Cloud Kitchens and the future of fresh fast food

A week ago, I had an interesting discussion with a few former students on why we don’t see cloud kitchens yet as a viable option. In light of that, it was quite interesting to learn this week about Robinfood, EveryTable, and ClusterTruck (yes, this is the real name…).

Bloomberg had an article earlier this week on Robinfood, a new “restaurant” chain: Restaurant Chain Being Built for a Post-Covid World

“That’s where RobinFood, a two-year-old tech startup in Bogota, is building a chain for the post-pandemic era, with diners having almost no contact with staff as digital orders for meals costing a few dollars are delivered or picked up from a modern automat…”

As someone that grew up in the ’80s and ‘90s, this came across as a modern implementation of an old idea. Yet, the idea is slightly more involved and more ambitious:

“Armed with new capital from MGM Innova Capital, a Miami-based private equity firm, RobinFood plans to expand from 50 stores to 1,000 (that’s 1,900% growth) over the next five years, which would make it one of the largest chains in the region. A key to the model is that each location will make food for as many as four of the firm’s seven brands—spanning rice bowls, burgers and pizza slices—in what’s often called a “cloud kitchen” concept, according to Jose Guillermo Calderon, chief executive officer and co-founder.”

What makes this story interesting is that the main innovation here is not so much on the food or the technology, but more from the supply chain and logistics point of view. 

To significantly reduce cost, the chain is using the cloud kitchen concept and the automats to:

1. Centralize the kitchens, reducing cost, dealing better with the ebbs and flow of demand, and reducing food waste, allowing the average meal costs to be about $2.

2. Centralize the logistics, so you get the right density from the central kitchen to the locations, further optimizing the logistics costs.

3. And reducing the footprint of the “pick up locations,” reducing one of the main costs of restaurants, i.e., real estate, and also making the location decision more flexible, so it’s much easier to move these if needed,

This story has three aspects that I like to write about: integration and bundling, and resource pooling. Restaurants sell a bundle of services and products that includes a social gathering, food, entrainment, and the time saving of food prep and cleaning. It’s clear that at this stage of COVID-19, whether we are dining outside or ordering food through one of the food livery apps, we are paying for the real estate needed to host people, but we actually don’t utilize it. We also pay for some of the indirect costs that the restaurant incurs for the times it does allow for indoor seating, but we don’t use these services. Furthermore, it is not clear that a firm that is designed to maximize food quality should also be good in entertainment, and it is not clear that the best spaces for food prep, and suitable for social gatherings.  In this situation, unbundling is an inevitable step: it is not clear that all restaurants need to have a storefront and wait staff. But they do, and even before COVID, even though many of us order our food from DoorDash, etc., we do pay for all the other auxiliary services through the meal price. We have not seen many restaurants that completely change the dynamics of this bundle. That what makes Robinfood and EveryTable different. They are genuinely designed for the future of fast dining, even if Covid is not here to stay.  

“Launched in 2015, Everytable is a unique grab-and-go restaurant chain with a variable price structure that depends on the neighborhood it serves. With a menu of made-from-scratch soups, salads, grain bowls, and wraps, prices start at $4.95 in underserved neighborhoods, for example, and $6.95 in middle-income or affluent areas. One of the concept’s goals is to provide fresh, healthful meals to so-called “food deserts” where fast-food chains tend to be the only option. Designed to maximize efficiency, the meals are prepared in a central kitchen and distributed to storefront locations.”

What makes EveryTable even more exciting is that it tries to be completely fresh and compete with Sweetgreens, yet at a much more affordable price. Again, the main operational aspects here: centralizing the kitchen, vertically integrating all aspects of the supply chain, and keeping density high, allowing for low cost while maintaining a high level of quality and freshness.

Similar to Robinfood, Everytable also has Smart Fridges:

“In addition to the grab-and-go meals out of storefront locations, the chain also offers SmartFridges, which are credit card-activated machines stocked with fresh meals that can be placed in offices, hospitals, and businesses.”

A different attempt in such innovation is Kroger’s recent announcement:

“The new concept repurposes approximately 1,000 square feet at each participating store to create a space for ClusterTruck staff to prepare meals for quick delivery and in-store pickup, with no service or delivery fees. Customers can order from a menu of more than 80 restaurant-quality meals.”

And “Cluster’s Truck” tag line is “Multiple Menus. One Central Kitchen. Delicious on Demand”. A pretty good summary of everything we discussed above. Unbundle the notion that a restaurant can only do one type of cuisine well (one menu), but has to provide auxiliary services around it. But use this to offer cheaper, faster, better (in terms of freshens) and potentially more diverse food.

Don’t get me wrong; dining out is not dead, far from it. But if in retail, we saw most chains look at Amazon in fear, but then use Amazon as an excuse for their inaction, it’s good to see the emergence of new models for food, primarily with the ones focusing on price and freshness.