How to invest in the booming ghost kitchen space, from a senior associate at one of proptech's biggest VCs

  • Delivery-only restaurants, or ghost kitchens, have had a big year, buoyed by an increase in food delivery because of the pandemic.
  • Safi Aziz, a senior associate at proptech venture firm MetaProp, walked Insider through the different parts of the industry, which he said has more differentiation at an early stage than coworking did.
  • MetaProp hasn't yet invested in ghost kitchens, but is most likely to invest in asset-light marketplace companies, instead of companies that take on expensive leases, properties, and kitchen buildouts. 
  • Aziz says there are many opportunities to make good investments in the space.
  • Visit Business Insider's homepage for more stories.

2020 wasn't kind to many, but food delivery had a banner year.

Captive audiences turned to food delivery in unprecedented numbers, food delivery acted as a lifeline for restaurants hit hard by the coronavirus, and DoorDash had quite a successful IPO, even if it lost some value in trading this week. 

Ghost kitchens, or delivery-only restaurants, also came into their own, as shelter-in-place turned most restaurants into de facto ghost kitchens. Most notably, Reef Technologies raised $700 million to turn parking lots, into, among other things, food courts, operating each restaurant out of a trailer. 

Safi Aziz, a senior associate at proptech venture fund MetaProp,  hasn't yet made an investment in the space, but told Business Insider that the firm has taken an extensive look at many different models and companies. 

He said one of his favorite things about the sector is the amount of differentiation between different operators. 

"What's nice about ghost kitchens, which wasn't really the case when coworking or coliving was hot, is that there is an option for every type of investor," Aziz told Business Insider. 

Aziz walked us through the three different types of ghost kitchen categories and how his firm, a leading real estate tech early-stage venture fund, is approaching investments in the space. MetaProp, founded in 2015, has invested in more than 75 proptech companies and counts real estate giants like CBRE, JLL, Cushman & Wakefield, and RXR as limited partners.

1. The commissary

The commissary kitchen model, encompassing ex-Uber CEO Travis Kalanick's CloudKitchens and other well-funded competitors like Kitchen United and Zuul, is the best-known category of ghost kitchen. This model varies widely in practice, but its key feature is that the operator develops kitchens in a physical building. 

Most operators in this category rent their locations and pour money into developing a kitchen, though CloudKitchens has purchased more than $130 million of real estate for kitchen-building purposes. Some operators rent out small private spaces to a range of restaurants that can include anything from local entrepreneurs to national brands, while others have one large kitchen out of which one brand, or many different brands cook food.

CloudKitchens, which builds at least a dozen kitchens in each of its locations, rents each small kitchen out to local and national brands, while offering accounting and delivery services to the brands. 

Kitopi, based in Dubai, instead uses its own cooking staff to cook for multiple brands, whether the company's own or iconic brands like Nathan's Famous Hot Dogs, out of one location. It has also begun to create "virtual food halls," which allow customers to order from multiple restaurants in one kitchen simultaneously, satisfying customers who can't decide between a pizza or a curry. 

Read more: How Uber founder Travis Kalanick's real-estate buying frenzy could transform ghost kitchens into a new speciality asset class

"There are options in this bucket if you're an investor, there are different ways to consider risk and return to each of these models," Aziz said. 

2. Mobile ghosts

The second category Aziz noted is the modular or mobile ghost kitchen. Reef Technology is by far the leader in this category, cooking out of trailers across its network of parking lots, the largest in the country. The main feature here is the ability to move, preventing long-term, costly leases and allowing companies to follow demand geographically. 

"I like this one for a lot of different reasons: you don't have an upfront capital expense load and you don't have to put a stake in the ground," Aziz said.

Reef has also partnered with last-mile-logistics startup Bond, bringing flexible "nano-warehouses" to its wide network of parking lots. The partnership with Bond offers advantages similar to Reef's ghost kitchen program, with trailers following customer much more fluidly than Bond can with traditional leases.

3. Marketplaces

The most nascent category is also the one Aziz in which is most interested: the marketplace model. Aziz compared the model to Airbnb, as companies cook out of existing, underutilized kitchens. The main advantage here is that a company can totally avoid the costly buildout of a kitchen, and flexibly move to different kitchens based on demand. 

The prime example in this category is Butler Hospitality, a ghost-kitchen company that exclusively serves hotels. It consolidates room service and event catering orders from multiple nearby hotels, and cooks them all out of the kitchen of a single hotel in the area. Butler raised a $15 million Series A round in July of this year from a range of investors including Robert Kraft's company, The Kraft Group.

The model may be applicable beyond the hotel industry as the most recent coronavirus wave closes restaurants in cities across the country. Come springtime, there may be a lot more vacant restaurant space to support more asset-light, marketplace-style solutions. 

Read more: Ghost kitchens are pitching themselves as the future of restaurants. These are the 15 companies in the space that you need to know.

While Aziz said this model fits MetaProp's commitment to asset-light models, such as its investment in Spacious which used empty restaurant space for coworking versus more asset-heavy coworking models, he said there should be more than enough need for all three models to thrive. 

"In any of these buckets, there's more than enough latent demand hidden around," Aziz said. "Everyone will do handsomely well if they play their cards right."

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