INSUBCONTINENT EXCLUSIVE:
The biggest wave in consumer products right now has all the hallmarks of another bubble of misplaced investor expectations and sadly lower
margins.Cloud kitchens (the category, and not just CloudKitchens the startup service) is essentially WeWork for restaurant kitchens
Instead of buying an expensive restaurant site on a heavily walked street, a cloud kitchen is developed in a cheaper locale (an industrial
district, perhaps), with dozens of kitchen stations that are individually rentable for short periods of time by chefs and restaurant
CloudKitchens, which has been funded by former Uber founder and CEO Travis Kalanick, is perhaps the most well-known example, but others are
competing, and none more so than meal delivery companies
DoorDash announced that it was opening a shared kitchen in Redwood City just this week, Amazon has announced it is getting in the game and,
around the world, companies like India-based transportation network Ola are building out their own shared kitchens.That has led to laudatory
predictions of doom as well for millions of small-business restaurant owners
Mike Moritz, the famed partner at Sequoia, wrote in Financial Times earlier this year that:The large chain restaurants that operate pick-up
locations will be insulated from many of these services, as will the high-end restaurants that offer memorable experiences
But the local trattoria, taqueria, curry shop and sushi bar will be pressed to stay in business.Latent in these pieces (there are dozens of
eventually crashing the last few weeks back down to reality
coworking spaces, one in which everything WeWork has built so far will simply feed an algorithm that will design a perfectly efficient
expected to lay off 500 software engineers in the coming weeks.And yet despite the seeming collapse of WeWork and the destruction of its
No one rents the stovetop and not the prep area.But it is that quickly slippery logic that can cause an entire industry to rise and
Commercial kitchens require regulatory licenses and inspections, constant monitoring and maintenance, not to mention massive kitchen staffs
If you are the owner of one of these cloud kitchens, how exactly do you get any pricing leverage in the marketplace? Isaac and Yaffe-Bellany
fact, why not just switch regularly and force a constant bidding war between different clouds? Unlike actual cloud infrastructure, where
switching costs are often extremely prohibitive, the switching costs in kitchens seems rather minimal, perhaps as simple as packing up a box
how do you acquire and retain customers in one of the most competitive industries around?Isaac and Yaffe-Bellany argue that restaurants will
join these meal delivery platforms to market their foods
that actually says something provocative about their business models: that they are essentially inter-changeable, and the only way to get
margin leverage in the industry is to market and sell their own private-label brands.For example, I get the same food delivered from the
That inter-changeability makes it hard to build a durable, profitable business
single digits.The great hope for these companies is that cloud kitchens can fill the hole in the accounting math
Private brands drive large profits to grocery stores due to their higher margins, and the hope is that an Uber Burger or a DoorDash Pizza
Food brands have a prodigiously long gestation period, since food choices are deeply personal and take time to shift
those options.All of which takes us back to those misplaced investor expectations
Cloud kitchens is an interesting concept, and I have no doubt that we will see these sorts of business models for kitchens sprout up across
urban cities as an option for some restaurant owners
structures with this approach
