Ghost Kitchens: Amazon Fulfilment Centers for Food?
Attractiveness
Delivery-only kitchens could create a market worth $1 trillion by 2030. Research by UBS has claimed it is possible by 2030, more meals will be ordered online and delivered from central kitchens than are cooked at home, creating a delivery market worth $365 billion, up from $35 billion today. By another estimate, the UK alone has seen a 39% increase in food deliveries in the last three years, creating a market worth $11.2 billion. There are many ways to capture value in this industry which don’t involve building out a delivery infrastructure in a market saturated with large delivery companies with deep pockets. New opportunities exist in predicting food trends, creating agile production facilities that can respond to those trends, or building out a network of online-only restaurants.
Business Models
The first model I remember seeing in this space is ClusterTruck. The company has built an end-to-end centralized kitchen and delivery service model. In a similar way to the ugly and excess produce delivery company Imperfect Foods, ClusterTruck understands in the new food economy you only get to interact with your customer twice:
- once on ordering
- and again on the doorstep
Owning the process end-to-end gives greater control on the customer experience. However, it does not benefit from economies of scale in the same way as other companies using increasingly available and cheap delivery infrastructures (Postmates, DoorDash). There are other providers who are focusing on the centralized kitchen model, where various cuisines are made in the same kitchen, enabling multiple restaurants to be run from one kitchen. GV-backed Kitchens United is one such provider, with multiple restaurant menus created in one kitchen. A key benefit of this is menu flexibility. Prototyping a new dish, brand, menu, or entire cuisine, can be done quickly with little capital and fast iterations.
Then there are the picks and shovels companies. Innovators like Karma Kitchen are developing shared kitchen spaces, focusing on delivery businesses. These models can be seen as the food equivalent of Amazon Fulfilment Centers, with the revenue model of WeWork. This model, where space is rented out by shift, allows for the kitchen equivalent of ‘hot desking’. Companies working on different shifts (an overnight bakery, a menu innovation lab, and a lunchtime/evening delivery) can share the same space and tools. The approach has become interesting to the real estate industry, looking to find new applications for newly available space, leading to investments such as the $252 million from Vengrove Real Estate Management in Karma Kitchen.
Competition
As the restaurant industry re-calibrates after the food chain shock of Covid-19, it is adjusting to new patterns of consumption as well as to the acceleration of trends it has seen coming for some years. This is not a new industry, ClusterTruck was founded in 2015, WeWork launched a Food Labs in New York in 2019, and ex-Uber CEO Travis Kalanick’s ghost kitchen company CloudKitchens was founded in 2016. However, investment in these types of startups have rocketed in the past twelve months. This is true for both the service companies creating the kitchen spaces, but also the food service giants are looking for ways to best serve this new infrastructure of kitchens.
Keep an Eye On…
There are two main routes to growth in the market.
The first is to leverage local market knowledge to set up in one city or area. This follows the traditional restaurant chain expansion model, but with the asset-light benefits of centralized and online-only kitchens. Companies like New York-based Zuul Kitchens or Booh Kitchens in Malaga, Spain are following this model, and are attractive investments for restaurant operators.
The second is to develop a kitchen rental platform which can house restaurants servicing local populations. This second model is likely to be popular with real estate and real asset strategy investors, and potentially online grocery delivery services, or even logistics and warehousing providers. It is comparatively asset-light and requires no less local market knowledge before expanding. In this way, it is similar to the growth strategy problem facing indoor farms; whether to build, own, and operate farms or offer the technology as a platform or service for local growers. The bet here is that the product is really the kitchen, as opposed to the food. As mentioned before, the food can be prototyped and market tested fast, and perhaps the real value is having agile kitchen infrastructure rather than a killer chicken wings recipe.
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