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Boom-Era Excesses Haunt The Ghost Kitchen Space

It’s no surprise that the pandemic coincided with the rise in enthusiasm and financing for virtual kitchen startups.

With restaurant dining largely closed, takeout was the only option for a while. Even when dining-in was back, one typically had to submit to masking protocols and/or worry about COVID 19 risk.

It was a perfect time to experiment with ordering delivery from a new place. And since no one cared about decor or customer seating, delivery-only kitchens — often called ghost kitchens, cloud kitchens or virtual kitchens — sounded like a good idea.

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Startup investors certainly thought so. Top-funded companies in the ghost kitchen space raised more than $3 billion in venture financing between 2020 and 2022, per Crunchbase data. 

The two top recipients alone — Miami upstart Reef Technology and Uber founder Travis Kalanick’s CloudKitchens — pulled in over $2.75 billion. 1

Fast-forward to 2023, and for those of us luxuriating with a paper menu for a sit-down meal, this seems like a bygone era. Yeah, ghost kitchens are still a thing. But the market isn’t growing like it used to. 

Turns out that while people don’t want to return to the office, they do want to get back to the restaurant. Moreover, eateries that survived the pandemic largely did so by upping their takeout game, delivery and drive-through options. Ghost kitchens, meanwhile, have fallen out of investors’ favor, most notably in the U.S..

Cloud kitchen startups down from sky-high heights

To illustrate, we used Crunchbase data to put together a sample set of 14 of the more prominent funded companies in the cloud kitchen space:

The list includes six U.S.-based companies, none of which has raised a round since 2021. It’s unclear when they’re likely to do so again.

Reef Technology, which raised $1.5 billion in two rounds led or co-led by SoftBank in late 2018 and 2020, looks especially underwater. 

After starting out as a parking facility operator, Reef pivoted hard into filling those spaces with mobile kitchens that could cook up food for delivery. The shift hit some hurdles post-pandemic, however, with Reef reportedly laying off hundreds of staff in 2022, following a massive growth spurt. It is now reportedly working with restructuring advisers. 

A further blow came last month, when Wendy’s reportedly axed the entire U.S. ghost kitchen business it launched with the company. Nearly two years earlier, the two announced a partnership to open up to 700 locations by 2025.

Kalanick’s CloudKitchens, meanwhile, is holding up, albeit with challenges. The company reportedly carried out layoffs in 2022. However, it is expanding in some areas, as evidenced by a partnership with Starbucks reported earlier this month.

Other ghost kitchen operators are quiet lately. C3, a platform pairing chefs with takeout businesses, hasn’t made a new announcement on its website since January 2022.

The takeaway: Be wary of overconfident futurists

The cloud kitchen trajectory shares much in common with other areas, like e-scooters and connected fitness, where projections for consumer adoption did not pan out in the real world.

It cautions us that rosy-sounding forecasts ought not to be mistaken with actual reality.

For ghost kitchen operators, challenges include space constraints, quality control and difficulty building a brand that resonates without a storefront presence. Consumers have also grown increasingly weary of additional fees associated with delivery that make the price of say, a simple burger and fries, more than the budget allows.

That said, ghost kitchens do still fill a niche. For instance, they offer a lower-cost option for launching a new food business or expanding kitchen space of a growing business to handle delivery demand. And while a sit-down dinner at a trendy restaurant has its appeal, there are still those times when we pine for the convenience of delivery.

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Illustration: Li-Anne Dias

  1. Reef and CloudKitchens pulled in over $2.75 billion in total equity funding to date, not just in 2020-22.


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