Software is eating the world. That’s what engineer/investor Marc Andreessen famously wrote nine years ago in a ground-breaking article in the Wall Street Journal.
Andreessen was merely pointing out that global business was entering a new phase. Instead of technology companies operating in the new world, and non-technology companies functioning in the old world, the former non-technology companies were now being run on software as the core part of their businesses (or delivered as web-based services).
Nearly right on Andreessen’s schedule, one of the most non-digital, non-technology, non-software businesses is being eaten by software: The restaurant business.
How restaurants went digital
We’re hearing all kinds of teeth-gnashing and hair-ripping over the business-killing effect of the coronavirus crisis on the restaurant industry.
These high-capital, low-margin businesses tend to hang on by their teeth in normal times. With social distancing measures in place, people can’t go and sit in crowded restaurants for now. So restaurants are tragically going out of business, or desperately monetizing by offering curbside pickup or selling their wine.
But the idea that restaurants are being destroyed by the coronavirus is merely the short-term, immediate view. The long-term view is that restaurants were already on track to be slowly impacted by other trends.
Over the past decade, restaurant alternatives — which is to say: alternative business models for people to buy food prepared by cooks and chefs — have been growing. Food trucks, home delivery, order and pickup and other business have been on the rise for years.
For the most part, these alternatives didn’t really impact restaurants. They came as alternatives to home cooking.
Two trends have been driving these alternatives. One is that people’s home interiors have been getting better. In the old days, when the average middle-class or upper middle-class home was relatively boring, drab, small and tasteless, going to a restaurant was an escape from the hum drum of spending another evening at home. (Also: TV and other home entertainment options have become amazing.)
The appeal of home-delivered food gave rise to a new kind of “softwareization” — the app-based home delivery startup. New companies like DoorDash, Grubhub, Postmates, Deliveroo and Uber Eats emerged. These companies partnered with restaurants, enabling drivers to pick up food at restaurants and deliver it to customers, who used the app for payment, menu selection, ordering and to track the delivery to their door.
Food delivery has grown 300% faster than restaurants over the past five years. With a critical mass of food delivery business, a breathtaking new concept came to the prepared food industry starting last year that mimicked the trend that rocked the world of enterprise IT: the cloud kitchen.
Cloud kitchens change everything
A cloud kitchen is a kitchen business that prepares food for alternatives to restaurants, such as delivery businesses, food trucks, catering businesses, meal kits and sometimes curbside or window pickup.
In the enterprise space, “the cloud” is when data storage and applications are provisioned off-site, and the details of exactly where all this takes place is irrelevant. Only uptime and performance matters, and it’s up to the cloud provider to decide if your “stuff” is located on one server or distributed across a thousand servers.
When you order a salad and a pizza from “brand” that’s using cloud kitchens, it similarly doesn’t matter that the food wasn’t prepared in one of their restaurants, or that the salad was made in one place and the pizza in the other. All that matters to the customer is quick delivery of a quality, branded product.
Cloud kitchens have many names. The industry hasn’t standardized on the label. They might also be called ghost kitchens, virtual kitchens, delivery kitchens, shadow kitchens, commissary kitchens, or dark kitchens.
But cloud kitchen is probably the best name. And they represent a radical improvement in efficiency and flexibility over the old restaurant model.
A single kitchen can service multiple “brands” for food. Unlike restaurants, which tend to be in more expensive, high-traffic areas, cloud kitchen can operate in cheaper locations.
But, the real efficiencies come from software. Cloud kitchens enabling a streamlining of inventory and menu management, which eliminates food waste. By serving multiple food brands, and often running dozens or hundreds and potentially thousands of ghost kitchens, cloud kitchen companies have enormous ability to demand lower prices and more reliable supply chains.
One of their specialties is integrating their inventory and ordering systems with those of the delivery app businesses food brands. A single cloud kitchen can integrate with dozens of other companies. By specializing in managing the data, brands can leverage this data with AI to optimize menus, pricing, ingredient and other variables.
Making food a Silicon Valley business
The cloud kitchen industry is a very Silicon Valley business. Let’s start with a shocking fact: The business leader most closely associated with cloud kitchens is none other than Travis Kalanick, the founder and fired CEO of Uber and who now heads a company called CloudKitchens.
In general, cloud kitchen companies are emerging in tech hubs around the world, backed by high-tech venture capital and founded and run like software companies.
Most importantly, cloud kitchens will do for entrepreneurs what software did — enable the fast, flexible and low-cost creation of new businesses. Today, thanks especially to mobile app store model but also to other opportunities for software development (including browser plug-ins and desktop application development) it’s possible to launch a business with as little as only one person for nearly nothing.
Cloud kitchens will enable the launching of new food businesses without capital. Savvy entrepreneurs will build the branding, menus, then use a cloud kitchen to prepare the food and the delivery app companies to deliver. The cloud kitchen handles the complexities of food provisioning, storage, processing and packing. The delivery company handles the complexities of ordering and delivery.
And, as with software, we’ll see mashups. Multiple entrepreneurs will partner on single-brand offerings. A cheese-maker, wine-maker and a baker might partner on a picnic basket delivery service, with the cloud kitchen packing everything in the basket along with other items from their extensive inventory of food and the delivery companies delivering it.
And here’s a prediction: I predicted that new restaurants will open that don’t have kitchens on premises, but are serviced by multiple companies from one or more cloud kitchens.
The cloud kitchen boom will take on the characteristics of a software or cloud business, which will drive innovation, reduce waste, maximize flexibility and leverage data processing to optimize and make the food business more efficient.
Software is finally eating the world of eating. Just like Andreessen predicted.