The sky’s the limit for cloud kitchens in the Gulf

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• Sweetheart Kitchen delivers only its own food brands 
• Kitopi now adding physical restaurants
• Algorithms enable meal deliveries tailored to individual tastes

While many businesses suffered due to the coronavirus pandemic, cloud kitchens – companies that prepare food solely for home delivery without having sit-down restaurant space – were beneficiaries of the online ordering boom.

The GCC has been a hotspot for this growth with companies including Sweetheart Kitchen, Kitopi, KLC Virtual Restaurants and kaykroo overseeing delivery of 400 food and beverage brands. 

Already a growing trend before 2020, cloud kitchens, also known as ‘ghost kitchens’, have recorded rapid growth in new customers who had previously never ordered online.

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“The growing food delivery industry has created a window of opportunity for cloud kitchens,” Sandeep Ganediwalla, partner at Redseer Consulting in Dubai, said. 

“Many players have entered the market and existing cloud kitchen operators have expanded. Restaurants have started adopting the model after witnessing its success.” 

Sweetheart Kitchen operates 14 delivery units in the UAE and eight in Kuwait with these markets recording a 16 percent and 28 percent month-on-month growth respectively since the company was established in 2019. 

Dubai-based founder and CEO Peter Schatzberg said the region is a ripe market for cloud kitchens because of its “fairly inexpensive labour market, business-friendly environment, and young, affluent and internet-connected population”. 

He added: “These factors combine to make the Middle East favourable for virtual kitchens. You might have the same order density in the US, but the cost of labour for the kitchen and delivery workers is higher.”

Sweetheart Kitchen operates central manufacturing facilities in the UAE and Kuwait where food is procured and produced before being distributed to 22 assembly units. 

Unlike most cloud kitchen companies, Sweetheart Kitchen does not work with third parties but creates 25 of its own food brands, which produce a total of 8,000 meals a day. 

It plans to break into the Saudi market next year as the kingdom offers a considerable step up in economies of scale given it is the largest GCC market with a population of 36 million – 30.36 million of whom reside in urban areas.

Saudi is expected to generate rapid growth for the industry given current cloud kitchen penetration is in the single digits. 

“We can move quickly because our units operate like vending machines, so once we have our central manufacturing facilities built and ready to go, we can have 20 or 25 units supported by one facility,” Schatzberg said.

Sweetheart Kitchen, which raised $17.7 million in Series C funding in October 2020, is currently in a new funding round. 

“We’re engaging with institutional funds and private equity,” Schatzberg continued.

“There are also some significant F&B players who have their own mergers and acquisitions teams and venture capital arms that are looking for investments that are both financial and strategic in nature.”  

He added that, due to procuring so much food and deploying a lot of tech, a fund that owns establishments such as hospitals could see a good match.

“We’re starting to think about how we can enter the B2B space – for example, by producing food for airlines and hospitals or selling our salads and sandwiches to petrol stations,” he said. “We’re open to financial and strategic investors.” 

Kitopi adds bricks and mortar restaurants

Kitopi – short for Kitchen Utopia – is another Dubai cloud kitchen startup that has become a household name in the space of a few years. 

Founded in January 2018, today it employs 4,000 people and works with 200 brands across five GCC states – the UAE, Saudi Arabia, Kuwait, Bahrain and Qatar – with an engineering hub in Krakow, Poland, and a global customer experience centre in Dubai.

In July 2021, it raised $415 million from a group of investors led by SoftBank’s Vision Fund 2, marking the fund’s first investment in a business headquartered in the UAE and one of the largest funding rounds to date in the Middle East. 

In late 2021, Kitopi attracted an additional $300 million through an extension of the Series C round, giving it a valuation of $1.55 billion and vaulting it to unicorn status. 

Kitopi is now looking to start operating on an ‘omnichannel’ basis, with dine-in restaurants, cloud kitchens and food halls all housed in one venue. It has begun investing in bricks-and-mortar restaurants. 

“Our omnichannel offering allows us to build deeper connections with our customers and leverage what we learn about our customers in one channel to improve how we serve them through other channels,” Imad El Fay, VP for Growth at Kitopi, said. 

For example, if you don’t like onions in your shawarma and specify that when ordering from Levantine cuisine company Zaroob’s online channel, Kitopi’s consumer algorithm registers this information in your profile, among other data, and feeds it to the waiter serving you whenever you visit one of Zaroob’s locations, thus ensuring your order is made to your liking.

El Fay said: “The food service and restaurants sector brings in $100 billion plus in annual revenues in the region and we’re just getting started. Our focus is to maintain our rapid growth in our existing markets, specially Saudi Arabia.” 

While cloud kitchens have become one of the fastest growing sectors in foodtech over the last couple of years, industry experts predict that mergers and acquisitions will soon be on the cards. 

“The cloud kitchen industry has not witnessed a slowdown to expansion since the easing of lockdown restrictions,” said Redseer Consulting’s Ganediwalla. “The market may start seeing consolidation if operators begin focusing on strengthening their position in the market.”