What are Ghost Kitchens and Their Insurance Requirements?

A line of cooking stations arranged in a ghost kitchenDining out is more about eating in as a result of the pandemic. In the past few years, restaurant owners and kitchen staff have been seeking opportunities to generate income in a restaurant industry devastated by COVID-19. Ghost kitchens are the latest trend to help aspiring restauranteurs – as well as established restaurants – participate in the market while minimizing the risk of contracting COVID. Let’s discuss the new phenomenon of ghost kitchens and the insurance requirements of those that use them.

What is a Ghost Kitchen?

Ghost kitchens – sometimes known as “shadow” or “dark” kitchens – are unbranded facilities outfitted with workspaces and kitchen appliances that can be used by multiple brands or chefs simultaneously. With the expansion of third-party delivery apps like DoorDash and GrubHub, entrepreneurs have been developing delivery-only restaurants using these ghost kitchens. While they’re required to share the space with coworkers from different businesses, this workspace allows them to save on rent, maintenance, and property liability costs.

What are the Pros of a Ghost Kitchen?

If you’re looking to break into the restaurant industry while safely social distancing, a ghost kitchen may be a good option for you. Some of the benefits of a ghost kitchen include:

  • Low Overhead Costs: Renting space in these kitchens can cost as little as 5 to 8 dollars per hour, according to Home Affluence. You also don’t have to spend money on expensive commercial kitchen appliances or maintenance.
  • Experimentation: You can test your product in different local markets before investing in a full-service restaurant.
  • Expand Delivery Range: If you already have an established restaurant but receive more orders than you can process, you can use a ghost kitchen to not only keep up with to-go orders but also expand your delivery range.

You can also set your business hours since you are not reliant on a steady day-to-day income to keep up with rental costs.

What are the Cons of a Ghost Kitchen?

While you can start a business without having to invest in an expensive rental property, there are some drawbacks to ghosts kitchens, which include:

  • No Walk-Ins: You can sell to curious walk-in customers, as you don’t have a brick-and-mortar identity.
  • Your Prices May Be Higher: Because you’ll be relying on third-party apps, your delivery service fees will be higher, which will carry over to your menu prices.
  • Kitchen Constraints: You’ll be limited to the kitchen’s location and workspace. Since you’ll have coworkers working alongside you on their own business, space may become cramped.

Furthermore, without a physical storefront, it can make it seem to those unaccustomed to virtual restaurants that you are not a legitimate business.

Do Ghost Kitchen Restauranteurs Still Require Insurance?

Even though you don’t host diners and you don’t have a physical location to call your own, you still need to take similar precautions to other restaurants. Some insurance policies you should invest in include:

  • Cyber Insurance: Since your restaurant functions solely via a website, the risks for cyberattacks are higher.
  • Liability Coverage: While you don’t run the risk of anyone tripping and falling in your establishment, you’re still responsible for any food-borne illnesses related to your product.
  • Business Interruption Insurance: If a third-party vendor you partner with suffers a setback or damaging cyberattack that negatively impacts your business income, you can be covered from financial damages.

Alternatively, owners of ghost kitchens need to have all the standard policies of a commercial kitchen, including general liability and property insurance.

Understanding what ghost kitchens are and their insurance requirements can help you make some interesting business decisions despite the pandemic. However, you still need to take appropriate precautions. At TJ Woods Insurance, our agents can pair you with the right business insurance to keep your virtual restaurant safe. If you want to learn more about insurance for atypical or new types of businesses, contact us today.