As Covid-19 continues to impact how restaurants operate, Jason Johnson is looking to expand his ghost kitchen operation in the Triangle and capitalize on a business model that has accelerated during the pandemic.
Johnson's company, HUBB Kitchens, plans to have six ghost kitchen locations – sites where food is prepared for delivery – by the end of 2022. HUBB Kitchens currently has one location open at 1129 Corporation Parkway in Raleigh. Johnson and his company are also part of the team behind a multi-concept ghost kitchen coming to Raleigh-Durham International Airport.
The kitchen at RDU is set to open in March, and Johnson’s second Raleigh location will be opening at 1214 E. Lenoir St. in January, he said. Next, he’s planning to open a Durham location in May, a third Raleigh location in August, and rounding it out with another Durham location in December.
The company says it has 42 active clients, over 500 applicants wanting space and has seen four entrepreneurs become full-time business owners. To fund its growth, HUBB Kitchens is launching a crowdfunding campaign and offering an 8.5 percent equity stake for a raise of $467,550.
“We saw crowdfunding as a new opportunity versus the traditional bank loan route to where we felt like we could get the people in our community that already love us to now join in on the benefits of being part owners or investors in a growing company,” Johnson said.
Over $22 billion in funding has been invested in ghost kitchen companies, according to Pitchbook. It's a $43.1 billion industry, according to Hospitality Technology, and is projected to grow to $71.4 billion by 2027.
Johnson spent 16 years in the restaurant management industry, working for companies like Ruth’s Chris Steakhouse and The Capital Grille. His last post was serving as the executive chef at the Alamo Drafthouse Cinema, a $12 million operation according to Johnson.
HUBB Kitchens began seeking interest in its campaign in October, and has now met its minimum interest level and is going through the verification process with the Securities and Exchange Commission. Johnson plans to go live around mid-January.
Johnson is also on the team behind the Raleigh Main Street Program. The incubator helps minorities and people from low socioeconomic statuses start food and beverage companies, with a physical food hall space coming to 219 Fayetteville St. in Raleigh.
The program is in the process of acquiring a second Fayetteville Street location, Johnson said, bringing the number of operations under his wing to eight. Looking toward the future, he’s eyeing an expansion into Charlotte in early 2023, and potentially even Baltimore.
Ghost kitchens are also a potential solution for the labor shortage facing the hospitality industry, with no front-of-house staff needed and a smaller kitchen footprint.
“In essence, you don't need as many people to operate your business because you're offering a fractional menu,” Johnson said.
There are pros and cons to the business model, said Bob Vergidis, founder of The Point of Sale Cloud, a technology platform that serves multi-unit restaurants.
"On the pro-side, virtual/ghost kitchens have a low overhead and rely on delivery services to get the food to the guest. On the con-side, ghost kitchens remove the experience component of going to a restaurant," he said. "Also, over-reliance on delivery services removes direct contact with the guest as third-party services do not share guest information with restaurants. The biggest thing restaurants have to focus on is knowing their customer."
Johnson started HUBB Kitchens in 2020, opening its first location in December of that year. In 2021, the company brought in $165,000 in revenue. Johnson is projecting the business to almost double its revenue this year, expecting numbers around $300,000 for 2022.
HUBB Kitchens’ first location was profitable within three months and grew 12 percent month over month from its opening until April 2021, its website said. The space is currently at 100 percent occupancy.
Opening a new location in an existing building with renovations costs around $300,000 for HUBB Kitchens, Johnson said. The buildings are chosen in areas with access to about 200,000 people within a 5-mile radius and a median household income above $60,000, he said.
“We felt that they had the income to support the use of delivery options versus grocery bills,” Johnson said.
HUBB Kitchens will be partnering with Winston-Salem-based company Swipeby for delivery services at the ghost kitchens. Swipeby’s app allows operators to have text conversations with customers and has competitors such as Grubhub (NYSE: GRUB) and DoorDash (NYSE: DASH).
Johnson isn’t the only one in the Triangle on the ghost kitchen scene. David Foye plans to open ghost kitchen Flavor District in a former Golden Corral by March 2022. While it is direct competition, Johnson said the two companies are looking for different types of vendors.
“Because we’re an incubator that helps develop and cultivate entrepreneurs, we're able to help people at an earlier stage where he needs a more established clientele to fill his spaces,” Johnson said.
HUBB Kitchens has vendors lock into a one-year agreement and then provides the businesses with marketing support, professional menu shoots, advice from Johnson and other efforts to help the concept succeed.
Though ghost kitchen vendors won’t make as much in sales as a traditional brick-and-mortar establishment, vendors should be able to pocket more of their profits, Johnson said.
“You don't worry about the light bill, you don't worry about a piece of equipment breaking,” he said. “Instead of operating on a 10 percent net profit margin, you should be able to get up to a 25, maybe even 30 percent net profit margin.”
