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Daily news and analysis about the food tech revolution

cloud kitchens

Local Kitchens Raises $25M for Its Virtual Food Hall Network

Virtual food hall Local Kitchens has raised $25 million in Series A funding roughly one year after launching. The round was led by General Catalyst with participation from existing investors Human Capital and Pear VC. New investors Fifth Wall and Penny Jar Capital also participated. Local Kitchens says this round brings its total funding to $28 million. 

The San Francisco Bay Area-based company was founded by three ex-DoorDash employees in the summer of 2020. There are currently four Local Kitchens locations, all of which are in California: Cupertino, Menlo Park, San Jose, and Lafayette. 

These facilities function as combination ghost kitchen/virtual food halls. Orders from all participating restaurant concepts are cooked under one roof, while customers can order via the Local Kitchens website or onsite at a self-service kiosk. 

One notable feature of Local Kitchens is its ability to offer customers mix-and-match functionality when ordering digitally. In other words, customers can order from multiple different restaurant concepts and bundle them into a single transaction, rather than having to create a separate transaction for each restaurant. Kitchen United uses a similar approach for its ghost kitchens, as does Crave Collective, C3, and the newly opened Helbiz Kitchens.

“Bundling” virtual restaurant concepts together is one of those technological functions that looks simple on the surface but is rather a complicated execution on the back end. Speaking recently with The Spoon, Kitchen United’s Atul Sood explained that this idea is time consuming and expensive from a development perspective, and suggested that we may see more third-party restaurant tech in the future that helps ghost kitchen facilities integrate this feature. 

For Local Kitchens right now, customers can only order meals for pickup, though the company says delivery is “coming soon.” It is yet unclear who will delivery the food: a third-party service like DoorDash or an in-house operation. Up to now, the default delivery method has been third-party services. Lately, though, more ghost kitchen facilities have started using their own fleets, and Local Kitchens currently has an open position for Delivery Driver on its jobs website. 

The company says the new funding will allow it to build out more locations in California and eventually expand beyond its home state. 

Cloud Software for Cloud Kitchens: Grubtech Raises $3.4M

Dubai-based Grubtech announced today it has raised $3.4 million in pre-Series A funding for its software platform that powers ghost kitchens and delivery-only restaurants. Investors in the round are unnamed but include “large regional family offices, a U.S.-based venture capital firm as well as reputable angel investors.” 

Grubtech says its cloud-based software platform is built specifically for cloud kitchen operations or restaurants running multiple brands, virtual or otherwise, out of a single kitchen. There are plenty of both nowadays, the pandemic having forced many restaurants to serve the bulk of their meals as delivery or pickup orders. The resulting uptick in both ghost kitchen spaces and virtual restaurants run from underutilized kitchens mean restaurants must now juggle even more order channels than before the pandemic. 

Grubtech’s product promises to simplify operations by centralizing important tasks and information on a single dashboard in the restaurant. For example, instead of a restaurant staffer having to manually input different orders from different virtual brands into the main system, Grubtech automates that process. If a restaurant needs to update a menu item, they can do so via Grubtech, which will ensure every copy of the menu across every order channel gets the same update. Restaurants can also view all sales, integrate with some third-party delivery providers, and, for an additional cost, add things like a branded website or “contactless” dining room app. The company says its software reduces the “click-to-doorbell” time for an order by 20 percent and saves “approximately” 25 percent on labor costs.  

Current customers include a number of companies in the Middle East-North Africa region, such as Delivery Hero’s kitchen in Abu Dhabi and Dubai-based iKcon.

If 2020 was the year ghost kitchens became a mainstream concept, 2021 will be about making them more efficient, and simplifying the tech stack is one way to do that. Centralizing restaurant order channels and data isn’t a new phenomenon (see Ordermark, Lunchbox, and others), but it will get fine-tuned for ghost kitchens and virtual restaurants as more restaurants adopt those channels.

Grubtech said today it will use the new funds to further develop its product and expand farther across the Middle East-North Africa region as well as Europe and the Americas.

2020: The Year the Ghost Kitchen Got Complicated

As an old saying goes, “Anything can happen, and most usually does.”

And it sure did happen in 2020 for the restaurant industry. Pandemic. Dining room shutdowns. Permanent closures at alarming rates. A seismic shift to takeout and delivery formats. More shutdowns. Complete uncertainty over the state of indoor dining coupled with growing panic over the state of the independent restaurant. 

Personally, I think it’s foolhardy to try and meaningfully condense what happened to restaurants in 2020 into a few hundred words. So as we close out this dumpster-fire of a year and head to 2021, I’ll pinpoint one part of the biz that’s been talked of constantly these last several months: ghost kitchens.

Right around the end of 2019, we were already fixated on the ghost kitchen. In a predictions piece I wrote at the time, I said, “This is part of the restaurant industry that will change rapidly over the next year as it becomes more commonplace among both restaurants and consumers.”

All that wound up being true in 2020, not because I’m some predictions wizard but because a global health crisis forced the restaurant industry into off-premises formats like takeout, delivery, and drive-thru. Because these formats don’t require a dining room to function, they are inherently suited to the ghost kitchen setting. Ghost kitchens, after all, were designed to serve to-go customers, typically those ordering through mobile apps and other digital properties. 

But one thing that was made clear in 2020: ghost kitchens are not the end-all, be-all savior of the restaurant industry. In fact, throughout the year, multiple restaurant industry figures raised questions about the commissary model in particular.  

Back in March, when COVID numbers were initially rising, former Kitchen United CEO Jim Collins cautioned restaurants to think hard about whether their business generated enough demand to justify the cost of a ghost kitchen operation. Similarly, Andy Wiederhorn CEO of Fat Brands, said in July that ghost kitchens “simply work better for brands that have existing fanbases” (a point he repeated at our ghost kitchen event earlier this month).

I bring up these reservations not to further cast a cynical shadow but to illustrate another important takeaway from 2020: that because there are still so many uncertainties for restaurants over the traditional commissary model, other forms of the ghost kitchen concept have emerged that make running an off-premises business more feasible for more types of restaurants. 

Over the last year, we saw the growing popularity of the so-called “dark kitchens.” These are underutilized kitchen spaces restaurants are using to fulfill their delivery and off-premises orders. Fat Brands is one notable example of a company using its own restaurants as dark kitchens for sister brands. Ordermark/NextBite, meanwhile, built out its business this year of pairing restaurants with unused kitchen space in order to deliver (literally and metaphorically) more meals from virtual restaurant concepts. Another great example is Hi Neighbor, a San Francisco restaurant group that had to close because of the pandemic. Its response was to use one of its shuttered kitchens to accept and fulfill delivery orders for its own virtual concepts. Hi Neighbor is just one local example of a trend happening nationwide.

In the second half of 2020 (right after Euromonitor predicted the ghost kitchen market would be worth $1 trillion by 2030), we saw massive amounts of investment dollars flow into the space, from Zuul’s $9 million fundraise to a $120 million investment in the aforementioned Ordermark to the $700 million raised by Reef. There were plenty of other financial milestones in between those figures.

Alongside those investments, even more formats emerged of what a ghost kitchen might look like and how it could become more efficient. ClusterTruck, which has operated a vertically integrated delivery business for years, teamed up with Kroger to turn the latter’s deli counters into a kind of ghost kitchen. More recently, Crave Collective opened in Boise, Idaho to show us what a fine-dining take on a ghost kitchen looks like. And the QSRs, finally got onboard, with everyone from Chipotle to McDonald’s unveiling new store formats that minimize or eradicate the dining room and are in effect their own version of a ghost kitchen.

The most unanimous takeaway of the year was this: the ghost kitchen, in its various forms, is here to stay. We may be inching closer to a widespread vaccine for COVID, but the restaurant industry has already completed the shift to off-premises-centric businesses. There’s no going back at this point.

Even so, we leave 2020 and enter 2021 with plenty more questions when it comes to how one best runs a ghost kitchen. What is the role of the chef — an artist, by rights — in this off-premise-centric new world? How long will ghost kitchen operations be tied to third-party delivery services increasingly bent on calling the shots for restaurants? What about the mounds and mounds of packaging waste being generated by all this innovation?

If 2020 was a year about making the ghost kitchen more efficient, 2021 should be about the role the ghost kitchen plays when it comes to the restaurants, chefs, drivers, and other people whose livelihoods are now tied to it.

RobinFood Raises $16M for Its Cloud Restaurant Network

Cloud restaurant network RobinFood (née Muy) announced today it has raised a $16 million debt funding round from MGM Sustainable Energy Fund II LP. This brings RobinFood’s total funding to date to $36 million, according to a press release sent to The Spoon.

As Muy, the Colombia-based company made a name for itself around Latin America though its network of ghost kitchens. Muy recently decided to rebrand, bringing both its physical and virtual restaurant initiatives under the same RobinFood brand. 

Customers can order delivery-only meals from multiple different virtual restaurant brands operated by RobinFood, including Muy, Just Burgers, and El Original. Meals can be ordered via the company’s mobile app, or with a touchscreen kiosk at one of its brick-and-mortar locations, which offer limited seating. These physical locations feature automat-like cubbies where customers retrieve the food, essentially eliminating interactions between restaurant staff and customers. RobinFood’s tech stack, meanwhile, merges its virtual restaurants and kitchens and its physical spaces into the same system, for smoother operations. 

The company said in today’s press release that it plans to use the new financing round to continue its growth across Colombia, Mexico, and Brazil, adding 3,500 new “brand-locations” in Latin America over the next five years. Its goal is to sell “more than one billion dollars annually by 2026.”

If that seems like a hefty number, consider that Euromonitor recently predicted the ghost kitchen market would be worth $1 trillion by 2030. Around the world, ghost kitchens and networks of virtual restaurants are taking over at a time when many brick-and-mortar locations are going out of business and the pandemic has fueled a greater desire among consumers for delivery and takeout meals.

RobinFood’s marriage of ghost kitchens and physical spaces is yet-another take on the ever-evolving ghost kitchen model. And the company’s funding to-date suggests there is plenty of opportunity in Latin America for ghost kitchens, and restaurant tech in general.

RobinFood’s news today follows recent fundraises from other ghost kitchen companies, including Indonesia’s Yummy Corporation ($12 million), U.S.-based Virtual Kitchen ($20 million), and iKcon in Dubai ($5 million). 

The Spoon Plus Guide to Ghost Kitchens

When 2020 began, the ghost kitchen topic poised to be one of the “it” trends to watch over the coming 12 months. Venture capital was pouring into the space, virtual restaurants of all types were popping up, and major quick-service chains were inking deals left and right with ghost kitchen providers. When The Spoon launched its (now outdated) ghost kitchen market map at the end of 2019, we predicted there would be an explosion of virtual restaurant brands and that some major chains would make ghost kitchens a normal part of doing business. 

Nobody predicted a pandemic would swoop in and irrevocably upset the restaurant industry down to its very foundation, which was built on consumers eating meals in dining rooms.

The COVID-19 pandemic’s dire consequences for the restaurant industry cannot be understated, and it would take an entire report of its own to outline just how far-reaching and long lasting the effect will be. A quick overview shows that:

All of this has led to a shift in business models that was underway already but has been accelerated. Off-premises order formats were poised to become restaurants main sales drivers over the next decade. Since the pandemic essentially forced restaurants into a to-go-or-die mentality, that is happening much faster now. 

That in turn has ramped up demand for ghost kitchens. However, just because restaurants are closing and off-premises orders are rising rapidly doesn’t necessarily mean every restaurant should follow the same trajectory when considering a ghost kitchen.

This report examines the kinds of ghost kitchens available to restaurants, the elements they need to consider before actually starting one, and opportunities and challenges in the space.  Companies profiled in this report include: Kitchen United, Kitopi, DoorDash Kitchens, Rebel Foods, CloudKitchens, Zuul Kitchens, ChefReady, Deliveroo Editions, Panda Selected, Muy, Reef Technology, Fat Brands, Brinker International, Wow Bao, The Halal Guys, Keatz, Middleby/Lab2Fab.

The full report is available to subscribers of Spoon Plus. You can learn more about Spoon Plus here.

The Cloud Kitchen Pie is Growing. Are The Slices Thick Enough to Sustain Everyone?

Early technology markets tend to have a shine to them, especially when everything is still new and most of us are learning what all the changes mean.

But, as we’ve seen with spaces like ride sharing and food delivery, this initial optimism can give way over time to a more cold-eyed reality as new models are put into practice. And it’s often the split of the spoils that is the biggest source of disenchantment with new business models, which sometimes means a recalibration is needed to make sure critical players are compensated fairly.

Judging from an email from Spoon reader JD, a ghost kitchen operator out of the UK, it sounds like ghost kitchen and delivery models could use such a recalibration of the model to make it more sustainable for some of the participants:

Making money from a restaurants perspective is not easy in ghost kitchens with the current commissions. The aggregators don’t appear to be making any real money either. The transfer of costs from rent and over head to aggregators is not a real win.

Without lower labour and food inputs-which likely leads to lower quality. High aggregator commission also lead to high consumer prices. No fly wheel here but aggregators are promoting ghost kitchens to show rising order volumes for their funders.

I asked JD if he thought greater scale through more centralized production could resolve some of these issues. His answer in short? It could help, but it’s complicated.

Centralization of production is one way to help square the circle.  We use a centralised model, scale helps on this for sure and quality checks etc.  Add in better ways of farming and supply chain and there is a chance to get somewhere.

The pie is getting bigger in my view and I feel will continue to do so. Stuffing ever more brands into dense locations appears to offer selection to consumers but I am not entirely sure that fairy tale ends well. Some good brands will win and those slower or less focused, as is the way of the world will fade away.

However the utility cost of the delivery fulfillment model is such that its costs (in current non drone format) are too high and lead to higher consumer prices, reduced consumer access due to higher prices and overall a model no one is yet making any real money from but we all seem determined will work. Yes too many aggregators can be an issue but I prefer too many than too few!! Self delivery is also still an option, i’m not opposed to at all, there could be tie ups here.

All in all, perhaps better supply chain including centralized production and drones will I think allow some good businesses to flourish and balance things a little bit. I don’t like to think food is winner takes all because we will end up with awful food!

Interesting that JD is a believer that the use of drones or lower-cost, human-less delivery is required to make the model work. If you look at the investment of delivery brands into delivery bots (sidewalk and otherwise), they’re probably thinking the same thing.

Finally, we like getting reader mail with views from the trenches like this one from JD. Drop us a line if you have something to say. Also, we’ll be discussing the business model and other topics in our upcoming cloud kitchen deep dive. Join us!

Join Us (Online) As The Spoon Talks Cloud Kitchens

Ghost kitchen. Virtual kitchen. Cloud kitchen.

Whatever their name, these commercial shared-use kitchens that are built to fulfill online delivery and pickup orders are one of the biggest trends in the restaurant industry right now. Ask nearly any operator of a fast food, fast casual or even full-service restaurant chain and they’ll tell you they are working to figure out how to integrate virtual kitchens into their operating and marketing mix.

Here at the Spoon, it seems nearly every week there is news about a new cloud kitchen startup getting a funding round or a large chain opening its own ghost kitchens. However, despite the rapid rise of these facilities, there are lots of questions from restaurant operators and food entrepreneurs as they build their ghost kitchen strategies. With that in mind, we thought there was no better topic to kick off our series of interactive deep dive conversations than that of cloud kitchens.

The first Spoon Deep Dive will be on Thursday, March 19th at 10 a.m. I’ll be your moderator, and joining me are two experts in Ashley Colpaart, CEO of The Food Corridor (and author of this excellent piece on ghost kitchens in 2020) and Shawn Lange, the President of Lab2Fab (a division of restaurant and food equipment giant Middleby).

If you’d like to register you can do so right here. We’ll be opening up part of the session to attendee questions, so make sure to arrive with something to ask Ashley and Shawn about this exciting market.

See you next Thursday!

What Does Travis Kalanick’s Departure from Uber Mean for the Cloud Kitchen Space?

Just before Christmas, it was announced that Travis Kalanick, the founder and former CEO of Uber, will be leaving that company’s board of directors at the end of this month. Additionally, Kalanick has reportedly sold all of his Uber stock for roughly $2.7 billion.

In the press announcement, Kalanick said “it seems like the right moment for me to focus on my current business and philanthropic pursuits.” One of those business pursuits is CloudKitchens, his secretive startup that does exactly as its name implies; it creates physical kitchen infrastructure locations for delivery-only restaurants. These restaurants can be delivery extensions of existing brands, or virtual restaurants that exist only within a delivery app. CloudKitchens is even creating their own virtual restaurants.

Kalanick’s new calling, however, created a conflict of interest for him and Uber given that Uber Eats has its own potential cloud kitchen and virtual restaurant ambitions. So Kalanick’s departure from Uber’s board isn’t a huge surprise.

As for why Kalanick sold off all his shares in the company he helped build into the juggernaut it is today, who knows exactly what message he is trying to send. Has he lost faith in Uber, which continues to hemorrhage money? Did Kalanick pull a Steve Jobs in selling off shares from the company that ousted him?

What we are more interested in here at The Spoon is what Kalanick is going to do next with CloudKitchens now that he has a bunch of cash and time to focus on it. The cloud/ghost/dark kitchen landscape is one that we watch closely (check out our market map on the topic). CloudKitchens already reportedly raised $400 million from Saudi Arabia’s Public Investment Fund, so money wasn’t necessarily an issue for the startup. Especially considering that rivals like Kitchen United and Virtual Kitchen Co. have only raised $50 million and $15 million respectively.

Kalanick has proven his ability to ruthlessly build an empire before. Freed from any ties to Uber, we’ll now be watching to see how quickly Kalanick expands CloudKitchens. Will he relax the CIA-like levels of secrecy around the company? Will he expand rapidly across the country? Will he launch any new innovations? How will he spur his rivals into action?

One thing is for certain; we’ll be writing a lot about Kalanick and cloud kitchens in the coming year.

Spoon Market Map: Ghost Kitchens in 2019

Just half a decade ago, the phrase “ghost kitchen” referred to restaurants that looked legit on Grubhub and Seamless but were actually digital fronts for unregulated kitchens. In other words, chicken tenders from what appeared to be a local restaurant might actually have been cooked in someone’s apartment.

Then the delivery boom went off, thanks largely to the growth of third-party services like Grubhub and DoorDash, and by the many digital channels through which customers could suddenly get food. Order tickets proliferated for restaurants, but so too did the stress around how to fulfill those orders without over-burdening the in-house kitchen staff.

The answer to the problem? Take the restaurant out of the kitchen.

In the last few years, restaurants have been moving many of their operations around delivery and to-go orders to dedicated kitchen spaces outside the main restaurant location. The name “ghost kitchen” has stuck around, but now it’s a health-department-friendly term for these spaces that act as hubs for off-premises orders.

But actually, there are many names nowadays for the concept: ghost kitchen, virtual kitchen, cloud kitchen, the (slightly nauseating) description “kitchen as a service.” All those phrases amount the same thing: a kitchen facility that exists solely for the purpose of helping restaurants cook and fulfill to-go orders and get them into the hands of delivery couriers. There is no dining room or front-of-house staff in a ghost kitchen, the tech-stack is more streamlined than that of a full-service restaurant, and, increasingly, the location is completely separate from a restaurant’s dine-in location(s). Now, too, there are also kitchens on (literal) wheels, which add yet-another piece of mobility to the business model. 

To help you navigate the evolving world of ghost kitchens, we’ve created a market map for your reference. This market map is intended to be a snapshot of the current ghost kitchen landscape in 2019. It’s not comprehensive, and we expect both it and the overall landscape to change drastically over the next 12 months. That means you can expect to see this map updated regularly. As always, we welcome suggestions for additional companies and players in this space.

Have suggestions? Drop us an email.

1. Kitchen Infrastructure Providers

The largest category in ghost kitchens right now, Kitchen Infrastructure Providers can be likened to cloud computing providers: they rent companies the space and tools needed to run a business, either as a flat-fee model for on a pay-as-you-go basis. 

Kitchen United, for example, charges a monthly membership fee that includes rent, equipment, storage, and services like dishwashing. Reef, which originally made a name for itself reinventing the concept of the parking garage, offers these things as well as direct partnerships with major third-party delivery companies like DoorDash and Postmates.   

Normally these facilities are large, warehouse-like buildings that hold multiple “restaurants” under a single roof. For large restaurant operators with multiple chains looking to fulfill extra demand brought on by delivery or test out new concepts without incurring too much risk, these are ideal.

Multi-unit chains can also use these spaces to reach customers in areas where they might not have a brick-and-mortar store. Chick-fil-A is widening its reach in the SF Bay Area by working out of DoorDash’s newly opened facility.

2. Restaurant-operated Kitchens

For some restaurants, running a ghost kitchen operation themselves makes more sense than teaming up with a third-party kitchen provider. This is often the case with smaller, independent restaurants, whose ghost kitchen might consist of nothing more than an area of the restaurant’s existing location(s) dedicated to fulfilling off-premises orders. Or it might apply to multi-unit chains who simply want to expand to new areas and don’t have the capital or inclination to deal with the burden of a full-service restaurant. Colombian chain Muy is one such company, having started as a dine-in restaurant before expanding its ghost kitchens to serve more areas of Latin America.

The most notable of all the companies in this category right now is Starbucks. In addition to building out “to-go” stores that exist solely for the purpose of fulfilling off-premises orders, the company has also partnered with Alibaba to turn parts of the latter’s Hema supermarkets into ghost kitchens in China.

The boundaries around this category are especially fluid. In other words, just because you operate your own ghost kitchen in one part of the country doesn’t mean you can’t team up with a third-party provider in another, as The Halal Guys and Chick-fil-A have done.

3. Virtual Restaurant Providers

This is where the lines really start to blur between restaurant, kitchen provider, and delivery company. Anyone can make a virtual restaurant, and as the category in our map shows, more than just restaurants are trying their hand at food concepts that can only be ordered through digital channels and are prepared in a ghost kitchen. Whole30, for example, is a diet concept better known for its cookbooks than its dealings with the restaurant industry. The folks behind that brand teamed up with Grubhub and restaurant company Lettuce Entertain You to create a virtual restaurant offering meals with Whole30-approved foods. 

On the other hand, a company like Keatz runs a network of virtual restaurants it houses beneath the roof of its own ghost kitchens. Taster, based out of France, creates native restaurant brands for food delivery companies like Uber Eats and Deliveroo. Food is cooked in Taster-run kitchens.

4. Mobile Kitchens

In slightly more its own category, companies like Ono Food Co. and Zume are creating robotic, self-contained kitchens on wheels that offer restaurant experiences that can be tailored to specific neighborhoods in a city and also plug into third-party delivery services.

Restaurants can also partner with these kitchens on wheels to expand their reach into new markets, as &Pizza has done by teaming up with Zume.

What’s Next for Ghost Kitchens

Ghost kitchens will become the norm for multi-unit chains. With off-premises orders expected to drive the majority of restaurant sales growth over the next decade, multi-unit brands (think Panera, Chipotle, etc.) will find ghost kitchens a cost-effective way to meet this demand without overburdening existing restaurants. The majority of them will rent space from kitchen infrastructure providers, as Chick-fil-A is currently doing with DoorDash. 

There will be an explosion of delivery-only brands. Since ghost kitchens provide a cheaper, faster way for food entrepreneurs and small restaurants alike to test-drive new concepts, we will see an influx of delivery- and pickup-only brands come out of these kitchens over the next year. Many will be born inside the walls of facilities like Kitchen United or CloudKitchens. Meanwhile, the number of virtual restaurant networks like that of Keatz will increase. 

Artificial Intelligence will be designed into the kitchen. AI is a really broad term that’s often misused. That fact aside, its presence in the restaurant industry is here to stay, and in ghost kitchens, it will prove itself valuable for everything from tracking ingredients to helping staff curb food waste. On the consumer end, we expect to see the technology more deeply integrated into the apps and websites from which customers order, improving recommendations and upselling opportunities.  

More non-restaurant food brands will launch virtual restaurants. In keeping with a trend recently made popular by Whole30 and Bon Apétit, food brands, diets, celebrity chefs, and other non-restaurant businesses will team up with third parties to launch delivery and pickup concepts. Grubhub and Uber Eats are two such third parties already doing this. Expect many more such partnerships — soon.

Bonus: The tech stack will get pared down. No front of house means no POS, right? Quite possibly. With less (or no) customer-facing technology like digital menu boards, self-order kiosks, and tabletop ordering, much of the restaurant tech on the market today becomes irrelevant in a ghost kitchen setting. As the folks at Reforming Retail noted recently, “under this scenario the POS is just an ordering node in the cloud that outputs your menu to a consumer and sends orders to your kitchen.”

That doesn’t mean restaurant tech is going by the wayside. Some ghost kitchens, like those of Muy, have a walkup option where customers order at kiosks onsite, and there will doubtless be new solutions created that are specifically for the ghost kitchen. But the tools of tomorrow’s ghost kitchen won’t look a thing like today’s bloated restaurant-management tech stack. For everyone involved, that’s a bonus.

Report: Virtual Kitchen Co. Is Getting a $15M Investment for Its Growing Ghost Kitchen Network

Another day another new ghost kitchen popping up to help restaurants feed the population’s demand for delivery. A new startup called Virtual Kitchen Co. “plans to announce” a $15 million investment from VC firms Andreessen Horowitz, Base10 Partners and others, according to an article published today on Bloomberg. SF Bay Area-based Virtual Kitchen Co currently operates a handful of commissary kitchen facilities, which have no front of house and exist solely for the purpose of renting space to restaurants who need to fulfill more off-premises orders.

Already, there are a few aspects of Virtual Kitchen Co. that set it somewhat apart in the world of ghost kitchen facilities. First, it uses what’s called a hub-and-spoke model, where ingredients are prepped the day before then shuttled to a smaller facility to be cooked and assembled. Compartmentalizing the meal-prep process like this could potentially speed up the work in kitchens, which have fewer tasks to complete compared to, say, a regular restaurant kitchen. The model brings to mind the work of Zume, who pre-makes pizzas in a central facility before sending them to the company’s mobile kitchens for cooking and delivery.

Virtual Kitchen caters specifically to local chains and smaller restaurant businesses, according to Bloomberg. Right now, the company’s (rather bare-bones) website has customer stories from Bay Area restaurants Poki Time, Dosa, and Big Chef Tom’s Belly Burgers as restaurant partners.

Virtual Kitchen was also started by ex-Uber employees Ken Chong and Matt Sawchuk. The latter formerly oversaw Uber Eats, which means he knows a thing or two about restaurant food delivery. Uber itself was experimenting ghost kitchens in Paris earlier this year, but isn’t planning to continue that venture, according to Bloomberg. That doesn’t, however, put Eats out of the game completely when it comes to ghost kitchens. In September, the service partnered with Rachel Ray for a virtual restaurant based on the celebrity chef’s latest cookbook.

And Eats isn’t the only ex-Uber party Virtual Kitchen Co faces in terms of competition: former CEO Travis Kalanick’s CloudKitchens network of ghost kitchens and virtual restaurants reportedly got a $400 million investment from Saudi Arabia and also has the benefit of Kalanick’s net worth, which is more than $3 billion at this point. On top of the that competition is also DoorDash’s newly opened ghost kitchen facility in the Bay Area and Kitchen United’s ever-expanding network.

All of which is to say, Virtual Kitchen Co. faces a rather hot market right now in terms of competition, one that will see many more cooks in the kitchen — literally and figuratively — as ghost kitchens become the new norm for restaurants.

Sorry TechCrunch, Cloud Kitchens Aren’t an Oxymoron

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.

“WeWork” for Food Entrepreneurs Gets Financial Shot in the Arm

Budding butchers, bakers, and (edible) candlestick makers have another innovative option to provide the vital tools, training, and resources to facilitate movement from startup home food entrepreneurs to the realization of their goals of commercial success.

New York-based Pilotworks (formerly FoodWorks), billed as a “WeWork for food startups,” has received $13 million in expansion capital from Acre Venture Partners, a fund backed by Campbell’s Soup, along with TechStars, a funding and mentoring program. The money will be used for expansion to markets, such as Chicago and Dallas, along with the development of the necessary properties, culinary infrastructure, and staffing.

A company press release reveals the company was founded in 2016 and has since helped more than 250 food and beverage startups get off the ground. Pilotworks says that more than 70% of the businesses it has worked with are women or minority-owned.

“We’re very excited to add so many great strategic partners and continue our work of empowering anyone to start a food business successfully. We will be adding new units: Newark just opened, and Chicago and Dallas are slated to open in December alongside our existing kitchens in Brooklyn, Portland, and Providence, as well as furthering our presence in New York City. We are also excited to continue expanding our services and offerings across the entire food stack,” said Pilotworks CEO and co-founder Nick Devane.

The company’s website says it offers a full range of services that go beyond a mere stove and fridge. Everything from garbage and linen service, to assistance with branding and web design, is available to its members. Companies such as Aida Eats, Mac & Son, BOONBOX, Dank, and Crown Jewel Beverages are veterans of Pilotworks programs.

While the association with WeWork is fine for general identification purposes, it fails to capture the essence of what makes the boom in community commercial kitchens a hot commodity. Pilotworks enters a crowded space that spans options from highly regarded Food Corridor—a community and network of commercial kitchens that offers similar services to Pilotworks in a more federated manner—to individual shared-use kitchen incubators such as Capital Kitchens in Austin. The website Culinary Incubator offers a database and list of 725 shared-use kitchens in the United States.

What looms as a difference-maker for Pilotworks is its association with Campbell’s Soup. The New Jersey-based food and beverage giant could use this network of startup kitchens to find the next great idea to bring in house and take to the global market. That said, Tyson Foods, General Foods, and others also are operating accelerators with the same endgame in mind.

Worth noting is the startup goldrush led by Pilotworks and other similar endeavors focused on major markets that are either population centers (New York, Dallas, Chicago) or food meccas (Portland, Providence). A tour of any farmers market in smaller cities would prove there are some great food-next ideas worth nurturing outside marquee locations.