The start-ups building ‘dark kitchens’ for Uber Eats and Deliveroo
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This article was originally published on 21 May 2019.
After pouring more than $20bn into companies that bring meals to your door, such as Deliveroo in Europe, Swiggy in India and DoorDash in the US, tech investors are now looking at the other side of the table: how to make sure the right food is available at the right place at the right time to be delivered.
“The success of Uber Eats, DoorDash and others suggests there is a demographic shift towards consumption of prepared meals at home,” said Michael Ronen, managing partner at SoftBank Investment Advisers. “The time is now to try and stand up supply that is more efficient against that demand.”
Venture capitalists have all aligned on the best solution: kitchens that only serve delivery customers, known as “cloud”, “ghost” or “dark” kitchens, that use a combination of advanced food preparation, underused real estate and algorithm-driven optimisation to lower overheads and increase output.
But the various approaches taken by start-ups are as different as sushi and fish ‘n’ chips.
Some are focused simply on real estate, setting up and hiring out kitchens in the right urban locations to serve the new demand or commandeering defunct high-street restaurants. These include Uber co-founder Travis Kalanick’s new start-up, City Storage Systems, which trades as CloudKitchens in the US, and London-based Karma Kitchen.
Those property ventures also create a new opportunity for kitchen services companies that focus on making the food, such as Dubai-based KitOpi, which operates in London and the Middle East.
Eccie Newton, co-founder of Karma Kitchen, likens her concept to “WeWork for kitchens”, renting out space to different businesses at different times of day. “Food delivery is definitely a growing part of our business, especially for the evening shifts,” she said. Shared kitchen space at Karma’s first location in London’s Tower Hamlets neighbourhood can cost about £1,500 a month, compared with tens of thousands of pounds upfront to build a new kitchen.
Other players offer different combinations of facilities and services. Kitchen United, a Google-backed start-up, plans to open more than a dozen delivery kitchens across the US this year. It charges a monthly membership fee that includes the premises, back-of-house services such as dishwashing and access to its technology system for processing online orders from a range of delivery apps.
“Most quick-service restaurant chains employ 30 to 50 people,” said Jim Collins, chief executive of Kitchen United. “In our facility, we have designed the service stack so they only need two people per shift. It cuts their labour cost by 75-80 per cent.”
There is also a benefit for diners: faster deliveries of hotter meals. “Freshness is the killer metric on whether consumers are going to reorder,” Mr Collins said.
Building on this delivery kitchen infrastructure is a new wave of start-ups hoping to create brands that are as recognisable to users of delivery apps as Domino’s or McDonald’s.
“Virtual restaurants” from Taster or Keatz work closely with delivery platforms to identify areas of unmet demand, whether in location or cuisine, then rent out space from an outfit such as CloudKitchens or Karma.
“The market is mature enough to build a delivery-only brand,” said Anton Soulier, a former Deliveroo executive who founded Taster in 2017. “My ambition is to create the Five Guys of Vietnamese food or the Shake Shack of Korean fried chicken . . . These [delivery] platforms need guys like us because they can’t rely on burgers and sushi at some point, they need a bit more diversity in food.”
Taster uses its own algorithms to forecast each week’s sales, bringing efficiencies in ordering ingredients. It is building a following for its brands, such as Mission Saigon and Out-Fry, on Instagram and through its food packaging, to attract repeat customers. With some advance preparation, Mr Soulier claims a Taster kitchen can turn around an order in three minutes, compared with 15 minutes at a traditional restaurant.
“The beauty of the model is restaurants and food are the least scalable business in the world,” he said. “We are trying to make it more scalable and expand very quickly.”
But the food delivery companies themselves, such as Swiggy, Deliveroo and Uber Eats, are also looking to bite off certain parts of this food tech “stack”. Deliveroo has been testing dozens of “Editions” — often preparing food in converted shipping containers in car parks — for two years, while Uber Eats recently opened its first kitchen in Paris.
That is where the strategies of SoftBank and Naspers, two of the biggest investors in these food delivery apps, begin to diverge.
Naspers is betting that soup-to-nuts vertical integration will win out. “There is a lot of value in owning the consumer interface and getting to know your customers,” said Bob van Dijk, chief executive of Naspers, which is an investor in Swiggy and Delivery Hero. That data can inform gaps in the offering, such as users searching for salads in Bangalore. “We have looked at one or two companies that make food and do dark kitchens but we didn’t get our head around it.”
SoftBank, on the other hand, has invested hundreds of millions of dollars in what at first would appear to be a very analogue, offline business: car parks.
In December, it took a stake in ParkJockey, a Miami-based start-up that makes technology for car parking. At the same time, it acquired Impark and Citizens, two of the biggest car park operators in North America, giving ParkJockey more than 4,500 locations.
SoftBank’s Mr Ronen sees these central urban properties as a “strategic asset”. “Car parking is an underutilised piece of land,” he said. “One of the most obvious near-term opportunities is to host mobile kitchens or commissary kitchens that will enable food-delivery companies to scale up local delivery capabilities, utilising after-hours parking.”
ParkJockey, which is now valued at more than $1bn, has been experimenting with car-park kitchens since 2016, when it opened its first site in London. It plans to scale up its food operations significantly this year.
“I do see parking garages as the warehouses of the new economy,” said Ari Ojalvo, ParkJockey’s chief executive.
“The idea of putting a kitchen inside a container and then dropping that into a garage came very naturally to me.” The premises are well ventilated, quiet and close to customers, he explains.
However, despite their tech-industry backers, Mr Ojalvo and Kitchen United’s Mr Collins say that their bricks-and-mortar businesses are very different to internet companies.
Fixing a kitchen problem requires more than a software update, said Mr Ojalvo. “These are serious operations — it’s like the military.”
Mr Collins said he had actively tried to discourage investment from the usual Silicon Valley venture capitalists, because of the significant capital expenditure required on buildings, cookers and dishwashers. “If we decrease our capex, we are not opening facilities,” he said. “For a lot of the traditional tech investment communities, it’s hard for them to get their mind around that.”
But still, many VCs believe that however messy and logistically complicated it is, the food industry is about to be disrupted just as thoroughly as department stores and taxi operators.
“A hundred and fifty years ago, most people made their own clothes,” said Mr van Dijk. “I'm fairly convinced that 20 years from now, we will mostly not make our own food.”
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