CloudKitchens: Travis Kalanick start-up cannot stay in the shadows for long

Travis Kalanick’s reluctance to draw attention to his ghost kitchen start-up makes sense. He lost his position as chief executive of Uber, a company he co-founded, five years ago following public exposure of bulling and sexual harassment at the company. A leaked video of him berating an Uber driver contributed to his downfall.

But CloudKitchens is too big to hide for much longer. The start-up leases property and converts the space into kitchens. Restaurants rent the space on shorter, more expensive leases and cook food only for delivery. It also offers shelf space to store other deliverable goods.

Microsoft’s backing, part of an $850mn round of funding last year, has lifted the company to a $15bn valuation, up from $5bn in 2019. Saudi Arabia’s sovereign wealth fund is also an investor.

Ghost kitchens benefited from lockdowns as households unable to dine out ordered in. In 2021, US food delivery revenue was more than $22bn in revenues, according to Business of Apps. It is the second-largest market in the world after China.

CloudKitchens bills itself as a low risk, low capital way to grow a restaurant business. But its own business is capital-intensive. Remodelling spaces into kitchens means complying with strict regulations about issues such as ventilation.

That means frequent fundraising. An initial public offering is unlikely to be on the cards anytime soon. Joining markets would open Kalanick up to public scrutiny. But if CloudKitchens attempts to raise funds this year it would face a downround. The value of food delivery apps such as DoorDash have fallen sharply as demand slows. There has been a knock-on impact on ghost kitchens. Start-up Butler Hospitality closed this year after raising $50mn in funding.

There has also been consolidation in the private market too. California-based Kitchen United, which is backed by Kroger, Burger King and Alphabet’s VC arm, bought Zuul. As well as ghost kitchens it offers services for existing restaurants. Its technology enables pick-up and delivery at mall owner Simon Property Group’s food courts. The success of ghost kitchens need not spell the end of restaurants.