The Last Mile In Digital First Delivery

Issue 39

10.05.20 - After Travis Kalanick’s Departure from Uber, he put his focus into a next act, virtual kitchens. We previously discussed Kalanick’s company CloudKitchens but let’s recap: Virtual Kitchens are essentially delivery-only restaurants - no more waitstaff, no extra square footage for dining, and no bar. In a COVID-19 world, you can imagine that this is exactly the type of model that would thrive, and it is. The growth of online delivery & the delivery app market has paved the way for the space to grow. Kalanick believes that CloudKitchens will be “bigger than Uber”.

The virtual kitchen space, like the delivery market, is biting into a projected $500 billion market opportunity. It does, however, come with a catch; a sizable share of restaurants rely heavily on alcohol sales for most of their profits - even with the reduced additional overhead, restaurants will have to price their menu’s with quantitative precision. They will have to keep the costs of delivery and tipping in mind in order to not price out customers against brick and mortar competitors that can supplement their revenue with alcohol sales.

The virtual kitchen business itself may begin to resemble the co-working space with lease term arbitrage if these businesses want to remain asset light - something that can be vulnerable to volatile real estate market conditions.

Until COVID-19, super-city urban growth was a consistent trend. Now in the United States, there has been a trend of urban flight enabled by relaxed work from home standards. However, the opportunity remains undeniable - consumers will continue to use digital to organize their dining experiences. Virtual kitchens are an answer to that call.

Source: Brookfield Brief