With its hot take-y headline, the TechCrunch blog post “Cloud kitchens is an oxymoron,” buzzed around my Twitter timeline yesterday. In the article, author Danny Crichton sets out to burst the bubble, or at least bubble thinking around the growing phenomenon of cloud (or ghost, or virtual) kitchens.
We’ll just call them cloud kitchens here for the sake of simplicity and quickly explain that they are centralized facilities where restaurants can rent out commercial kitchen space to open up either new concepts or expand delivery options without needing to build out a full-on restaurant. Players in the space include former Uber CEO Travis Kalanick’s CloudKitchens and Kitchen United.
While it’s healthy to be skeptical about the quick rise of any trend, I’m not convinced by Crichton’s analysis.
Crichton opens by comparing cloud kitchens to WeWork (disclosure: The Spoon and the Smart Kitchen Summit have partnered with WeWork Food Labs), the once-hot office space startup which has quite publicly fallen on hard times as of late, delaying its IPO and reportedly laying off thousands of employees.
While both cloud kitchens and WeWork are in the business of renting out physical infrastructure, WeWork’s precipitous drop seems to have more to do with, you know, a shocking series of financial disclosures that included an allegedly self-dealing (now ex) CEO who may have transported marijuana internationally on a chartered jet, rather than the validity of the business itself.
To be honest, I find a lot of Crichton’s thinking on this topic muddled. First, it ignores that 60 percent of restaurant orders are now for off-premise (which includes delivery, takeout and drive-thru). There is a growing demand to eat restaurant food outside of the restaurant. As people want more delivery, the actual in-dining experience doesn’t matter, so why not rent out kitchen space rather than build out a full-on restaurant?
Additionally, Crichton posits that owning a cloud kitchen is bad business because of churn, writing:
…but if consumers don’t know where these restaurants physically are, what is stopping an owner from switching its kitchen to another “cloud”? In fact, why not just switch regularly and force a constant bidding war between different clouds? Unlike actual cloud infrastructure, where switching costs are often extremely prohibitive, the switching costs in kitchens seems rather minimal, perhaps as simple as packing up a box or two of ingredients and walking down the street.
This presumes that cloud kitchens are all being built in a cluster in the same neighborhood, and that restaurants don’t put more thought into the cloud kitchens they choose. A restaurant could rent out cloud kitchen space because of its location. A restaurant in LA’s Santa Monica could expand delivery across town to Pasadena by choosing a cloud kitchen there.
Crichton also seems to be lumping in standalone cloud kitchens like Kitchen United (though they aren’t mentioned in the piece) with those being built by third-party services like Uber, DoorDash and Deliveroo. But those are two entirely different models. Uber wants exclusive virtual restaurants so that you stay within the Uber app. Kitchen United just wants to fill up its space, it doesn’t care how you get your order.
This is important because one part of Crichton’s argument that I think is spot on is the reliance on third-parties for traffic. Part of the allure for hooking up with a DoorDash or an Uber is that a restaurant gets access to those apps’ massive audiences. We’ve seen this before as Crichton rightly points out:
Let me tell you from the world of media: Relying on other platforms to own your customers on your behalf and wait for “traffic” is a losing proposition, and one that I expect the vast majority of restaurant entrepreneurs to grok pretty quickly.
But restaurants are getting hip to this, and already we see brands like Wendys, Outback Steakhouse and Sweetgreen making moves to bring mobile ordering and delivery in-house. These internal systems can be integrated with a cloud kitchen as well and the future for restaurants is probably more of a hybrid mixture of first and third-party delivery.
Crichton closes by saying:
All of which takes us back to those misplaced investor expectations. Cloud kitchens is an interesting concept, and I have no doubt that we will see these sorts of business models for kitchens sprout up across urban cities as an option for some restaurant owners…
…But the reality is that none of the players here — not the cloud kitchen owners themselves, not the restaurant owners and not the meal delivery platforms — are going to transform their margin structures with this approach.
Crichton’s right! Kinda. Because the whole idea of a cloud kitchen and virtual restaurants is brand new, we don’t know how it will shake out. My colleague, Jenn Marston, believes that cloud kitchens are table stakes for restaurant chains any more, so we’ll undoubtedly see a lot of new models spring up as more restaurants get into the game.
More importantly, the idea of cloud kitchens is already evolving right before our eyes, including margin structures. Last month, Zume announced a new mobile cloud kitchen, wherein restaurants can have a full restaurant on wheels parked closer to people to facilitate faster delivery. And this week, Ono Food launched its robotic restaurant platform that fits inside a van. These mobile options make cloud kitchens even less capital intensive, and their reliance on data (moving to where the customers are) could help them become more efficient and profitable.
Having said all that, I think Crichton is sparking a real and valid discussion about cloud kitchens. It’s pretty easy for a trend to slip and become a caricature of itself. Taking these moments to reflect early on can help make sure we aren’t building another bubble.