Former Uber CEO Travis Kalanick is playing a new game modeled after those HGTV shows, where teams of fortune hunters turn distressed properties into quick-sell gems. In the case of the newly formed City Storage Systems, the narrative differs in that these down-and-out chunks of real estates are empty or neglected strip malls and parking lots, and the endgame is to create an assembly line of cloud kitchens.
In fact, this new company is built upon the ashes of a firm called CloudKitchen which specialized working with food entrepreneurs in the infrastructure end of the food business. CloudKitchen offered a range of services including shared-kitchen facilities, delivery services, and even marketing help. City Storage Systems aims to repurpose a nationwide inventory of non-performing real estate into kitchen facilities primarily for restaurants and other such establishments that want to focus on food and forgo the headaches associated with running a restaurant.
The company’s new website says, “We provide infrastructure and software that enables food operators to open delivery-only locations with minimal capital expenditure and time.” But clearly, it is more than that. Kalanick also has a venture fund, 10100, which will be a position to invest in those restaurants and related businesses that are successful tenants in real estate properties his company manages.
According to a story in ReCode, the former Uber CEO is investing $150 million into City Storage Systems, which is based in Los Angeles. He is joined by other Silicon Valley investors as well as former Earthlink (an original ISP) founder Sky Dayton.
While City Storage System is not necessarily a game changer, its entry into the market forces observers to closely examine the zeitgeist surrounding new models for restaurants in their various forms. To his credit, Kalanick is taking a tried-and-true real estate practice of targeted leasing and subleasing distressed properties. While most of these efforts are done seasonally—such as doing temporary rentals to costume businesses at Halloween—City Storage System is looking at a big picture which more resembles an incubator than a short-term revenue generator.
This zeitgeist leads to a crazy quilt of overlapping help-the-cook concepts aimed at providing one, or more, crucial parts of the value chain with a clear emphasis on the supply side of the food business. For example, City Storage is not alone in the cloud kitchen business (although they are shooting for massive scale) and will go toe-to-toe with the adjacent sector of shared commercial kitchens. These shared kitchens fall into many subcategories. These may include those looking for commercial space for their cottage food businesses. Or it could appeal to startups who find the shared model appealing, offering add-on services such as possible funding and assistance with marketing and legal matters.
While it is apparently a myth that most restaurants fail in their first year, the restaurant business is not for those wanting to make a financial killing. Because the cost to open a traditional restaurant is about $3,000 per seat, there is a flood of accomplished chefs, newbies, and wannabes taking the lean startup approach to feeding the public for profit. It also is one of the reasons there are about 4,000 food trucks in the U.S., with an annual growth rate of about 8%. And, as you can infer, it also is the force behind the growth in shared, ghost and other variants of food prep ideas.
All of these options push the important element of demand to the back of the bus. And, those in the demand part of the equation—aka consumers—are faced with a dizzying array of options come meal time. Do I A) order groceries from the store and cook from a recipe I find on the web? B) Open the meal kit that arrived and assembles the ingredients for tonight’s meal? C) Fire up an app and order from a food delivery service D) Go out to eat? Or… there just aren’t enough letters in the alphabet to chronicle the choices. Anyone who professes to have his or her finger on the pulse of dining habits of consumers is fooling him or herself and/or investors. One survey says millennials eat out five times a week. Others say the opposite.
As with many sectors heavily influenced by technology, the food infrastructure business has no clear direction or bottom line. It is a time of experimentation, placing bets on the roulette wheel and ensuring your business plan has multiple pivot points. The good news for consumers is the number of mealtime options is unlikely to slow down anytime soon. If you have a hankering for Ethiopian food at midnight—it’s likely a click away.
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