CloudKitchens pitches itself as a lower-risk, lower-cost way to start a food business. Operators say the company failed to meet its obligations.
During the worst days of the COVID-19 pandemic, many independent restaurateurs leaned on delivery platforms and ghost kitchens to keep their businesses afloat. In the world of ghost kitchens, a slew of brands positioned themselves as potential industry saviors, including Reef, Toast, and Uber founder Travis Kalanick’s CloudKitchens, which Kalanick proclaimed at the time would make owning a food business easier and more affordable than ever. But now, according to a report from Insider, some CloudKitchen users are suing the company for failing to meet its obligations — and many, according to sources, are fleeing it in droves.
When it launched in 2016, CloudKitchens promised a unique opportunity for independent restaurant owners: It would transform warehouse spaces into “cloud kitchens,” or restaurants that only offered delivery and pick-up, at a much lower cost than a traditional space with a dining room. According to the Insider report, though, in 2022, many of those kitchens lacked basic sanitary facilities like bathrooms and working sinks, and many were plagued with technical glitches that made it difficult for potential customers to actually place orders.
Operators allege CloudKitchens has also been plagued with a variety of security and safety issues, ranging from burglaries to arson to physical altercations. In one extreme incident, the owners of a Houston restaurant sued the company after an employee of CloudKitchens, who worked running food between the restaurant and delivery drivers, allegedly punched, kicked, and scratched the owners in an altercation that apparently began over a card game. According to filings with the Harris County district court, the employee also vandalized the owners’ two vehicles, slashing all their tires and carving into the paint with a knife.
Part of CloudKitchens’ sales pitch is that it’s a lower-risk, lower-cost entree into the world of restaurant ownership. But operators told Insider that rent for each of these kitchens ranges from $3,500 to $10,000 per month, depending on location. CloudKitchens also takes a 3 percent cut from every single order, meaning that many owners found themselves unable to turn a profit even if they were able to overcome the safety and sanitation issues. Meanwhile, CloudKitchens is valued at more than $15 billion, and secured $850 million in new investments in the last quarter of 2021 alone.
CloudKitchens isn’t the only ghost kitchen company to face legal woes in recent months. In May, Insider reported that its competitor, Reef, was being sued by a vendor for more than $3.5 million in unpaid invoices. It’s also faced similar issues with sanitation and safety — a 2021 report from Restaurant Dive found that a third of Reef’s trucks in California alone had been cited for “high-level health and safety infractions.” In May, the company laid off 5 percent of its workforce, citing “macroeconomic challenges.”
Now that things in the dining world are a little more stable, it’s becoming abundantly clear that ghost kitchens are a pretty terrible addition to the restaurant landscape. They’re not good for workers, they’re not good for restaurateurs, and often, the food itself is pretty terrible. Right now, it seems like CEOs like Kalanick are the only ones benefiting from the “future of dining.”