On today’s show we’re talking about one of the latest disruptions to come into the retail industry. This is from the guy who brought us Uber, Travis Kalanick. His latest venture is called Cloudkitchens. The company is currently live in 3 markets, Los Angeles, San Francisco and Chicago.

The idea behind cloud kitchens is to break apart the traditional food and beverage model associated with a bricks and mortar restaurant. The trend toward delivery meals is growing and is being serviced primarily from the traditional bricks and mortar restaurants.

The vast majority of food delivery currently takes place in traditional brick and mortar restaurants, but these locations are not optimized for delivery. Today, online delivery is a high priced luxury product with a very poor experience.

Everything about the restaurant experience is designed for walk-ins and reservations. And while delivery is an increasing percentage of the business, many operators are forced to trade-off the dine-in experience with a booming delivery business.

Cloudkitchens has designed a commercial kitchen along a formula that allows for the basics and at the same time allows for customization of work flow. It’s a turnkey solution to opening new locations for those who want to be in the food and beverage business, with a focus towards building a delivery oriented brand.

The delivery channels like ubereats, grubhub, doordash, each have their own platform. There’s a problem of integrating the data from each of these disparate channels into a single accounting system. Cloudkitchens has completed the integration so that audited financials are a breeze.

The workflow in a restaurant is optimized towards the front of house dining experience. The workflow for a delivery model is completely different. When you are operating a restaurant kitchen with two competing workflows, you end up compromising both.

Kitchens in a restaurant are built to support table capacity. You now have a full set of tables and now additional demands on the workflow for which the kitchen was never designed. This forces food operators to compromise on both the dine-in and delivery experience. When workflows operate above 80% of their capacity, queueing theory says that the delays grow exponentially. A simple example of that is rush hour traffic. When the number of cars exceed 80% of the designed capacity of a road, the delays multiply. The same thing happens in a kitchen.

So what does this have to do with real estate? The traditional bricks and mortar restaurants are located in the most expensive commercial retail real estate. A commercial kitchen can be located in the least expensive industrial space, lowering the operating cost of being in the food business dramatically.

So how is Cloudkitchens capitalized? Well, they recently secured a $400 million dollar round of financing from the Saudi Royal family. You might be wondering why on earth would Cloudkitchens need that much money as a startup? The technology component of their offer wouldn’t cost more than a couple of million dollars to develop from a software perspective. Even the marketing might stretch into a few tens of millions, but not much beyond that.

Well, it turns out that CloudKitchens is a real estate company that provides smart kitchens for delivery-only restaurants. They provide infrastructure and software that enables food operators to open delivery-only locations with minimal capital expenditure and time. They enable food operators to get into business within weeks instead of months or longer in the traditional restaurant model.

I know of several investors in the retail space who have argued that retail investments are safe as long as you are focused on businesses that cannot be satisfied by Amazon or other cloud based businesses. You can’t get your hair cut online. I see that the CloudKitchens model has the potential to upend prepared food.