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The Spoon

Daily news and analysis about the food tech revolution

cloud kitchen

Update: Amazon to Invest in Deliveroo

UPDATE: Deliveroo confirmed this funding via press release sent out today. From that announcement:

  • Amazon is set to be the largest investor in Deliveroo’s Series G funding round
  • Deliveroo is raising a total of $575MM with participation from Amazon alongside existing investors T Rowe Price, Fidelity Management and Research Company, and Greenoaks
  • Deliveroo will invest heavily in expanding the company’s tech team at its UK Headquarters, expand further to reach new customers, and continue innovating through its delivery-only super kitchens, “Editions”

Original post:

Amazon is in negotiations to invest hundreds of millions of dollars in UK-based food delivery service Deliveroo, according to a report in Sky News. If true, Amazon’s money would be part of a larger £450 million (~$575M USD) fundraise by Deliveroo.

Deliveroo has raised close to a billion dollars already, and Sky’s sources were unable to peg a clear valuation on the company if this new round goes through. Deliveroo was valued at $2 billion during its last round of funding a year and a half ago.

For Amazon, this deal is basically an if-you-can’t-beat-’em-buy-into-’em strategy. In November of last year, Amazon shuttered its Amazon Restaurants delivery service in the UK after two years of trying to break into that market. As my colleague, Catherine Lamb wrote at the time:

Despite its big name and massive reach, it seems Amazon Restaurants couldn’t compete against existing food delivery companies in the U.K. like Deliveroo and Uber Eats. Since 2013, Deliveroo has carved out a sizable chunk of the U.K. food delivery market and become one of the fastest-growing tech companies in Europe. The company also differentiates themselves with their Editions project: geographically-targeted hubs of delivery-only cloud kitchens Deliveroo began rolling out in 2017.

Speaking of Uber Eats, Deliveroo’s reported fundraise comes on the heels of Uber’s IPO. Though Uber’s IPO was anemic, it still raised $8.1 billion that will help fuel Uber Eats’ expansion to 700 cities from the current 500.

Additionally, Uber is looking to expand into other food verticals, including cloud, or “ghost” kitchens, that would house delivery only restaurants that are only available on the Uber app. The company has even reportedly started leasing space in Paris to build out such a ghost kitchen.

This move into the virtual restaurant game would then pit Uber Eats against Deliveroo not only for restaurant delivery dominance, but also makes a play for Deliveroo’s own ghost kitchen program: Deliveroo Editions.

An influx of cash (sprinkled in with some Amazon-style know-how), then, puts a few more arrows in Deliveroo’s quiver to put up a bigger fight. Or, as my colleague, Catherine pointed out, bring the fight to the U.S., where Deliveroo isn’t active yet.

*The headline for the original version of this post said Amazon invested hundreds of millions in Deliveroo when that was still the report. We updated the headline to more accurately reflect the story.

Former Uber CEO Lands in the Cloud Kitchen Market

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.