO of Uber.

According to the LA Times, the framework for  CloudKitchens dates back to 2015, when tech entrepreneur and USC professor Diego Berdakin, under the name City Storage Systems, purchased unwanted, inexpensive commercial real estate (old parking lots, warehouses across from cemeteries) and turned them into affordable HQs for online businesses. Berdakin spent two years installing 27 ghost kitchens into a single LA warehouse and called it CloudKitchens. Berdakin sold controlling interest in City Storage Systems for $150 million to Kalanick, who’d overseen the rollout of Uber Eats four years earlier. According to a report by the Wall Street Journal, by last October Kalanick had spent more than $130 million on 40 commercial properties across the US—including this one.

Some call it a land grab by technocrats (virtual businesses don’t need sexy footprints, so acquisitions are cheap). Some call it a data grab by technocrats (CloudKitchens collects data from tenants and uses it to launch concepts of its own). Some call it the future and the low-key savior of restaurants, providing an optimized revenue stream for an industry whose existing streams are more like trickles over dust.

Proponents of ghost kitchens say the lower cost allows entrepreneurs a more affordable entry point to the increasingly cost-dumb world of restaurants. Danny Fitzgerald, principal of San Diego–based real estate developer Endeavor, estimates that opening a modest local restaurant (1,000–1,500 square feet, turnkey, spending just the basics on new decor) requires about $300,000 to $400,000 and a 5-to-10-year lease commitment. By comparison, CloudKitchens requires only a 6-to-12-month lease, with rent somewhere around $4,000 a month (though it varies based on the size and location of the rented kitchen).

“As a full-service restaurant in Spring Valley, we’re profitable—doing $3.3 million before the pandemic,” says Shawn Walchef, owner of Cali Comfort BBQ. “But we only had a net-net of six percent. That’s not a great pitch to investors, especially when we’d have to raise another $1.5 million to open a new location. So how do we expand? We weren’t actively pursuing it until we started understanding digital hospitality. The model works. For less than $100,000, we can go to a new market.”

 

On the Rise

Willie P and his grandma started Willie Wingz in her kitchen in 2019. They’d take preorders and distribute on Sundays. He would bring trays of chicken downtown and serve them, pop-up style, in parking lots outside nightclubs. When a residency at Phantom Club kicked the business into gear, the family’s next logical step was a commercial space.

“We ran our numbers,” explains Willie P’s uncle, James Clark Jr. “A brick-and-mortar was way too much for us. So we decided to do a food truck. We had a business plan ready— and then this came along.”

The ghost kitchen market is not small. In August 2020, Research and Markets estimated that the industry will grow to $71.4 billion by 2027 (it generated $43.1 billion in 2019). According to Restaurant Business, 63 percent of consumers, and 73 percent in the 18–34 age range, said they were likely to order from a restaurant that had no storefront. Restaurant Business also reported that before the pandemic, only 15 percent of restaurants claimed to use ghost kitchens. During? 51 percent.

 

Even the biggest restaurant chains have entered the game. On Postmates, It’s Just Wings sounds like a real place where sports people spend afternoons sipping beers over bones. But in reality, It’s Just Wings is just Chili’s. The national chain owns the ghost kitchen. Applebee’s has a ghost brand called Neighborhood Wings. Pasqually’s Pizza? Chuck E. Cheese.

It smacks a little of catfishing—that phenomenon when people present a dreamy fiction of themselves online (Alessandro, rock-climbing architect, enjoys capoeira) and then show up as their very different real selves (Jerry, water-bottle flipper, enjoys Fortnite). Some brands are more transparent about their app-based counterparts than others. Regardless, last August the parent company of Chili’s told CNBC it expected It’s Just Wings to generate $150 million in its first year.

The question is: What happens to the delivery market when the pandemic is over? We all seem desperate to eat and drink in loud, crowded rooms with other humans again. Surely, fewer of us will enjoy restaurant meals à la couch, and demand will dip. But how far?

Willie P and Clark are aware of the impending market correction. But right now they’re willing to play with the numbers in front of them. They sold out their first day at the Hub, and were turning a profit within the first two weeks. Part of their success is due to their social media savvy. They use Willie P’s music to drive attention to the brand. Talking to them in the BFH parking lot, both are covered head-to-toe in Willie Wingz gear. To make it in Cloud- Kitchens, most say, requires digital branding and good old-fashioned hustle (one of the Hub’s tenants, an unrelated sushi concept, already left due to slow sales).

Clark says they’re working 13 to 18 hours a day. His feet are numb. But they’re planning to sign up for CloudKitchens’ next location, slated for the SDSU area.

Walchef is so sold on ghost kitchens that he plans to convert part of Cali Comfort’s original restaurant to the model. “I don’t see the third-party going anywhere,” he says. “We’re projected to do half the volume that we do in Spring Valley, but be three times more profitable. That’s all because of technology. So we went all in on digital. Before the pandemic, we had 64 employees. I can open 10 ghost kitchens, pay those existing employees way more, give them time off.”

There’s no romanticizing work at the Hub. What you can see past the to-go counter (customers can pick up, and many do) looks like a cubicle farm with steam. It has none of that famed restaurant sizzle. But a cook’s life has never been a leisurely one near a picture window.

“Most people who work in the heart of the house aren’t people-people,”Walchef adds.“So this is almost the ideal working environment for some. Ghost kitchens remove a lot of the problems people deal with in hospitality— namely, problem customers.”

Photo Credit: Valerie Durham

The Future of Food

From a community perspective, ghost kitchens like the Hub turn dead commercial spaces into moneymakers. This long-dormant warehouse now contributes to the tax base, gives entrepreneurs a home, and supports jobs. Critics of ghost kitchens point to the fact that the jobs they support (and rely on) are delivery-app drivers—gig workers without health insurance, whose fair treatment became a hot-button issue in the 2020 California election. Prop 22—which exempts app-based transportation and delivery companies from having to classify their drivers as employees—won by a 9 percent margin. But the debate is far from over. Those apps also charge prohibitively high fees (20–30 percent of the total order, wiping out a good chunk of the profit). Finally, ghost kitchens don’t provide employment for hosts, servers, bussers, or bartenders like brick-and- mortar restaurants do.

Few expect ghost kitchens to replace Mister A’s or Morning Glory. But they may replace functional restaurants that don’t offer much in the way of art or music or social experience. It’s simply a new model serving the very different delivery market. And when we order food delivered, who cares if the restaurant has ostrich-feather chairs or an Instagram-bait plant wall, or even “exists”? When the Big Mac arrives, we only care that it’s relatively warm, there’s no bite out of it, and it tastes like a Big Mac. So why would a restaurateur— already operating in an industry with notoriously small margins, staring down incremental raises to the minimum wage—pay for chairs, tables, art, Muzak, or even employees?

“There’s a lot of pushback, sure,” says Walchef. “But we can’t discriminate in how people get our food.”

Possibly the most salient criticism of ghost kitchens—the one that seems to have real potential to bring down this burgeoning industry— is the traffic. Hundreds of delivery drivers (and some to-go customers) are constantly coming and going. CloudKitchens is already facing backlash in Chicago, where delivery drivers are reportedly double- parking, acting badly (smoking cigs), and creating traffic issues for residents.

There’s currently no traffic impact analysis for Barrio Food Hub (multiple emails to CloudKitchen reps went unanswered), but the general manager of the Chicago location told local news site Book Club that each restaurant had 50–75 orders per hour. Chicago’s a bigger city than San Diego, so it doesn’t directly compare. But even if Barrio Food Hub manages to do half the amount of orders (let’s say 25) at full capacity (25 kitchens), that would be 625 orders every hour. In early March, BFH reportedly had staff on location to handle pickups from 7 a.m. to midnight (17 hours). So over a given day—that’s 10,625 extra cars coming through the neighborhood, past that woman I saw on her porch who was out for some fresh air.

Granted, drivers often pick up multiple orders at a time. But it’s a concern, especially for a community like Barrio Logan, which is already struggling with air pollution due to commercial vehicles and activity. Parking was already an issue in the barrio before CloudKitchens arrived. Workers from the nearby shipyards were using the neighborhood as an employee parking lot. Locals recently convinced the city to make their streets permit-only—which is a win, and potential problem for BFH if its popularity grows.

On a Monday night, I’m able to find parking right in front. I eat a poke bowl from Blue Poke, one of the ghosts, in the front seat of my car. I watch a smattering of delivery drivers pick up food. It’s mellow, orderly. I empathize with most of the drivers as they hesitate, looking a little lost, trying to make heads or tails of this new situation.