Tech Check is a regular column on restaurant technology by Senior Editor Joe Guszkowski. It's also a newsletter.
If ghost kitchens are dead, then why are some of the biggest restaurant chains in the country suddenly opening them?
Over the past year, Starbucks, Taco Bell and Jack in the Box have all set up shop within CloudKitchens, the ghost kitchen provider run by Uber founder Travis Kalanick.
It’s a reflection of consumers’ continued appetite for delivery, which is seemingly breathing new life into a business model that looked to be on its last legs.
As a reminder, CloudKitchens operates large facilities that are divided into small kitchens that it leases out to different restaurants. The restaurants then sell their food online for delivery only.
This general idea worked well during the pandemic, when dining rooms were closed, people were stuck inside and delivery became a popular ordering mode. But it has struggled in the years since as restaurants reopened and ghost kitchens found it difficult to subsist on delivery alone.
Many ghost kitchen companies, such as Reef and Kitchen United, have since moved on to other things or disappeared entirely. And restaurants that planned to go big into ghost kitchens, such as Wendy’s, have scaled back those plans.
The exception to this trend has been CloudKitchens, which seems to only keep growing, thanks in part to over $1 billion from investors including Microsoft.
CloudKitchens now has facilities in “all major cities” and 30 countries, Kalanick said at the tech-focused All-In Summit in September. Through its affiliated software business, Otter, the company processes 18% of all online delivery orders, he added. This intel helps it decide where to open new sites.
The company has also had some serious issues. Many operators have had bad experiences in its facilities, and it has seen high tenant turnover as a result. It’s facing a sexual harassment lawsuit from a former employee. In the latest bit of negative press for the company, a mall in Minnesota tried to evict CloudKitchens as its food hall operator, claiming that the food stalls it rented out were rarely open. (A court sided with CloudKitchens in the case.)
Despite all of that, the list of partnerships with big-name chains are a sign that CloudKitchens could have staying power.
Pacific Bells, a large Taco Bell franchisee, recently opened a CloudKitchens location in Milwaukee. President Scott Shepherd told Restaurant Business earlier this year that the ghost kitchen is intended to take some pressure off his other nearby Taco Bells, where more than 40% of sales come through digital channels.
A second franchisee, Diversified Restaurant Group, has one in San Francisco.
Jack in the Box, meanwhile, has opened six CloudKitchens outlets this year, including two in Chicago, a new market for the West Coast chain. More than 14% of the chain’s overall sales are digital, and of those, 70% come from third-party delivery apps, the company said earlier this month. It has a goal of reaching 20% digital sales by 2027.
Starbucks has said little about its CloudKitchens plans. It has at least one CloudKitchens location, in San Francisco. But it’s unclear how much of a priority delivery will be under new CEO Brian Niccol, who has been focused on overhauling the chain’s in-store operations. The company declined to comment for this story.
Taken together, these efforts suggest that restaurant chains are again warming up to the idea of using no-frills, delivery-only outlets to help support brick-and-mortars, enter new markets and generally grow their digital business. Though delivery has not been expanding as quickly as it did during the pandemic, the convenience of the service has continued to fuel demand, enough to make ghost kitchens a viable option.
Does it mean that CloudKitchens has overcome its growing pains? That I’m not so sure about. I still get emails every few months from restaurateurs with horror stories to tell. And the company has never responded to my requests to tell its side of the story, including this one.
Maybe it has been able to fix some of its problems and win over some key partners. Or maybe it has just hung around long enough to become the only game in town.