Kalanick’s CloudKitchens Expands as Restaurant Ordering Gets the eCommerce Treatment

Uber co-founder and ex-CEO Travis Kalanick’s ghost kitchen company CloudKitchens is raising funds by the millions, most recently securing an investment from tech giant Microsoft, according to a Financial Times report Wednesday (Sept. 7) citing unnamed sources with insider information.

Read more: Microsoft Backs Uber Founder Kalanick’s Latest Venture CloudKitchens

CloudKitchens promises infrastructure and software to restaurateurs looking to run virtual locations to avoid the high cost of a brick-and-mortar brand. Microsoft is said to have participated in the ghost kitchen company’s November 2021 funding round, which brought in $850 million, and which is said to have CloudKitchens’ valuation up to $15 billion amid reported internal turmoil. Additionally, Insider recently reported that restaurant owners working with the company have been pulling out amid mounting frustrations with CloudKitchens’ business practices.

For all the investor interest going towards this one ghost kitchen company, the restaurant model is far from unique to Kalanick. Many existing restaurant companies are launching virtual brands available on third-party marketplaces to drive more revenue from their existing kitchens. Take, for instance, Chili’s Grill & Bar parent company Brinker International’s It’s Just Wings, or Dickey’s Barbecue Pit’s Big Deal Burger. Plus, virtual restaurant companies such as Kitchen United and Ghost Kitchen Brands have established their own networks of off-premise-only locations.

Certainly, the model makes sense given the trend away from hospitality towards convenience in quick-service restaurants (QSRs). Ordering food is coming to resemble many other eCommerce categories, and as such, brands and online restaurant marketplaces have begun to adopt some of the strategies that have proven successful for eTailers — high-quality images, consumer reviews, et cetera.

Around half of all consumers across financial lifestyles now purchase food online, according to data from the August edition of PYMNTS’ monthly ConnectedEconomy™ study,  “The ConnectedEconomy™ Monthly Report: Paycheck-To-Paycheck Consumers Digitally Disengage.” The report, which draws from a June survey of a census-balanced panel of 2,760 U.S. consumers, finds that 46% of consumers who do not live paycheck to paycheck, 55% of those who do so comfortably, and 57% of those who do so with difficulty had engaged with restaurants online at least once in the previous 30 days.

Related news: NEW STUDY: Inflation Causes Widespread Digital Pullback by Financially Strapped Consumers

While many consumers purchase from restaurants online on a regular basis, that does not mean that they are immediately willing to engage with a brand purely in digital spaces, especially if that brand does not make a deliberate effort to build the kinds of connections that it is possible to create in physical stores.

Geoff Alexander, president and CEO of Chicago-based Asian-style restaurant brand Wow Bao, which is available via hundreds of virtual locations in addition to a handful of brick-and-mortar stores, spoke to this issue in a May interview with PYMNTS’ Karen Webster.

“The most important thing in the virtual restaurant space is trust, and now you don’t know where your food’s coming from, so you’ve lost that connection or that trust,” Alexander said. “When you’re in the dining room, you can … talk to your guest. You can take care of their needs. You can build relationships. In the virtual dining segment, that doesn’t exist as much, and it’s up to us as operators to find ways to connect and make the guests feel good eating in their house.”

See also: ‘Dark Kitchen’ Brands Still Need to Focus on Virtual Hospitality

Indeed, ghost kitchens are far from a sure bet. In fact, after Kalanick departed from Uber, the company had its own struggles in the space. In June 2020, at a time when digital order volumes were soaring, it was revealed that Uber Eats had quietly abandoned its “Eats Delivery Hub” initiative, reportedly devised by Kalanick, in an effort to cut costs. Certainly, consumers have grown accustomed to digital ordering as a more enduring part of their lives now than they were then, and many are familiar with the ghost kitchen concept, but challenges remain.

Additional details: Uber Eats Gets Out Of The Ghost Kitchen