Ghost kitchen and restaurant tech company Kitchen United announced a Series C funding round that racked up $100 million, bringing the company’s total fundraising to approximately $175 million. The Series C funding will be put toward the company’s proprietary solutions stack and expansion plans for places like Miami and New York City.
The Pasadena-based company’s roster of investors gained significant additions this round, with the inclusion of Alimentation Couche-Tard/Circle K, Kroger Co., Restaurant Brands International, B. Riley Venture Capital, Simon, Phillips Edison & Co., and the HAVI Group. Investments were also made by Kitchen United founders Harry Tsao and John Miller, Kitchen United chief executive Michael Montagano, and former NFL quarterback Peyton Manning.
“This Series C financing further solidifies Kitchen United’s leadership position in the industry,” Montagano said in a statement. “Kitchen United uniquely sits at the intersection of technology, food, and real estate. Our solution serves as the technological and physical infrastructure revolutionizing centrally located distribution hubs through streamlining off-premises ordering and consumption.”
The funding was announced in late July.
Kitchen United Chief Business Officer Atul Sood told the Business Journal in an email that the company plans to deploy its capital to establish new sites across grocery, traditional and food hall formats.
“We aim to have 500 sites in the next five years and are diligently working towards several build-outs from Texas to Miami to NYC,” Sood wrote. “Further, we will be allocating dollars to enhance our proprietary technology stack which offers our customers the ability to order from multiple concepts in a single order.”
Ghost or cloud kitchens are shared cooking spaces rented by restaurants that make deliveries only. They are often in secondary retail or industrial spaces. (Kitchen United’s Pasadena location is in a former cooking school.) Kitchen United provides those restaurant operators not only with kitchens but with staff, including line cooks and managers, and even a project manager to help launch a restaurant.
The company also has a delivery and takeout service that lets customers shop for meals from multiple restaurants that all end up on the same bill. The company, which has about 200 operational kitchens across 20 regions, has marketed the service as Kitchen United Mix.
“We believe this business stands apart from other industry players with its centralized locations, multi-format offerings, experienced management team, and mature technology stack — all of which align with Circle K’s mission to make our customers’ lives a little easier every day as we work together to shape the future of convenience,” said Kevin Lewis, chief marketing officer with Alimentation Couche-Tard.
Kitchen United is part of an industry that rocketed in popularity in 2020 as restaurant operators launched ghost kitchens to bring convenience and safety to customers during the early days of the COVID-19 pandemic, a particularly uncertain time for public health. It also helped that ghost kitchens were and still are a way to establish a restaurant with little overhead costs. Establishing a location at Kitchen United costs $30,000 to get started, while traditional restaurants can cost hundreds of thousands of dollars to get up and running.
The momentum behind Kitchen United and the ghost kitchen industry could be poised to continue, according to Rob Ury, senior vice president of Beta Agency, an El Segundo commercial real estate firm.
“I think ghost kitchens had a peak when no one was allowed to leave their house, but it still remained quite strong,” Ury said. “I think people get used to certain habits, and convenience is definitely addictive. Plus, the economy has been strong enough up until recently that people have had enough disposable income to justify paying the extra few bucks to get the meal that they want delivered to their home.”
Ury noted that the popularity of ghost kitchens has not caused operators to shift mass amounts of funds to establish such operations, but added that the industry’s impact has piqued an abundance of curiosity.
He recalled a Los Angeles client with several traditional restaurant locations that tested how a ghost kitchen would work for its brand strictly from a delivery standpoint. “I think it turned out to be reasonably successful and has led them to more seriously consider opening a full-fledged restaurant in that trade area.”
Kitchen United is not alone in the bourgeoning ghost/virtual kitchen space and has a local competitor in CloudKitchens, which is based in L.A.
Travis Kalanick, the former chief executive officer of Uber Technologies, secured a majority stake in City Storage Systems, the parent company of CloudKitchens, roughly four years ago.
CloudKitchens raised about $850 million in November last year, according to Business Insider, which also reported that the company opens shell companies to avoid rental sites being linked with the parent company. The round valued the startup at $15 billion.
“I think what we’ve seen is similar to the evolution of the ride-sharing industry and how there were just two companies that kind of emerged to kind of lead the pack with Lyft and Uber,” Ury said. “I think you’re seeing a similar trend with Cloud Kitchens and Kitchen United.”
Another major player in the field is Beverly Hills-based C3, a ghost kitchen company launched in 2019. SBE’s Sam Nazarian, shopping mall operator Simon Property Group Inc. and hospitality brand Accor teamed up to launch C3. C3 turns dormant kitchens in malls and restaurants into shared cooking areas for its culinary brands.
Despite the money flowing through ghost kitchen companies, Kitchen United and its contemporaries still must contend with challenges, according to Jeffrey Miller, associate professor and coordinator of Colorado State University’s Hospitality Management program.
“I think nimbleness and awareness of market trends is going to be a big deal for them, and just like anything else, cash flow disguises a lot of problems,” Miller said. “So, if there’s any kind of difficulty in structural problems, rent’s too high, labor costs too high, that’ll be problematic.”
Miller noted that inflation could also play a role in the success of Kitchen United. He added that customers are particularly sensitive to prices in restaurants.
A report from the U.S. Department of Agriculture stated that food-price increases this year are expected to be above those recorded in 2020 and 2021. It also found that the price of food in grocery stores is predicted to increase by about 10.5% this year.
Ury said it should be remembered that consumers go to restaurants and eat out for a multitude of reasons.
“It’s clear that these ghost kitchens are never going to be even half of the restaurant landscape when you take into account how food is consumed by people,” he said. “People use restaurants for a wide variety of things.”