Cooking in the time of Coronavirus: Why 'cloud' kitchens are UAE’s hottest investment choice now
‘Industrial’ and 'cloud' kitchens score as more UAE residents stay home and order in meals
Dubai: Industrial kitchens seem immune to the coronavirus-induced slowdown that has cut into business activity in the UAE. In fact, they seem to be the red-hot category in the digital services universe.
More people are staying home for extended periods as organisations adopt remote working to counter the virus effect. This in turn is feeding demand for whatever industrial kitchens serve up and get F&B operators to deliver to homes around the country.
Plus, with residents less likely to visit crowded destinations, including restaurants, ordering in has become a definitive need of the hour. (Unless, of course, residents prefer to do their own cooking.)
Industrial kitchens are the hottest thing right now
“Yes, industrial kitchens are the hottest thing right now – more so with the new restrictions dining at restaurants,” said Manohar Lahori, Chairman of Palmon Group, which operates a fund that has investments in two industrial kitchen locations in Dubai. One of these properties (of 5,500 square feet) is leased to Deliveroo and the other to Kitopi (about 8,000 square feet).
“It was last year we bought and leased out the properties (in JLT and Dubai Marina) and we plan to acquire two more – in Business Bay and Sports City.
“Demand for industrial kitchen services in recent days and weeks is such that it’s becoming a problem managing the delivery drivers… especially during lunch hour.”
What are ‘industrial kitchens’?
These are third-party locations where food gets prepared on a mass scale. Clients typically include restaurants – who don’t have the space in their own kitchens – and organisations that need to feed its workforce.
Then there are the “cloud kitchens”, which are similar to industrial kitchens, but where the cooking is meant solely to serve the needs of online food ordering portals such as Deliveroo, Talabat, etc.
Going forward, quick-service restaurants are likely to operate with minimal back-end staff to compensate for the ongoing downturn in their businesses. “Only way to control the dire situation is keep operating costs down – that immediately means cutting down on the workforce,” said a restaurant operator. “There will be more reliance on generating orders through online food ordering portals and through industrial kitchens.
“Trying to do everything in-house will escalate risk levels. It could take weeks and months for business levels to recover in a post-virus situation.”
Pulling in funds and delivering results
Even without the coronavirus scare, industrial kitchens were turning into major investment attractions. The Dubai-based start-up Sweetheart Kitchen, recently picked up 21 million euros via a funding round. It focusses on “delivery-only” services through its “virtual kitchen”. Its brand promise is that it can deliver within 20 minutes.
Meanwhile, another cloud kitchen operator Kitopi secured $60 million for its efforts, which included some heavy hitters such as Knollwood and Lumia Capital as well as BECO and CE-Ventures, among others. Kitopi operates 30 kitchens in the Gulf as well as in the US and UK, and is currently partnered with more than 100 restaurants, including Operation Falafel, Pizza Express and Right Bite.
Been there, done that
Mohammed Nabil Jaffer of Faith Capital is a serial investor in digital businesses in the Gulf. He had exited successfully from Talabat, the online food delivery portal.
Mohammed Nabil Jaffer, Deputy Chairman and CEO at Kuwait-headquartered Faith Capital, is not surprised by the sudden wave of investments floating around to pick up trending business. He made his money – big money at that – from selling a stake in Talabat, when online food ordering was starting to pick up pace in the UAE and other Gulf markets. (He now sees home laundry services following the same path as home food delivery, and is a majority shareholder in JustClean.)
But if lots of investors get into industrial kitchen at the same time, aren’t they going to burn themselves if the market stops growing at the current levels?
“Sometimes we end up getting offers that are way overvalued; sometimes we just don’t know how to value those businesses,” said Jaffer. “It happens a lot… and there’s no justification for the overvaluation.
“The issue here is that sometimes people compare the valuations with Western Europe or in the US… and they shouldn’t. We see investors sometimes paying these high valuations and which makes it difficult for other investors to come on board at a sensible price.
“But if more people are trying to compete, they end up creating better businesses and products. When you have a situation where there is only one player in the market, the risk is getting an inferior product or service. Sectors with way too many players end up with consolidation.
“Yet, if you compare this part of the world with Western Europe or the US, it’s much less competitive. But you also have the purchasing power in this part of the world, and that’s higher than those markets.”
Operators of industrial kitchens in the UAE are now finding it’s all coming together in their favour. Their current valuations can only heat up further.