Ex-Uber Team Starts a Kitchen Rental Business to Rival Travis Kalanick’s

(Bloomberg) -- The small industrial kitchen located under a concrete maze of freeways in Oakland, California, doesn’t look like much. The former Uber Technologies Inc. employees who occupy the space picked it because it’s cheap (by Bay Area standards) and conveniently located for drivers to pick up food for nearby customers ordering from delivery apps like Uber Eats.

Their startup, Virtual Kitchen Co., is one of many entrants in a crowded field of companies renting kitchen space to restaurants desperate to satisfy demand from hungry homebodies. But it’s particularly noteworthy that the founders came from Uber. Travis Kalanick, Uber’s co-founder and former chief executive officer, runs a competing business and Uber itself piloted a cloud kitchen, creating tensions between Uber's former and current CEOs last year.

Virtual Kitchen plans to announce a $15 million investment Thursday from venture capital firms, including Andreessen Horowitz, Base10 Partners and others. Stephen Chau, the head of product at Uber Eats, previously invested with money from Sequoia Capital. Uber, which is discontinuing its own experiment in renting kitchen space, isn’t an investor but says the company isn’t bothered by the potential for additional competition. “Anything that supercharges the selection for customers is great for all of us,” said Janelle Sallenave, head of Uber Eats for the U.S. and Canada.

Virtual Kitchen intends to differentiate itself from Kalanick’s CloudKitchens and many similar companies by targeting local restaurant chains and smaller spaces. In its home region of the San Francisco Bay, Virtual Kitchen has signed on Poki Time, Big Chef Tom’s Belly Burgers and the Indian chain Dosa. Anjan Mitra, the owner of Dosa, said renting space in the startup’s kitchens to service online delivery customers makes “financial sense” for the business.

Ken Chong and Matt Sawchuk ditched Uber to start Virtual Kitchen last year with Andro Radonich, a professional chef. At Uber, Chong led several Uber marketplace product teams, and Sawchuk oversaw Uber Eats. The duo said they were inspired to spin up their own startup after seeing the strain food delivery apps were placing on restaurants. Ade Ajao, a founder of VC firm Base10 and a Virtual Kitchen board member, said the proliferation of similar businesses in Asia and Latin America during recent years has proven the model can work in the U.S.

The risk for startups is that Kalanick can easily outspend the competition. He’s worth $3.4 billion, according to the Bloomberg Billionaires Index, and has the backing of a Saudi Arabian sovereign wealth fund, which put in $400 million this year. A spokeswoman for Kalanick declined to comment. Uber experimented with leasing space in Paris last year, stocking it with commercial-grade kitchen equipment. An Uber spokeswoman said the company isn't planning to continue the pilot, because it's capital intensive. Uber posted disappointing results again last quarter and the stock took a hit despite promises from management that it would turn an adjusted profit by the fourth quarter of 2021. 

Virtual Kitchen relies on a hub-and-spoke model, operating a central commissary where workers from the startup or one of its customer restaurants prepare ingredients about a day before they’re used in meals. Drivers for Virtual Kitchen then ferry those chopped and cooked items to a smaller micro-kitchen, which is usually about 1,000 square feet. That’s where the final 10% of the meal prep, like heating and assembly, takes place before bagging it for delivery.

Customers won’t necessarily know when their order comes from a Virtual Kitchen location, as opposed to an actual restaurant. The company isn’t limited to Uber Eats. It says drivers for every major food delivery service in the U.S. come to its spaces. Virtual Kitchen is operating a handful of locations in the Bay Area now and expects to open a dozen more during the next six months. “We want to get this right and learn as quickly as possibly,” said Chong, the CEO. “Our ambitions are national, if not global.”

To contact the editor responsible for this story: Mark Milian at mmilian@bloomberg.net, Anne VanderMey

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