Ex-Uber CEO Travis Kalanick launched a new startup that may do away with restaurants as we now know them. If Kalanick’s new company, CloudKitchens, achieves its goal, brick and mortar restaurants will be replaced by ghost kitchens—consisting of no staff, only a few cooks and the food will be delivered by gig-economy workers through Uber Eats, DoorDash, Grubhub, and similar services.
Kalanick raised $400 million from Saudi Arabia’s sovereign-wealth fund and used some of his fortunes from Uber to build out this concept worldwide. The money will be spent on purchasing inexpensive properties in urban areas. The locations will be in densely populated locations where deliveries can be made quickly.
These virtual restaurants are similar to the WeWork concept. WeWork rents out or buys real estate, then leases out the spaces to small businesses. Similarly, CloudKitchens will own the property and commissary kitchens and then rent out space to the restaurateurs.
The renters could be well-known brands that don’t want to spend the money for another traditional location or startup entrepreneurs that desire to experiment with a new restaurant concept but can’t afford a stand-alone location.
For current or potential restaurant owners, instead of paying over $1 million to build out a brick and mortar restaurant, they could easily get started in a CloudKitchens with a small deposit, along with some other expenses. With this type of ghost restaurant, the costs will be considerably less than going the traditional route.
Owners won’t have to search for a location and conduct foot traffic studies, sign a long-term, costly lease, put up a lot of money upfront for the lease, invest in all of the necessary kitchen appliances, tables, and chairs. The startup restaurateur won’t have to pay a large staff of waiters, busboys, bartenders, and workers. All they need to get up and running is a chef and a couple of cooks to prepare the food. This could be a boom for restaurant entrepreneurs.
As opposed to going to a sit-down location, customers place their orders through an app and the food is delivered by independent contractors. Presumably, the cost savings should be passed along to the customers who will pay less than they would if they went to a regular restaurant.
This concept feeds into the trend of people staying at home, watching Netflix and paying for food delivery. It also is a play on the unintended consequences of the push to increase the minimum wage. The restaurant business notoriously operates on a razor-thin profit margin. The workers are one of the largest expenditures. Without the need to pay waiters, hosts, and other restaurant personnel, profits should be much higher. There is no need to pay exorbitant rent, as the kitchens are run out of communal spaces in cheap locations. Since the delivery persons are contractors, there is no need to pay these drivers benefits, sick and vacation days.
The food delivery market, according to CloudKitchens, is worth over $35 billion per year in the U.S.—and growing fast. The majority of food delivery comes from traditional restaurants, but these locations are not always set up to successfully run this function. This approach seems attractive to both the consumer and the perspective restaurateur.
Unfortunately, there will be some people who will lose out if this trend takes hold. These are the hard-working folks on the lower end of the work spectrum. New immigrants to the U.S., those who don’t possess a high school degree or are unable to procure a full-time, permanent job rely upon, in part, jobs in the food industry. Without these first-rung types of positions available, it will make it harder for certain groups to gain access to the working world.
CloudKitchens may run into the same issues that are plaguing Uber, Lyft and other app-based tech companies that use independent contractors. There is a big movement by state legislatures, such as California and New Jersey, to go after companies that, in their opinions, misclassify employees as independent contractors. The states claim that the tech companies are taking advantage of these workers by not offering the benefits and pay that would be ordinarily afforded to an employee. Also, the states assert that the companies are doing this to avoid paying their fair share of taxes.
It will be interesting to watch how this all plays out.