Matilde Arruda, Brazilian entrepreneur
Matilde Arruda, Brazilian entrepreneur that has two dark kitchens brands in Sao Paulo. Photo: Uber Eats/Courtesy

Delivery giants Uber Eats and Rappi Bring Virtual Restaurant Trend to Latin America

Combining fresh food and low prices, delivery apps and entrepreneurs are reshaping the food business and making it more scalable than ever

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Thought from scratch by small entrepreneurs or strategically and industrially established as a “coworking for restaurants”, ghost or dark kitchens are rapidly multiplying in Latin America. They are behind the scenes of the so-called virtual restaurants, set up just to serve customers who order via app, and are becoming promising enough to catch the eye of business investors such as Uber’s co-founder Travis Kalanick.

Uber Eats does not reveal in which city or country in Latin America the trend came first within its platform. It states only that it already has more than 5.5 thousand establishments in this model worldwide.

Rappi, a Latin American unicorn that already operates in nine Latin American countries (Colombia, Brazil, Mexico, Argentina, Chile, Uruguay, Peru, Ecuador and Costa Rica), began testing dark kitchens in its Colombian backyard about two years ago, both in the individual model and the hub model, with structure for multiple kitchens. After a trial period, the startup opted for the coworking kitchen model, bringing it to Brazil unofficially in late 2018, in addition to Mexico, Chile, and Argentina.

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In Brazil, Rappi’s main market, the goal is to reach 90 to 100 dark kitchens ready for use by the end of 2019, in cities such as Sao Paulo, Belo Horizonte, Curitiba, Fortaleza and Recife, and to open another 200 to 300 in the following year, contemplating all the country’s main capitals. In Latin America, the startup already has about 200 kitchens and wants to finish 2020 with 600, starting the new business also in Peru.

“Virtual restaurants are today one of the world’s biggest trends in the delivery market. We believe this is a trend that is just beginning: with the dissemination of apps such as Uber Eats, we have seen a change in the profile of people who order food, impacting a market that was once dominated by fast food”, tells Uber Eats communications manager Atajila Lima to LABS.

Walter Rodrigues, head of Dark Kitchens at Rappi's in Brazil
Walter Rodrigues, from Rappi. Photo: Rappi/Courtesy

“It’s a trend with an entrepreneurial bias”, summarizes Rappi’s Head of Dark Kitchens and Growth in Brazil, Walter Rodrigues.

What they say makes perfect sense. The major stimulus for this segment’s growth is the search for the best of both worlds: fresh and authentic food at low prices. By finding strategic, inexpensive physical spaces and sharing expenses with other entrepreneurs or by leveraging the same physical and staffing structure to cater to more than one type of consumer, virtual restaurant owners are achieving this success formula.

The segment also allows business owners to focus on meal production without worrying about tasks such as salon operation, delivery time control or route tracking.

When the demand creates the entrepreneur

This is the case of business executive Matilde Arruda, owner of the Japanese food restaurant Sushi Plus, in the city of São Paulo. Until October 2018, she was working at her parents’ temaki bar but saw the new food delivery market as an opportunity to grow.  

“We had already tried the traditional delivery format on the web, with phones, deliverers and everything else. However, the arrival of apps changed things completely. For the first time, I saw that we could grow on that model. In a meeting with Uber Eats, they brought a demand for low-priced Japanese food and suggested that we create a brand for it”, explains Arruda. Two months later and after a BRL 150,000 investment, Sushi Plus was born.

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The first kitchen opened in the Vila Mariana neighborhood. In a short time, orders went from 1,200 a month to over 12,000 a month.

Matilde Arruda, Brazilian entrepreneur
Matilde Arruda, Brazilian entrepreneur owner of dark kitchens. Photo: Uber Eats/Courtesy

The app shows your restaurant and you start selling. There is no secret. The challenge is to be able to react quickly

Matilde Arruda, Brazilian entrepreneur owner of two dark kitchens’s brands in the city of sao paulo.

In this model, it’s possible to feel the response of customers minute by minute, not only in the number of orders that arrive but in the evaluations that are made after the food is delivered, through the app.  

“We saw, for example, that a combo was not coming out and we quickly changed the menu. In the delivery business, you need to react rapidly, you can’t insist on something that is not working,” says the business owner.

Matilde’s business math, in fact, worked. Sushi Plus options start at BRL 1.00 per piece and do not cost more than BRL 1.50. Deliveries are made in 17 minutes. All this learning and months of good results led her to bet on a second unit and on a second brand in a very short period.

In February of this year, she opened the second unit of Sushi Plus, on an important avenue in São Paulo. In November, and in the same kitchen, Matilde began operating her second brand, called Bowling Delivery, focused on the Hawaiian poke dish. “It’s an operation that takes into account the synergy of ingredients and suppliers with Sushi Plus”, points out the business owner.

There are about 30 employees to attend both operations. “We have two units in the south region of Sao Paulo and now we want to open two more. We believe that with four well-located units, serving a radius of 8 to 10 kilometers, we’ll be able to serve the entire city,” says Matilde.

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To be or not to be verticle?

As with Matilde, Uber Eats has been actively seeking industry entrepreneurs to submit bids based on the data the app collects from the thousands of orders placed every day. “This way, businesses can devote themselves exclusively to their expertise, which is food, and use Uber Eats technology to reach new audiences in an uncomplicated way”, says the company’s communications manager. Uber Eats also does not rule out investing in its own shared kitchens and has recently opened one in Paris.

Rappi, on the other hand, chose the hub model, in which the startup owns the structure used by entrepreneurs. “It’s really like a coworking space. It has no cost to the entrepreneur. The operation, that is, the kitchen, is independent. Entrepreneurs have the key to the stock and to the kitchen and they are the ones who decide the menu, the restaurant’s opening and closing hours, etc. Everything is their decision to make. We help them manage the common area, such as the changing rooms, the delivery companies’ logistics and the implementation of password software to improve their operations”, explains Rodrigues, who points out that Rappi does not want to make money from the new operation. The startup’s gain would come indirectly, with increased supply per region, improved delivery times (better-located hubs mean less time spent delivering orders) and, as a result, growth in the number of orders.

According to Rodrigues, this model has attracted four types of entrepreneurs: one that is selling a lot and can no longer meet the existing demand in its structure; the one with a really good product that is nearing the limit and needs to take the next step to bring the product to other regions; one that has a very good product and growth potential, although does not have a consolidated operation; and the one that the startup itself seeks due to an offer that is missing in a given region.

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Shared kitchens and cooks: a whole new segment 

The business is so promising that it’s also attracting rounds of investment. CloudKitchens, the new startup of Uber co-founder Travis Kalanick in the United States, is an example of this. The company received a $ 400 million grant from the Saudi Arabian Sovereign Wealth Fund earlier this year, according to a report in The Wall Street Journal, and is using the proceeds to buy several properties in the US, China, the United Kingdom, and India.

In September, Eccie Newton, Karma Kitchen’s co-founder, told the Financial Times that food delivery is a growing segment in the company, especially at night, since the same structure that serves a particular entrepreneur during the day can be rented to another chef and/or restaurant in the evening.

According to the newspaper, renting a shared kitchen at the first unit of Karma Kitchen in London costs about £ 1,500 a month–much less than the £ 10,000 needed to build a kitchen from scratch.

Companies such as CloudKitchens and Karma Kitchen, on the other hand, are making room for another segment: food preparation itself. This is the case of Dubai-based KitOpi, which operates in London and the Middle East in shared kitchens.

It is as if a new segment of the new economy is springing from the deliveries boom and taking the food business to a new level of post-fast food scalability. Some of these entrepreneurs even believe that in the future people will stop preparing their own food.

Translated by Jennifer Ann Koppe