Pre-IPO Pedia | Travis Kalanick, the founder of Uber, enters the cloud kitchens market
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The outbreak of COVID-19 has brought a huge challenge for the catering industry. The significant drop in clientele and the plummeting revenue has made it difficult for restaurants to cover high operating expenses.
The outbreak of COVID-19 has brought a huge challenge for the catering industry. The significant drop in clientele and the plummeting revenue has made it difficult for restaurants to cover high operating expenses.
With the purpose of saving labour costs and improving operational efficiency, a new mode of restaurant operation, the cloud kitchens, has become popular among caterers.
Cloud kitchens are also known as shared kitchens, and as the name suggests, restaurant entrepreneurs rent vacant spaces with shared kitchen equipment, which they can cook the food inside, and then wait for the deliverers to pick it up.
In the context of the COVID-19 pandemic, this kind of operation mode of meets the requirements of operators who hope to maximise profits at the lowest possible cost and risk.
CloudKitchens, run by the Uber founder Travis Kalanick, is one of the leading players in the hot cloud kitchen market. Within only five years, the company is already valued at $15 billion.
A lot of people wonder that whether Kalanick has applied his rich experience in the sharing economy in his new business, and whether he will be able to make legend stories again.
Looking back at Kalanick's life journey, there have been many ups and downs.
Born in Los Angeles in 1976, Kalanick studied computer engineering at UCLA and dropped out of UCLA in 1997 at the age of 21. Afterwards, He set up a number of technology companies, all of which faced bankruptcy or acquisition.
The idea for a setting up a ride-hailing service came to Kalanick in 2009, on a winter night when he was desperate for a ride to an important meeting but failed to get one. Then, together with his partner Garrett Camp, he founded what we know as Uber.
Uber soon became a giant in the ride-hailing industry, with its low prices, quick response and high-quality services. After entering the takeaway business, its brand Uber Eats quickly took over markets around the world as well.
However, Kalanick's career has always been controversial. In June 2017, Kalanick announced his departure from Uber under pressure from all sides.
In March 2018, he announced that he would set up a new investment fund called 10100, which would invest in real estate, e-commerce and other innovative sectors in China and India.
Kalanick then officially entered the cloud kitchen business by spending $150 million to buy a controlling stake in the real estate business of City Storage System, CloudKitchens' holding company.
The business model of CloudKitchens is to rent out its vacant real estate to restaurant companies and equip them with kitchen equipment, allowing many restaurants that are unable to run dine-in operations to refocus on take-out business and save their expenses.
Also, it provides ancillary services such as facility management, technology and marketing.
On the official website of CloudKitchens, it highlights the advantages of its operational model while compared to traditional restaurant operations.
The traditional restaurant model requires operators to pay not only high rents, but also labour costs such as the salary of dishwashers, cooks and waiters, which often places a significant burden on operators.
Under the model of CloudKitchens, restaurant operators can share staff and facilities with other operators, reducing costs and maximising efficiency.
In addition to cost savings, the CloudKitchens model offers operators the following benefits.
Quick start-up. Instead of spending a year to set up a brick-and-mortar restaurant for dine-in services, operators can set up a cloud kitchen in only a month for takeaway and delivery only.
Turn-key solution. CloudKitchens claims that operators only need to focus on cooking, and that CloudKitchens will take care of the rest of the sales and restaurant operations, including bringing in takeaway orders, handling delivery and running the restaurant.
Digital operations. Operators can use big data on the internet to manage all takeaway orders from their tablets to improve operational efficiency, and can also use digital to solve pain points such as recipe keeping, order tracking and inventory management.
CloudKitchens has closed three funding rounds, with a total funding of $1.3 billion.
In January 2017, CloudKitchens closed an Series A round of funding from Craft Ventures.
In November 2019, CloudKitchens raised $400 million from Saudi Arabia's Public Investment Fund (SIF), reaching a valuation of $5 billion.
In November 2021, CloudKitchens raised $850 million in a round that saw its valuation soar to $15 billion, tripling from two years ago.
Reports suggest that CloudKitchens has spent more than $130 million on real estate in recent years, snapping up more than 40 properties to build a network of cloud kitchens.
According to an analysis by the Wall Street Journal, the company's property buying spree is unusual, as startups like CloudKitchens typically prefer to rent space to facilitate faster growth, rather than invest large amounts of cash in buying property.
But CloudKitchens seems to have a lot of cash to spend. Huge investments from investors and a multi-million dollar loan from Goldman Sachs for acquisitions and growth have made it possible for it to build a "mini real estate empire".
There is no definitive word on when CloudKitchens will go public, but there is a lot of talk about it.
Some have suggested that if CloudKitchens continues to burn through money on real estate, it will clearly need an IPO to raise more money to keep up its rapid pace of expansion.
Some predict that CloudKitchens will eventually build its first truly sustainable business by acquiring a competitor to Uber Eats for vertical integration.
But there are also many who see Kalanick as a major factor influencing the growth of his company and say that if the company's culture doesn't change then it will eventually follow a similar path to Uber.
There are also those in the industry who believe that "cloud kitchens" are just the next sharing bubble.
This is because the real cost of a restaurant is not in rent or labour, but in marketing. If operators do not have the right way to get and keep customers in the catering industry which is so competitive, it is no use cutting costs.
Mooers, what do you think of CloudKitchens and the future of the cloud kitchen market? Feel free to discuss below.
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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