Lack of transparency from ghost kitchens spooks state officials

By Meghan McIntyre

Scrolling through UberEats offerings in the Richmond neighborhood of Shockoe Bottom can make the area seem like poultry heaven: The app shows six similar-looking chicken restaurants available to order from all within a stone’s throw of the community’s main street.

However, finding “Tender Luvin” or “CHIC CHIC’N” on foot is an impossible task. That’s because the six chicken joints are ghost kitchens — restaurants that only exist online.

All six share almost identical menu items and come from the kitchen of one restaurant called CHIC’N & BEER, owned by entrepreneur and realtor Tysean Ford.

“We just want to make sure that we get more of a market share. We could make more profits and reach more people,” Ford said. “More people are ordering delivery now than before.”

A phenomenon that took off at the start of the COVID-19 pandemic, ghost kitchens, cloud kitchens and virtual restaurants are umbrella terms for restaurant brands sold exclusively for delivery and sometimes pickup through third-party apps like UberEats, Grubhub and Doordash. There’s an array of forms ghost kitchens can take, but Gary Coggins, an environmental health manager with the New River Health District who oversees restaurant inspections, said the most common model he encounters is a brick-and-mortar restaurant that operates under a different name online.

Examples of these models include Ford’s business, as well as restaurants like Pasqually’s Pizza & Wings, which comes from the kitchen of Chuck E. Cheese, and Cosmic Wings, which comes from Applebee’s.

The National Restaurant Association says ghost kitchens have become extra revenue sources for restaurants and were especially vital for businesses struggling to stay open during the beginning of the pandemic.

But Coggins said local and state officials are struggling to keep tabs on the kitchens due to the sheer amount of them popping up across the state. That surge, coupled with the lack of transparency that characterizes many ghost kitchens in Virginia, raises questions about the ability of officials to enforce the laws and regulations that have long been used to protect consumers in traditional restaurants and food service establishments.

In many cases, government agencies say they simply aren’t aware of the businesses’ existence, even if they readily appear on takeout apps. And while some ghost kitchens say they are simply an alternative restaurant model keeping up with the times of an evolving industry, oversight systems in some instances haven’t caught up. The ability of ghost kitchens to fly under the radar has stoked fears that less scrupulous businesses could mislead customers, lead to foodborne illness outbreaks through unpermitted food handling and cause confusion for tax collectors.

Multiple models

Besides traditional restaurants running ghost kitchens as extra revenue streams, other ghost kitchen models include virtual food halls, where multiple restaurants have individual kitchens operating under the same roof, or a shared commercial kitchen where multiple online restaurant brands without storefronts make orders.

Each food delivery app has its own conditions for businesses setting up ghost kitchens on the platform, which Ford said can include requirements that 15% of the menu be different from that of the original restaurant.

Several ghost kitchens also operate out of convenience stores that have delis. Approximately 20 ghost kitchen brands, like “Croissant Club” and “Freaking Good Pizza,” come from just two convenience stores in Richmond, but similar operations can be seen in other stores across the state.

Food establishments have the option to franchise and sell ghost kitchen brands from national chains such as Acelerate, which owns brands such as “Super Smash Burgers” and “Egghead Breakfast Burritos,” the latter of which can be found in Richmond. A more high-profile venture known as MrBeast Burger, a ghost kitchen brand created by YouTuber MrBeast in partnership with national chain Virtual Dining Concepts, similarly franchises the recipes for its brand for food establishments to make across the country.

How closely these brands oversee the quality and consistency of what’s being served is unclear. The Mercury found noticeable differences between three of the same menu items ordered on the same day at the same time from two different MrBeast Burger ghost kitchens, ranging from packaging to seasoning to type of ingredients used.

Neither MrBeast nor his publicist at advertising firm Kovert Creative responded to comment requests from the Mercury.

Same menu items by ghost kitchen brand MrBeast Burger ordered from two different restaurants. (Virginia Mercury)

Invisible to the health department

The exact number of ghost kitchens that operate in Virginia is unknown. Olivia McCormick, director of the Division of Food and General Environmental Sciences with the Virginia Department of Health, said that’s because the department doesn’t track ghost kitchens as a distinct type of food establishment.

Fewer than 30 of the 665 food establishments permitted in Coggins’ district, which covers five  localities in Southwest Virginia, are for ghost kitchens, but he said he suspects that number is “way underreported and recognized.”

“Some of the ones we are aware of have multiple virtual storefronts,” Coggins said, “so it can be a little bit hard to quantify sometimes,because is that six restaurants or is it one restaurant also operating as these five other places?”

Restaurants are expected to let the health department know when they change operations or start a ghost kitchen, especially when introducing new menu items that may require additional permits or inspections. But he said the department usually becomes aware of ghost kitchens during inspections of existing businesses or through foodborne illness complaints.

“During an inspection we’ll start seeing foods that we’ve never seen in that facility before,” Coggins said. “Like all of a sudden they’re doing egg rolls and they’re traditionally an Italian or kind of a pasta joint maybe, and it’s like, ‘All right, why are these here?’”

Tracing foodborne illness complaints back to the ghost kitchens from which they originated can also prove difficult when their physical address is unknown to the department, Coggins said, leading to a much slower response and the potential for more people to get sick.

Some ghost kitchen operators may assume they don’t need to notify the health department when opening a ghost kitchen. Ford said his understanding is his menu can change as long as his establishment operates within food safety standards reviewed through inspections.

State law and regulations require all restaurants and food service businesses to make their inspection reports available to customers. The idea, said McCormick, is that consumers should be able to look up inspection reports and see if there’s been any instances of foodborne illness complaints or outbreaks from a ghost kitchen before ordering.

But it’s unclear how customers of ghost kitchens with neither a storefront nor a website can access this information.

Furthermore, businesses that repeatedly fail to comply with state law and regulations can face fines and a misdemeanor charge. Coggins said that fortunately doesn’t happen very often, but such penalties can be easy for ghost kitchens running multiple operations to hide.

“The scariest of the bunch are these ones that are really just kind of the whack-a-mole example,” Coggins said. “They just go and hide and they run and pop up someplace else.”

Coggins said “it goes back to knowing them by all of their various aliases and making sure that they’re all matched together with where the food is physically being prepared.”

Complicating the situation further is that ghost kitchens operated out of convenience store delis are regulated not by VDH, but by the Virginia Department of Agriculture and Consumer Services. While VDACS says it holds these establishments to the same permitting and inspection standards as the VDH, the division of oversight could potentially cause confusion.

Unseen by the SCC and tax collectors

Businesses that operate ghost kitchens out of their establishments under a different name — like Ford’s various ghost kitchens running out of CHIC’N & BEER — are legally required to register these fictitious names with the State Corporation Commission.

Registration of a fictitious name is important because it allows the public to know the actual owner of the business they’re buying from, said Andy Farmer, director of the SCC’s Division of Information Resources, in an email.

A local commonwealth’s attorney can bring charges against a business for failing to register a fictitious name, said Farmer, which can result in a misdemeanor conviction and a fine of not more than $2,500, jail time or both.

In practice, though, searches by the Mercury of several ghost kitchens operating in the Richmond region alone reveal many owners aren’t registering their fictitious names as required.

Officials may not be aware of the extent to which registrations aren’t occurring. Virginia Association of Commonwealth’s Attorneys Administrator Amanda Howie said cases against businesses that fail to register fictitious ghost kitchen names have not been brought up in any of the organization’s meetings.

Kyle Wingfield, an attorney and chair of the Taxation Section Council at the Virginia Bar Association, said unregistered fictitious names can also be a source of confusion for state and local tax auditors who may have trouble enforcing tax collections from a ghost kitchen business when its true owner is nowhere to be found online.

It’s possible, Wingfield said, that an unregistered ghost kitchen could also be removed from a delivery app and disappear without a trace when it comes time to pay taxes.

“The way it should be working is that whatever ghost kitchen is operating, that’s what the LLC is: the ultimate owner of the ghost kitchen,” Wingfield said. “Everything should be rolling up and being reported on the LLC’s sales tax returns, meals tax and business license and income tax returns.”

Wingfield also emphasized that some businesses simply aren’t fully educated on tax laws and may not have any malicious intent behind not registering their ghost kitchens.

Heather Cooper, director of communications and training with the Virginia Department of Taxation, said in an email that agency staff who work in the field review data like SCC business registrations, VDH inspection reports and information provided by local tax officials on a regular basis.

In the case of an unregistered ghost kitchen, Cooper said the department may partner with local officials to explore available data and determine what steps need to be taken next.

‘Transparency is key’

Not all ghost kitchens fly under the state’s radar. Some businesses like ChefSuite, a virtual food hall in Richmond that houses several local restaurants with a storefront offering delivery or pickup options for orders, pride themselves on transparency.

Longtime friends Jarnail Tucker and Jay Modi envisioned ChefSuite as an alternative ghost kitchen model with an emphasis on supporting local restaurants with affordable options.

Latin Quarter Kitchen, A Pinch of Sugar and On A Roll Italian Subs occupy three of the storefront’s 16 kitchen suites available for rent, each of which can be fully customized to install whatever equipment each restaurant needs. The pair said ChefSuite works with the restaurants “every step of the way” when it comes to setting up their business, from getting required permits and licenses to registering on food delivery apps.

“Transparency is key not just for the customer and the end user in the community, but even for our tenants and making sure that everybody understands what we’re doing and why we’re doing it,” said Tucker. “Because at the end of day, it’s a partnership between us and tenants. They are renting space from us, but their success is our success.”

Ultimately, the challenges state officials face with ghost kitchens all boils down to proper communication, Coggins said.

“It’s a very simple process,” he said. “It really wouldn’t burden anybody and we’d have the awareness that we need.”