Do you know where your food comes from?
Imagine the most profitable restaurant in your city has no tables, no chairs, and no patrons. Chances are you just pictured the future of dining.
Last week, Berlin-based Keatz announced a $13.5 million raise, on top of the nearly $8 million it raised last month.
Keatz is one of the many players who operate cloud kitchens, restaurants without in-house dining selling meals via food delivery marketplaces like Deliveroo, Glovo or UberEats.
A cloud kitchen is a food venue that doesn't have a location for pickup or seated venue and are offered exclusively through food marketplaces. The cloud kitchen market is enormous, but despite its size, it’s growing at an insane rate all over the world.
According to a report from UBS’s research group, the “Evidence Lab”, cloud kitchens could grow from $35 billion to a $365 billion industry by 2030.
"There could be a scenario where by 2030 most meals currently cooked at home are instead ordered online and delivered from either restaurants or central kitchens."
If you order from Deliveroo, you may be clueless as to where your Salmon Poke Bowl is coming from, but chances are it comes from an industrial facility a few miles from your apartment.
Why is this happening?
No chairs is a feature, not a bug
Cloud kitchens have no “dine-in” facilities, but that is a conscious design and business decision.
Let’s go through why.
First, serving customers in-house is very expensive and greatly increases overhead costing. Not only you save in infrastructure, and front-of-house personnel, but you save in rent.
Occupancy costs can take up 6 to 10% of a restaurant's gross sales, which is a significant chunk in a low-margin space.
On top of that, cloud kitchens allow businesses to offer a faster service and better food because they are laser focused on one area: delivery.
It’s faster because there is no need to juggle front of house orders with people Games of Thrones fans ordering a million Chipotle burritos.
What's even more important, food is superior because the menu can be carefully planned and executed for delivery. If you ever ordered a burger from an app, only to arrive a mess, you know what I’m talking about.
Keatz co-founder Paul Gebhardt told TechCrunch that his concept's advantage comes from its ability to prepare food specifically created for delivery.
“Delivery food today is often compromised and sold by companies focusing on hospitality and not delivery food. Nobody at Nandos or Byron Burger designed the food keeping in mind that the food might travel on a Deliveroo bike for another 15 minutes, mostly upside down in a delivery bag.”
Finally, in a world where data is king, serving everything through online marketplaces makes it a lot easier to collect customer data and customer feedback.
All this leads to higher margins, which can be translated to the bottom line or to better pricing.
The advantages are so big that some chains like Spring Leaf Retail and TMA Hospitality Services, both fast food retailers in India, have begun converting traditional restaurants to cloud kitchens in order to cut costs and meet transitioning customer preferences.
The real win is the on-demand layer
I believe the real win in the cloud kitchen market is providing the infrastructure and software layer to enable on-demand kitchens.
This means a combination of physical space you can rent on demand, automated processes, and POS software to handle incoming orders and listings in multiple marketplaces.
A great example is Zomato, the restaurant reviews site, not long ago released Zomato Kitchens, the B2B arm of the company who offers cloud kitchen on-demand. No long term contract and it charges a % of revenue. It is easy to set up, it has no downside, and the structure is built around shared incentives.
In the US, Kitchen United has set out to build 400 virtual kitchen centers and install 6,000 kitchens across the nation, giving restaurants a better and more cost-efficient way to gain quick access to off-premise diners.
Travis Kalanik, the former Uber CEO who got booted in late 2017, started CloudKitchens, and partnered with Ofo’s former COO to expand in China against local competitors like Beijing-based Panda Selected and Shanghai-based Jike Alliance.
What gives companies like Zomato, Kitchen United, and Cloud Kitchens hope is that they’re not required to actually create the next big successful concept in fast food or casual dining. They just have to enable it.
How does the future of food looks like?
Because of venture capital economics where you need to go big or go home, delivery companies are forced to conquer the world. This, combined with the fact that the off-premise dining market is enormous and yet to be tapped, means that these giants won’t stay put.
I predict (and I’m often wrong, but whatever) that companies like Uber Eats will begin to vertically integrate more and more, and start opening up cloud kitchens themselves, housing dozens of restaurants.
At first, Uber Eats begged restaurants (the supply side) to sign up for their marketplace. Slowly, as they accumulated demand (customers), onboarding partners became easier.
Now, with significant consumer demand waiting in their pipeline because of the gigantic offering of supply, Uber Eats can capitalize on that. Something like this:
The Sun will charge Twitter to enable their snippets. Delivery giants have:
- Data - millions of transactions and customer choices over time.
- Knowledge - from running
- Resources
This means they can quickly spin dozens of restaurants from one centralized kitchen, feature them in their marketplace and see how customers respond.
From there, they will double down on the winners, kill the losers, and spin-off new ones. They could even go as far as keeping the menu the same and replacing just the branding with a different one until something sticks.
This means they’ll get the moon, and more. Hyperlocal branding, economies of scale, higher margins, and speed to market.
And this won’t stop there. In fact, Deliveroo is already rolling this out with Deliveroo Editions. But I think it’ll go even further.
Delivery giants can invest in restaurants, cloud kitchens, even chefs to increase their proprietary supply of restaurants. Imagine a Deliveroo Accelerator.
How is this different from Amazon copying the best-performing brands and turning them into Amazon basic products?
It is not.
How will this play out with anti-trust? I don’t know either. But here’s a quote from Jim Collins, CEO at Kitchen United, that illustrates the moment we’re living.
"About 4 yeares ago the world "woek up to the fact that there is a 20 bn dollar industry that the tech industry hasn’t tocuhed in 20 years…And it's off to the races.