Essentially, cloud kitchens are the restaurant industry’s equivalent of co-working spaces, in the form of a shared kitchen space. Cloud kitchens are usually located in industrial districts, vacant warehouses, or unused parking or storage facilities to offer restaurateurs an alternative to expensive restaurant prime real estate. Clients can instead rent multiple fully equipped cloud kitchens for flexible amounts of time. Cloud kitchens allow chefs to test their products, or more established restaurants can expand their reach without incurring the expenditure of opening full-service restaurants.
The most notable advancements enabling cloud kitchens has been the advent of online food ordering platforms and the growing popularity of shared working spaces.
The restaurant industry was hit hard by the Covid-19 pandemic, with a majority of dine-in restaurants forced to shut down as authorities aim to contain the outbreak. As of December 2020, 17% of all US restaurants had permanently closed or announced plans to do so.
This has, however, created potential market opportunities for the industry, as cloud kitchens have the potential to help restaurants cater to the growing demand for delivery-only services. Cloud Kitchen operators have seen a spike in funding and new partnerships to expand operations and grow the sector.
In December 2020, Crave Hospitality raised USD 7.3 million to build teams for its next four cloud kitchens .
In November 2020, Reef Kitchen raised USD 700 million to expand the number of the parking lots it uses for its cloud kitchens up to 10,000 up from 4,800 .
In October 2020, Ordermark raised USD 120 million to assist restaurants transition into online ordering and expand its cloud restaurant portfolio .
CloudKitchen Co was reported to have spent USD 130 million over 2019-20 on real estate to expand operations.
A variety of cloud kitchen models are currently under development with the most popular being commissary kitchens, commercial-grade kitchens where foodservice providers can safely and legally prepare, cook, and store food and equipment—without having to own and maintain the facility themselves. Industry incumbents dominate the aggregator managed mode, while single-brand kitchens are less common in part due to their limited potential to reach scale.
Cloud kitchens have been a growing trend in the US with a few start-ups in this space obtaining substantial funding to expand business. In 2019 alone, well over USD 800 million was invested in cloud kitchen startups.
Some of these startups have been backed by former CEOs of major tech startups. Uber co-founder Travis Kalanick invested heavily in US-based CloudKitchens as well as in London-based Karma Kitchen. A former senior executive of Uber also opened up a cloud kitchen business called All Day Kitchens (formerly Virtual Kitchen Co).
CloudKitchens is the emerging leader in this space, and it has received the highest funding in the industry, having raised a total of USD 400 million in the past two years. Its investors include the Saudi Arabian Public Investment Fund. Its association with Kalanick has allowed the company to raise capital quickly and will likely also contribute positively to its expansion and business development as it scales up.
Another company making progress in the space is Google-backed Kitchen United. The company recently announced a USD 40 million funding round (total funding of USD 50 million), where the funding will be used for an aggressive expansion strategy over the next few years.
Founded in 2013, REEF Technology (formerly known as ParkJockey Global, a parking lot management company) is mainly involved in providing hardware, software, and management services for parking lots. However, since its inception, the company has expanded to operate businesses such as cloud kitchens, healthcare clinics, logistics, and last mile delivery hubs in empty parking spaces. The company sets up spaces for these businesses using various containers for stores to set up operations, taking advantage of the growing on-demand economy trend where it will house a collection of businesses and services specific to the needs of neighborhoods.
Against this backdrop of growth in on-demand food delivery, in 2019, it launched REEF Kitchens, in which parking lots are used for shared kitchen operations. As of November 2020, the company operated in more than 20 markets in North America, with over 100 kitchens consisting of roughly 30 tenants. REEF kitchens are housed in proprietary containers, with each one able to accommodate between one and five restaurant brands or clients. The company refers to its in-garage ghost kitchens as “vessels” and modifies them according to customer requirements. Despite the COVID-19 pandemic, the company stated that it was performing well owing to its REEF Kitchen business thriving through an increase in on-demand delivery orders. The food offered by REEF’s internal brands comes from US Foods, a food distributor that works with colleges, hotels, and hospitals, apart from being a wholesale supplier to independent restaurants and diners. The company has also partnered with external brands such as Burger Bytes, Della Bowls, and I Heart Mac & Cheese. For delivery, the company partners with brands such as Uber, DoorDash, GetAround, and Nuro.
The company was pursuing an acquisition-driven strategy to further expand its presence and market reach. In November 2021, REEF announced the acquisition of iKcon Restaurant LLC, a Dubai-based cloud kitchen operator, marking its first major transaction in the MENA market. This acquisition is part of REEF’s strategy to expand beyond North America. In December 2021, REEF acquired 2ndKitchen, a US-based virtual kitchen for hotels, offices, buildings, and other hospitality companies. 2ndKitchen’s existing business was to be combined with REEF's brand and operate under its hospitality division. This was part of REEF’s strategy to expand its customer base into the hospitality division.
In November 2020, the company received equity funding of USD 700 million, mainly backed by existing investor Softbank and new investor Mubadala Corp. The consortium was further supported through the participation of Oaktree, UBS Asset Management, and venture capital firm Target Global. The funds are expected to be used to scale up operations from 4,800 to 10,000 new locations across the country. Furthermore, REEF launched a USD 300 million fund in partnership with Oaktree. REEF and Oaktree’s infrastructure arm has formed the Neighborhood Property Group to acquire strategic real estate assets.
Single Brand Kitchens:
Different types of players in the restaurant delivery supply chain are now exploring the cloud kitchen space. These include third-party delivery platforms and supermarket chains, who have entered the market via partnerships or backward integration strategy; third-party aggregators such as DoorDash and Deliveroo, who have now started to backward-integrate into the restaurant delivery value chain and are providing cloud kitchen services for existing restaurants on their platform, as well as services for original brands; and retail stores such as Walmart and Kroger, who have expanded into this space using their store network to set up cloud kitchen facilities in collaboration with cloud kitchen operators across North America.
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