/Travis Kalanicks CloudKitchens startup wreaks havoc in Chicago

Travis Kalanicks CloudKitchens startup wreaks havoc in Chicago

  • Travis Kalanick’s CloudKitchens, which rents shared kitchens for restaurants to handle delivery orders, is booming amid the pandemic.
  • But the concept is not going down well in some local neighborhoods, where residents say the facilities are snarling traffic and causing problems.
  • The hubbub echoes the early days of Uber, when the company’s tactics of sidestepping local rules raised hackles.
  • See more stories on Insider’s business page.

Two miles west of Chicago’s Wrigley Field, Uber founder Travis Kalanick’s latest venture is whipping up chicken nuggets, waffle fries, and neighborhood alarm. 

Kalanick’s CloudKitchens – think WeWork-style shared office space but for restaurant kitchens – bought a long-vacant building in 2018 on a block of North Rockwell Street filled with single-family homes and one- and two-story buildings. Backing up to the Chicago River, the North Rockwell location is one of about 50 buildings CloudKitchens has purchased across the US, per a January analysis by Insider

The startup, funded by Saudi Arabia’s sovereign wealth fund and Kalanick’s money from Uber, sets up small industrial kitchens focused exclusively on takeout and delivery orders, and used by everyone from mom-and-pop owners to the biggest names in fast food. The “ghost kitchen” strategy has taken off across companies with venture backers and customers who can order a burrito that’s cooked in a kitchen space rented by Chipotle, then delivered by a DoorDash or

UberEats
driver.

Orders at the North Rockwell location spiked in recent months, thanks to stay-at-home rules, Chicago’s snowy winter, and popular Chik-fil-A, which set up shop in one of the site’s kitchens in November. More orders led to an influx of drivers on the two-lane street. Suddenly, neighbors told Insider, CloudKitchens has upended a block where small local businesses have coexisted peacefully with each other and with residential neighbors. 

Some of these local businesses told Insider they’re losing customers after parking staff hired by CloudKitchens yelled, sans facemasks, at their clients. Delivery drivers have taken up parking spots, caused car accidents, and added congestion.

For Kalanick, who served as Uber’s CEO until 2017, CloudKitchens is a remarkable second act, cementing his reputation as someone with a unique understanding of how technology can transform business. It’s also already causing clashes with local politicians and other groups, who see a repeat of the controversial playbook that Uber used to succeed.

Matt Martin, the alderman in the Chicago district where CloudKitchens has a facility, said the neighborhood has reached a “boiling point” – he tallied 160 calls about CloudKitchens by early March and now receives multiple calls a day. And given that the CloudKitchens facility is currently only half-full, Martin and neighbors worry about what happens at capacity.   

“Knowing where this neighborhood was and where it’s going is so deeply troubling,” said Kate Francini, the practice manager at Royal Treatment Veterinary Center. She’s worked across the street from the building now occupied by CloudKitchens for a decade and said she worries about her clinic’s clients having to walk for blocks carrying 150-pound, sick dogs in their arms because the food depot’s delivery drivers have taken all the street parking.

“To see these big giants come in, and not only come in but disrupt the neighborhood in such a way, it’s so disheartening. You know this is going to happen elsewhere,” Francini said.

cloud kitchens travis kalanick san francisco 13

One San Francisco CloudKitchens location was wedged in a nondescript alleyway when Insider visited in 2019.

Katie Canales/Business Insider


The dust-up on North Rockwell mirrors some of Kalanick’s early days as Uber, when the company was guided by a value called “principled confrontations.” That lack of regard for cities’ established rules and procedures propelled Uber to success and to clashes with politicians. 

CloudKitchens differs from Uber in one critical way: the startup is buying real estate, anchoring it in communities for the long term. Cities and their transportation departments rallied to fight Uber-catalyzed problems, with varying degrees of success, but CloudKitchens’ burden is falling on local politicians like Martin, who admits he’s no traffic or infrastructure expert. 

To understand how CloudKitchens’ rollout wreaked so much havoc in Martin’s ward and how it compares with CloudKitchens’ national launch, Insider analyzed operations at 46 US CloudKitchens locations by calling local politicians and pulling public records. City council members representing 21 locations did not respond to requests for comment. From those who did, Insider found that 15 CloudKitchens sites have operated without issues, four caused parking and traffic-related problems, and six are not yet operational.

CloudKitchens did not respond to multiple requests for comment. Besides tweeting about arson in June, the company has stayed out of the spotlight, forbidding employees from even adding the company to their LinkedIn pages. 

Politician’s warning: “I can’t overstate how much of a problem it is”

CloudKitchens isn’t alone in causing parking mayhem – last month, Insider found that Chik-fil-A’s popular drive-thrus sparked lawsuits and local complaints. Unlike Chik-fil-A, Kalanick’s business model operates in a grey area for local zoning codes – it’s not exactly a restaurant, catering business, or food truck. And it doesn’t technically control drivers’ behavior, since they’re contractors working for myriad delivery services, like DoorDash and UberEats. 

Miami is looking to better define zoning for this nascent industry with a yearlong pilot program for ghost kitchens that goes before a City Commission meeting on Thursday. Commissioner Ken Russell, an early proponent of scooters and other new technology, said he worked with SoftBank-backed ghost kitchen operator REEF to craft the program.

Meanwhile, though CloudKitchens bought a building that’s not yet operating in Russell’s Miami district, the company hasn’t reached out to his staff. 

“This is a very disruptive business model. To barrel into a neighborhood unilaterally with some sense of entitlement because it’s a free market – you may have the law on your side, you may not, but you certainly won’t have neighbors and elected officials on your side,” the commissioner told Insider. 

Uber Eats driver

An Uber Eats driver in Portugal in 2020.

Horacio Villalobos/Corbis via Getty Images


In 2019, CloudKitchens asked Chicago Alderman Martin’s office to support a zoning change that would have reduced the amount of parking the company was entitled to. And yet a traffic study commissioned by CloudKitchens showed more cars coming to the neighborhood at lunch and dinner time, making the zoning request “the oddest” Martin said he’s received, and one he couldn’t support. After that, the company did little to work with his office or neighbors before launching. In December, Kalanick’s venture refused to communicate with the alderman’s office, though the company is now doing so, he said. 

“It’s been a very challenged relationship with CloudKitchens themselves,” Alderman Martin said. “I can’t overstate how much of a problem it is. We to date have not found CloudKitchens to be a proactive partner when it comes to managing these problems.” 

CloudKitchens’ rocky neighborhood entrance echoes Kalanick’s Uber rollout: launch first, and work around the rules later. 

“Concepts like ‘breaking the law’ weren’t applicable, they believed, when the laws were bullshit in the first place,” wrote New York Times reporter Mike Isaac in Super Pumped, his chronicle of Uber’s founding through initial public offering. 

In city government-run meetings this winter, North Rockwell Street neighbors said CloudKitchens lawyers blamed the local businesses for parking issues, and Martin said the company has misrepresented the problems and its own communication. Some neighbors said they fear speaking out, recalling how Uber, under Kalanick’s leadership, targeted naysayers. 

“Recruiting ex-CIA, NSA, and FBI employees, the company had amassed a high-functioning corporate espionage force. Uber security personnel spied on government officials, looked deep into their digital lives, and at times followed them to their houses,” Isaac wrote. 

“Nobody deserves to be intimidated in their neighborhood” 

CloudKitchens’ national rollout hasn’t caused chaos everywhere. Since the company opened a location in Tempe, Arizona, in 2019, multiple kitchen clients graduated to open brick-and-mortar stores. The site received one violation, for food trucks parked in non-designated spaces. 

“This concept has been a very safe option for our residents during COVID-19. This business has been beneficial to our community,” said Kris Baxter-Ging, the city’s public information officer.

Insider’s national review showed that non-problematic CloudKitchens are largely situated in industrial areas without the kind of small business and residential traffic that North Rockwell Street sees.

But even an industrial address doesn’t stave off problems for neighbors. In a Long Beach, California neighborhood a mile and a half off the beach, business owners contacted Councilwoman Mary Zendejas about parking and road blocking issues after CloudKitchens moved into a single-story building. 

“We’ve had to get our city staff involved to help the location be a better neighbor,” Zendejas said. “I am hopeful that there is a simple solution to this issue and all of our businesses can benefit from increased activity in the area.” 

In Chicago, CloudKitchens hired traffic directors in the late fall, who “harassed” customers going to Heal Veterinary Clinic, said practice manager Vicki Karfias-Douvlis.

“We finally had one client say, ‘I don’t know if I can come to you anymore.’ That absolutely shattered me,” she said. “Our patients are like babies; they don’t have a voice. They get scared and they’re skittish when you have drivers sitting around in their cars, smoking on the sidewalk waiting for food to get picked up. It’s intimidating and nobody deserves to be intimidated in their neighborhood.” 

CloudKitchen

Delivery drivers pick up orders at a San Francisco CloudKitchens location.

Katie Canales/Business Insider


In an effort to better control parking, CloudKitchens recently leased parking spaces from neighbor BroadBand Interactive. Owner Robert Larrimore said it’s already eased congestion, though Karfias-Douvlis said the change just swapped CloudKitchens and BroadBand cars and trucks on the street. 

While another neighbor said he enjoys picking up chicken sandwiches from CloudKitchens and doesn’t mind the extra honking, Martin said his political peers in other cities should weigh potential neighborhood disruptions with the jobs and other benefits CloudKitchens can add. 

“It’s not clear to me that a few additional jobs on site is worth the hassle, especially if there’s otherwise an opportunity for folks to operate in more traditional brick-and-mortar storefronts,” the alderman said. “Additional scrutiny is certainly merited as to what, if any, real economic benefits this brings.”

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