After he was ousted from Uber, the company he cofounded, Travis Kalanick came up with an idea to upend another industry.
The billionaire started buying old warehouses across the country, with a plan to turn them into hubs for “ghost kitchens” ― places where restaurants would rent space to fulfill orders for third-party delivery services, such as Uber Eats and DoorDash.
Now Kalanick is keen on bringing his latest company, CloudKitchens, to Roxbury. He has approval from the city to build more than two dozen commercial kitchens inside a warehouse on Shirley Street, which could accommodate restaurants ranging from local independents to national chains. Plans for it to open in Boston have been in the works since 2019, when the company bought the former chemical manufacturing plant for $5.4 million.
But the project has been delayed by the pandemic and a lengthy permitting process, and an opening date has not been set. In the interim, CloudKitchens has scaled back its ambitions here.
Initially, the company envisioned 53 kitchens for the Roxbury warehouse, but last year it slashed that projection in half, according to building permits. CloudKitchens is in negotiations to sell 65 percent of the warehouse to City Fresh Foods, which is located across the street, according to three people with knowledge of the matter. City Fresh ― a for-profit company that sold a stake of its business to employees last year ― delivers food to homebound seniors, schools, and care centers.
CloudKitchens is trying to reimagine how restaurants sell food in a world where more people order delivery online. It’s no easy task, but there’s reason to believe Kalanick, Uber’s ex-CEO, would be up for the challenge. Though he was eventually pushed out after several scandals and complaints of gender discrimination and sexual harassment at the ride app company, he played a critical role in jolting the long stagnant taxi industry.
His new company says it offers a way for restaurants to capitalize on the food delivery boom. A restaurant might lease kitchen space to grow their delivery business, without the cost of opening another brick-and-mortar location. Or it could be a way for companies with no physical presence in an area to expand though delivery-only. CloudKitchens already has dozens of food delivery hubs across the country, including in California, Arizona, and Rhode Island.
Restaurants say they pay thousands of dollars upfront to be a part of CloudKitchens, hoping to get access to kitchen facilities located near “hungry eaters who frequently order food online,” as well as to technology that streamlines the delivery process. “All you have to do is cook,” according to the CloudKitchens website.
But critics say CloudKitchens hasn’t fully delivered on its claims. Turnover among businesses at some of the facilities is high, with some complaining of tepid sales, poorly run facilities, and an overall sentiment that what was presented during their sales pitches never fully came to fruition.
“They had me hook, line, and sinker,” said Greg Stevens, owner of Pat’s Italian in Rhode Island. He only lasted a few months at the CloudKitchens site in Providence, which opened in spring 2021. “It was definitely too good to be true.”
It’s unclear how many of the problems are CloudKitchens’ fault.
Neither Kalanick nor CloudKitchens responded to repeated requests for comment. Former CloudKitchens employees and restaurants that do business with the company are asked to sign non-disclosure agreements, which limit what they can say about the firm publicly. (A CloudKitchens employee told a Globe reporter that to learn more about the Boston warehouse, she, too, would need to sign an NDA).
Zena Powell, an entrepreneur who briefly ran a restaurant inside a CloudKitchens facility in New Jersey, filed a federal complaint against the company in December, accusing it of deceptive business practices and making false statements about what services it would provide. She also filed a similar complaint with the Federal Trade Commission. In both cases, she acted on her own behalf.
When Stevens heard about CloudKitchens opening in Providence, he thought it would be a way to expand his delivery business. He runs restaurants in Cranston, Johnston, and Coventry, but didn’t want online orders to overwhelm his staff as people began dining indoors again.
When he asked how much money he might generate in one of the kitchens, a CloudKitchens employee told him it would be “easy” to do between $10,000 and $15,000 weekly, Stevens said.
Those estimates, and the appeal of only needing one or two people to staff the kitchen, sounded promising to Stevens. He bought $30,000 worth of equipment to outfit his space and agreed to pay about $4,000 in rent and other monthly fees.
But during its first week last fall, Pat’s Italian took in just $400 through CloudKitchens, according to Stevens, and weekly sales never reached $1,000.
Another restaurant owner, who asked not to be named because she signed a nondisclosure agreement, said the Providence facility didn’t have cold water for months, the walk-in refrigerator wasn’t maintained at the proper temperature, and CloudKitchens employees often handed food to the wrong delivery drivers.
Over the last year, “we saw probably 15 kitchens turn over,” she said, adding that the 30-kitchen building was never fully leased.
Despite those complaints and others, CloudKitchens has raised hundreds of millions of dollars from investors since it was founded about six years ago. Its valuation hit $15 billion in November, according to PitchBook, and major brands that have sold food from its kitchens include Chick-fil-A, Applebee’s, and TGI Friday’s.
Jamie Richardson, vice president of Ohio-based White Castle, said CloudKitchens has allowed the fast food chain to expand its presence “without making such a big bet.” The company is able to generate high demand on delivery apps because of its strong name recognition, he said.
Richardson said he considers ghost kitchens the “biggest thing to hit restaurants since the drive-thru,” though he admits there’s still a learning curve.
“I don’t know if any of us have completely figured out how to do it,” he said.
But according to interviews with former employees and restaurant owners ― and an internal CloudKitchens e-mail obtained by the Globe that documented how restaurants it worked with were faring across the country ― other restaurants have been disappointed by the arrangement.
Most “needed to do $10,000 a week at least to be making any good money...which is pretty difficult to do,” said one former employee, who asked that his name not be published because he signed a non-disclosure agreement.
Tenants pay CloudKitchens a 3 percent commission on their sales, according to the New Jersey complaint, and that’s on top of the 20 to 30 percent cut that delivery services like Uber Eats take.
“You have to be a major fast food brand or a virtual brand that’s been proven to work,” said Matt Newberg, founder of HNGRY, a media platform examining how technology is reshaping the food industry. “I don’t think, right now, the setup of the economics makes sense for mom-and-pop restaurants.”
A salesperson for CloudKitchens, speaking anonymously to the business publication Insider, said 90 percent of his customers failed during their first 90 days. That compares with an industry failure rate of about 30 percent during a restaurant’s first year, according to the National Restaurant Association.
“It’s just such a staggering failure rate,” said Maureen “Moe” Tkacik, a senior fellow at the American Economic Liberties Project, a nonprofit advocacy group.
The Providence CloudKitchens remains open, but when a Globe reporter visited recently, only four restaurants were selling food online. Most delivery drivers left carrying Chick-fil-A bags.
Charnelle Wilson, a spokesperson for the national chicken sandwich chain, said “delivery kitchens are part of our strategy to serve customers wherever they are,” and that it doesn’t have plans to open in the Boston facility.
Despite the problems, Kalanick’s vision for CloudKitchens goes beyond turning warehouses into WeWorks for restaurants. Through a handful of subsidiary companies, it buys property, leases kitchens, creates restaurant brands, and sells software.
“They want to touch everything around the food industry, other than making actual food,” Newberg said.
Through one subsidiary, Future Foods, CloudKitchens creates virtual restaurant brands ― online-only concepts that restaurants license to use on delivery apps, with the goal of broadening their appeal. A pizza shop, for instance, may license “Eye Heart Pizza,” or a sandwich shop could pay CloudKitchens to use names such as “Grilled and Cheesy” or “The Hot Italian.”
These brands are marketed to CloudKitchens tenants, but also to brick-and-mortar restaurants, including some in Boston, that don’t use the company’s facilities.
Tenants, as well as businesses that license brands through Future Foods, must use software made by Otter, another CloudKitchens subsidiary. Otter aggregates online orders from companies such Uber Eats and DoorDash onto one tablet computer.
The technology gives CloudKitchens access to large amounts of data on ordering trends. That information could help it create virtual restaurants brands that are likely to succeed in a specific market, or allow it to better curate which tenants it chooses.
For now, CloudKitchens is apparently trying to keep much of its operations under wraps. Employees are asked keep the name off of their LinkedIn profiles, and the company’s facilities carry names that don’t feature the CloudKitchens brand.
That comes as no surprise to Newberg.
“They think they have a significant opportunity, especially because they’re stealth and no one has really figured out what they’re doing,” he said. “The reality is, [CloudKitchens] wants to own everything.”