Travis Kalanick’s venture into the world of ghost kitchens, CloudKitchens, is reportedly facing financial challenges, including the closure of locations and staff layoffs, as it grapples with low occupancy rates in its warehouse spaces. This tightening of the belt is indicative of the changing landscape for many start-ups, which were previously focused on rapid expansion at any cost.
During the first quarter of this year, CloudKitchens’ warehouse spaces were only around 50% occupied. The company, which leases kitchen space to restaurants, had hoped to secure more contracts with restaurant chains to boost its sales, but it seems to have fallen short of its targets.
To counter these challenges, CloudKitchens has closed some of the buildings it acquired, including locations in New York and Tennessee. Staff numbers, which had grown significantly, have also been reduced.
Additionally, it appears that CloudKitchens has slowed its acquisition of new properties. The company is now focusing on smaller warehouses, according to insiders.
Despite these challenges, one source familiar with the situation pointed out that the occupancy figures shared with the Financial Times did not account for leases that had been signed but where customers had not yet begun paying rent. This figure, known as the “sold rate,” was reportedly around 73% at the end of the first quarter.
The source also noted that CloudKitchens has been primarily focused on adding smaller restaurants to its rent rolls. Even with the closures, the company plans to make more kitchen space available for rent in the coming year by utilizing previously purchased properties.
These struggles mirror the difficulties faced by many start-ups in a changing economic environment. The decision by the Federal Reserve to raise interest rates has prompted companies across the corporate landscape, including giants like Meta, Alphabet, and Microsoft, to cut costs.
As for Travis Kalanick, the co-founder of Uber and the brains behind CloudKitchens, the challenges faced by his latest venture raise questions about how much more capital he’s willing to invest. Despite the hurdles, CloudKitchens secured a refinancing deal last year and attracted an $850 million funding round.
This new credit facility, provided by major Wall Street banks like Barclays, Goldman Sachs, and JPMorgan Chase, offers cheaper financing and consolidates CloudKitchens’ outstanding debt into a single loan and revolving credit facility. These banks are hoping for an eventual IPO, similar to Kalanick’s previous success with Uber.
CloudKitchens, as well as Travis Kalanick, declined to comment on the matter.
Kalanick initially ventured into the ghost kitchen concept in 2018, aiming to transform underutilized real estate into kitchen spaces for restaurants catering to delivery apps. While CloudKitchens has attracted some big names like Starbucks and Chick-fil-A, it has struggled to secure as many interested restaurant chains as anticipated.
Additionally, a test run by Domino’s in Las Vegas reportedly ended with the pizza chain leaving when its lease expired. Wendy’s, another fast-food chain, initially explored a partnership with CloudKitchens but later decided against it.
Despite the challenges, ghost kitchens continue to be a topic of interest in the restaurant industry, with varying opinions on their potential. While they offer a cost-effective way to enter the delivery market, challenges include visibility on delivery apps and competition with established restaurants.
