- Travis Kalanick bet he could alter the restaurant industry with another shared-economy venture.
- But restaurant owners are lukewarm on CloudKitchens, with some unimpressed by the sales pitch.
- Others, however, have found it useful for trying out new concepts and menus quickly and cheaply.
- See more stories on Insider’s business page.
Travis Kalanick’s CloudKitchens — and the ghost kitchen model — is losing some of its luster.
When CloudKitchens burst on the scene, it promised to rent kitchen space to restaurant owners with delivery-only menus and upend traditional brick-and-mortar restaurants.
Three years later, restaurant operators are lukewarm on the concept, with some finding it useful and some choosing to walk away after hearing the CloudKitchens sales pitch.
Insider spoke to nine current and former CloudKitchens operators, as well as two industry entrepreneurs who have visited the dark kitchen warehouses, and a former CloudKitchens employee about the company’s business and sales strategy.
CloudKitchens did not return a request to comment.
Some restaurant operators have reservations
Kalanick’s ghost kitchens are strategically placed in densely populated cities, where delivery of burgers, burritos, fried chicken sandwiches, and rice bowls are in hot demand.
The company’s persistent sales force has secured some of the industry’s best-known brands: Chick-fil-A, Wingstop, Noodles & Company, and Capriotti’s.
But an entrepreneur who visited the original CloudKitchens in Los Angeles said restaurants working in these dark kitchens face a huge problem: lack of access to consumer data. While touring the site a few years ago, the entrepreneur (who asked to remain anonymous but whose identity is known to Insider) said he grew concerned about the company’s business practices.
He said restaurant operators were using CloudKitchens’ proprietary software to process delivery orders. Like third-party delivery companies, such as
, DoorDash, and Grubhub, CloudKitchens was capturing valuable consumer data — data that wasn’t available to restaurant operators.
“It’s a boiling-frog syndrome,” the entrepreneur said. “They’re slowly being cooked if they get into that system. They don’t even realize that they’re being taken for a ride just like the cab drivers initially had when Uber launched.”
A restaurant executive, who requested to remain anonymous but whose identity is known to Insider, said he explored the first CloudKitchens in Chicago as it was opening three years ago. He described the infrastructure around the facility as “suboptimal,” with one-lane streets.
“This will never work,” he said. “It is not designed to have orders coming in and out.”
His prediction proved prescient. Chicago residents living nearby the kitchen commissary, jam-packed with dozens of operators, have complained that delivery drivers are taking up parking spots and causing traffic congestion in the community, according to a recent report by Insider’s Meghan Morris.
The restaurateur ultimately didn’t pursue a partnership with CloudKitchens.
A surge in ghost kitchens during the pandemic
By the time the pandemic hit, demand for ghost kitchens skyrocketed as delivery food became a lifeline for struggling restaurants deprived of in-person business.
Bareburger, a New York-based casual-dining chain, opened two ghost kitchens with CloudKitchens in Philadelphia in late summer 2020. CEO Euripides Pelekanos said the decision to go with CloudKitchens was a pandemic-driven move to increase revenue.
But the Philadelphia experiment hasn’t been a slam dunk revenue driver. One of the CloudKitchens facilities in Philadelphia was dependent on a university that didn’t draw enough business, so Bareburger closed it this summer.
Pelekanos said CloudKitchens has “been quite flexible with” Bareburger’s decision to exit the space. One reason might be because Bareburger plans to open a ghost-kitchen facility operated by CloudKitchens in Queens, New York, where the chain has more brand recognition.
It also allowed restaurants to quickly — and cheaply — try out new concepts.
“We can use a number of expressions, but it’s the same concept of throwing mud against the wall and seeing what sticks,” FAT Brands CEO Andy Wiederhorn told Insider.
His brands, which include Fatburger and Buffalo’s Express, are trialing various ghost kitchen models including CloudKitchens to see which ones work best.
Geoff Alexander had the same thought when he brought his Chicago bowl concept, Wow Bao, to a CloudKitchens in Los Angeles in 2017.
“It allowed us to enter a completely different market for like under $30,000,” he said.
Alexander said the test didn’t work out due to labor issues in California. He later scrapped the rent-a-kitchen model in favor of selling Wow Bao’s menu to restaurants with extra kitchen capacity, often dubbed a dark kitchen model.
And some operators have found real success using CloudKitchens.
Mendocino Farms, an upscale sandwich chain in Southern California, rents kitchen space from a CloudKitchens facility in Long Beach, California. The test has gone so well that CEO Kevin Miles said he plans to open a brick-and-mortar restaurant in the city.
He’s repeating the same test later this year by opening a delivery-only Mendocino Farms inside a soon-to-open CloudKitchens facility in Oakland, California.
“This allows us time to find the right location and not rush into the market,” Miles said.
Still, Bareburger operator Pelekanos said he’s not convinced that ghost kitchens are saving restaurants. These operations are “90% solely dependent on third-party delivery” operators who charge hefty commission fees, he said.
“I still believe it’s very, very early to see if these are actually profitable ventures for the operators,” Pelekanos said.