Prior to the pandemic, Josh Phillips successfully operated Espita, a Mexican restaurant that catered to budget-minded foodies in Washington’s upscale Mt. Vernon Square neighborhood.
But like many other restaurants in the metropolitan area – and the nation – business collapsed with the onset of lockdowns last March, prompting Espita to shut its doors.
But the story doesn’t end there.
Phillips started a new restaurant called Ghostburger, joining the growing ghost-kitchen movement, which are restaurants that prepare and deliver food only and don’t have dining rooms.
Because ghost kitchens are cheaper to operate than dine-in restaurants, the business model has proved to be profitable during these times of social distancing.
“The new normal is that there is no ‘new normal,’” said Phillips, musing on the success of the tasty, if random, variety of Ghostburger’s menu, which in addition to burgers serves up cheesesteaks, indulgent favorites such as rice crispy treats and the self-proclaimed “Best Chocolate Cookie You’ve Ever Eaten.”
Ghostburger was an instant success, bringing in almost $30,000 in its first week. As of the end of February, Ghostburger was making $40,000 per week in delivery sales alone. Now Phillips is expanding.
The restaurant industry has been one of the highest profile business casualties of the pandemic.
According to the National Restaurant Association, more than 100,000 restaurants in the country closed down last year. But that disaster has overshadowed another trend: New restaurants are popping up weekly across the U.S. and here in Maryland.
In recent weeks, dozens of new restaurants have announced plans to open their doors, including Crafty Crab, a Maryland and Virginia seafood chain, which is developing new fronts in Cockeysville, Maryland, and Baltimore; Clove & Cardamom, a globally inspired fare based on Indian spices recently opened in Columbia’s Merriweather district; and the historic Jimmy’s Restaurant in Fells Point sold to New York chef Denzil Richards, soon to be renamed “Denzel’s Shark Bar Grill.”
This might seem counterintuitive, but business experts note that in times of distress some industries enter a dynamic phase where new concepts are conceived, experimentation is widespread, and, most importantly, overhead to invest in new projects drops considerably.
When “desperation sets in for everyone,” a kind of creative destruction may result, said Roland Rust, professor at the Robert H. Smith School of Business at the University of Maryland. Companies then look to dismantle established processes to make way for more sustainable methods of service.
Like Phillips, the opportunity to evolve has led many restaurateurs into the ghost-kitchen model. But it has also led others to brace for the return to in-person dining and invest heavily in traditional models.
These cash-rich investors view the depressed state of the industry as a buying opportunity, say analysts, because prices for restaurants – and commercial rents – are relatively low.
Satish Gunisetty, owner of Rangoli in Hanover, Maryland, was able to continue plans to open Clove & Cardamom despite the near-total blow in revenue in early 2020. What set Gunisetty aside from the struggling restaurateurs, he said, was that he was not embroiled in fixed expenditures, which often go hand-in-hand with small, independent eateries.
Before the pandemic, said Rust, many restaurants had little reason to put away cash. They often operated on models that required revenues to circulate back into the business, a feedback loop that is rock-solid if income is guaranteed.
A side pot of cash was only necessary if a company operated several restaurants or was planning to open new ones. Restaurant owners best prepared for an unexpected smash in sales were already head-and-shoulders above the widespread small, independent eateries.
It is not surprising then that large restaurant chains with deep pockets are using the industry’s problems as a chance to buy competitors and expand into new markets.
The chains Shake Shack, Roy Rogers, and Five Guys are all in the process of opening new spots in Maryland. Notably, Roy Rogers characterized the maneuvers as “an aggressive expansion plan” in an early 2020 release.
Overall, “forces are pushing for concentration,” said Rust. “Chains are pushing out moms and pops,” many of which don’t have enough capital saved to weather the pandemic storm.
Phillips is already working on branding Ghostburger and opening storefronts, in addition to two Mexican spots underway.
Gunisetty remains confident, especially in light of eases on lockdown restrictions and a less timid market.
“We are still in a rainy day,” said Gunisetty. “But (other restaurants) have seen the worst of it; fortunately it has not been the same for us.”
This article was provided to The Associated Press by the University of Maryland’s Capital News Service.
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