Kroger, the nation's biggest grocery chain, has parted ways with Kitchen United in another blow to the so-called ghost-kitchen industry that makes food solely to go, a type of business that briefly flourished after the onset of the pandemic.

The Cincinnati-based supermarket company had Kitchen United on-demand meal pickup locations at some of its stores as part of a partnership that was unveiled in August 2021. These "Mix" locations featured restaurant kitchens that offered food from six or more local, regional or national eateries for pickup or delivery. But those Kroger sites have been closed.

Kroger Chairman and CEO Rodney McMullen told analysts during a fiscal third-quarter earnings call Thursday that the ghost kitchens weren't attracting sufficient interest.

"You know, we test a lot of different things, and we'll go move onto the next version of it," McMullen said. "We still think food-away-from-home is a huge growth opportunity for us and will continue to focus on it. The ghost kitchen, the few customers that used it loved it, but it just wasn't enough. So, it's one of those things where you move on."

Kitchen United, based in Pasadena, California, was considered a leader in the ghost-kitchen industry, which saw a surge during the pandemic as restaurants were forced to close because of COVID restrictions. Operators wanted to still serve meals for pickup or delivery to survive with dining rooms closed, and customers wanted food from their favorite eateries.

Commissary-type kitchens could get such meals prepared, often in a central location, creating what some called "virtual food halls," in that customers could go online to browse menus and order delivery or pickup from various restaurants in one transaction. CBRE was so bullish on the concept's longevity that in 2021 it predicted ghost kitchens as a percentage of the U.S. restaurant market would double to 21% by 2025 from roughly 10% in 2020.

But the industry has seen a downturn since the pandemic subsided, with a number of companies folding or downsizing. For example, CloudKitchens laid off its staff this fall. Fast-food chain Wendy's, which in 2021 unveiled plans to open 700 ghost kitchens with Reef Technology, is closing down that business. And Butler Hospitality, which operated ghost kitchens for the hospitality industry, shut down, as has Crave Kitchens.

Kitchen United is moving away from having brick-and-mortar locations to developing proprietary food-ordering software.

"We have closed all Kitchen United locations operating inside of Kroger," the company said in an emailed statement to CoStar News. "We appreciate their partnership and support over the years. We are currently looking to pivot back into a software business."

The closing of Kroger's Kitchen United locations comes just over a year after the grocery giant invested in the ghost kitchen company. A group that included Kroger, Simon Property Group, Circle K's parent Alimentation Couche-Tard, B. Riley Financial and Restaurant Brands International participated in a $100 million Series C fundraise for Kitchen United. Kitchen United's backers have also included Alphabet's Google Ventures.

A 2023 "State of the Industry" report by the National Restaurant Association wasn't very bullish on ghost kitchens.

"Only three in 10 operators think delivery from a virtual or ghost kitchen will become more common in their segment in 2023," according to the association. "A similar proportion thinks it will become less common."

The association also reported that most consumers prefer ordering from a brick-and-mortar location, with 70% of adults — including nearly 80% of millennials — saying that "when choosing a place to order food for delivery, it’s important to them that the food comes from a restaurant that has a physical location that is accessible to the public."

In addition to discussing Kitchen United, McMullen also told Wall Street analysts that Kroger's pending $24.6 billion acquisition of Albertsons Cos., the Boise, Idaho-based grocery giant, in still expected to close early next year. The merger, announced in October last year, is undergoing review by the Federal Trade Commission. As of Nov. 15, Kroger had complied with a second request issued by the FTC, according to McMullen.

In September, Kroger and Albertsons said they had struck a roughly $1.9 billion deal to sell just over 400 stores and eight distribution centers across 17 states and Washington, D.C., to C&S Wholesale Grocers. Kroger and Albertsons are shedding the properties to allay any antitrust concerns by the FTC, while "C&S is a well-qualified buyer who meets all the criteria necessary to complete our transaction and will ensure no stores will close as a result of the merger," McMullen said Thursday.