Feeding Demand
Having been established in 2018, U.A.E-based cloud kitchen operator Kitopi achieved a $1 billion valuation in under three years. With $804 million in total funding, the three cofounders of the SoftBank-backed unicorn are banking on the business model staying relevant beyond the pandemic.
Having been established in 2018, U.A.E-based cloud kitchen operator Kitopi achieved a $1 billion valuation in under three years. With $804 million in total funding, the three cofounders of the SoftBank-backed unicorn are banking on the business model staying relevant beyond the pandemic.
On July 1, 2021, U.A.E.-based cloud kitchen startup Kitopi announced that it had raised $415 million in a Series C round—a major milestone. But this wasn't just another big funding announcement. Its latest round valued the threeyear-old company at over $1 billion, making it the Middle East's latest unicorn at the time. It also made it the fastest unicorn the region has seen. In comparison, other notable Middle Eastern unicorns, Careem and Swvl, both took more than four years to hit the same status.
According to the CEO, however, milestones are not the point. “Fundamentally, we are mission-driven versus milestone-driven,” says Mohamad Ballout, CEO and cofounder of Kitopi. “The foundation is solid with a great team and great economics. The key is to underpromise, over-deliver, and build credibility along the way.” Still, global and regional investors are striving to take a bite out of the F&B startup. Its Series C was led by Softbank Vision Fund 2, with participation from Chimera, DisruptAD, B. Riley, Dogus Group, Next Play Capital, and Nordstar. It was the first time that SoftBank Vision Fund 2 had invested in a U.A.E.-headquartered company.
Kitopi's “kitchen as a service” operating model comprises a network of interconnected cloud-enabled kitchens that cook and deliver food on behalf of multiple restaurants. The company makes money on a revenue-share basis, with the startup keeping about 85% of a restaurant brand's revenues and paying them back 10-13% in royalties. Today, Kitopi—short for Kitchen Utopia—has over 200 partner brands and operates over 80 cloud kitchens across the U.A.E., Saudi Arabia, Kuwait, Bahrain, Qatar, and an engineering hub in
Poland. Since it was established in January 2018 by Ballout, Saman Darkan, Bader Ataya, and Andres Arenas, Kitopi has raised $804 million in funding—and 89% of that came in 2021. The Series C round was followed by an additional $300 million secured in late November from existing investors. Cumulatively, in 2021 the business raised $715 million.
The company is benefitting from a booming regional appetite for the F&B sector. Fellow U.A.E.-based cloud kitchen, iKcon, announced in November 2021 that it had been acquired by U.S.-based REEF Technology Inc for an undisclosed amount in a deal backed by SoftBank and the Mubadala Investment Company. According to MAGNiTT, MENA raised almost 99% of all funds invested in F&B startups across global emerging venture markets in 2021, with four of the 10 investments in U.A.E.-based F&B startups being in cloud kitchens.
According to investors, cloud kitchens— also known as ghost or dark kitchens—have become more attractive thanks to the impact of the pandemic. “Constraints placed on the hospitality sector by the global pandemic have rapidly catalyzed the value proposition of cloud kitchens for customers and restaurant brands,” said Faisal Rehman, Managing Partner for SoftBank Investment Advisers, at the time of SoftBank's investment in July. “We believe Kitopi's proprietary technology is changing the unit economics of food delivery in providing more choice to more customers in more places.”
It's the technology that the cofounders say gives Kitopi its competitive advantage. Its Smart Kitchen Operating System (SKOS) comprises a suite of applications that are designed to optimize the performance of its kitchens in real-time. One app, for example, uses data to predict when drivers will arrive and how long a menu item will take to cook, it then auto-sequences which items are cooked first to enhance delivery speed. According to Darkan, in three years Kitopi's cloud kitchens doubled their order volume while reducing preparation time by 40%. “We are now working towards building stronger capabilities within SKOS around data and AI to improve our marketing and operational efficiency and
venturing into robotics to automate certain activities we currently perform in the kitchen,” he explains.
As well as continuing to develop the technology behind the platform, in the next two years Ballout plans to plow up to $1 billion into attracting more partners for Kitopi and investing in their businesses. “Instead of just licensing content, we're now participating in investing and growing brands more actively than we've ever done before,” he reveals. Some of the latest additions to the company's investment portfolio include Cloud Restaurants (famous for Go! Greek and Go! Healthy), Leap Nation (famous for Tawook Nation and Luca), Right Bite, Under500, and Ichiban. He also plans to use Kitopi's latest capital injection to expand its reach in the region. “We want to serve the entire Middle East,” says the CEO. “But we're also looking at entering Singapore and Malaysia towards the second half of this year.” Though it faces stiff competition from incumbent players, including Grab and Gojek, both Southeast Asia and the Middle East offer significant opportunities for Kitopi.
Serial entrepreneur Ballout has experience in growing a business—Kitopi is his third. As a teenager, Ballout worked in his uncle's sweet store and witnessed firsthand the challenges that he faced with chocolate suppliers. So, in 2007, after getting a master's degree in management from Imperial College, Ballout cofounded confectionary business Baklawa Made Better (BMB) with his brother Bilal and cousin Mohamad Khachab. They used a bank loan to rent a small warehouse in Sharjah, and began to trade in chocolate and baked goods. By 2015, BMB had launched two of its own confectionary brands— Petit Gourmet and Asateer Sweets—and had over 1,000 employees.
In June 2016, Ballout sold his BMB shares to a private equity group and joined a private equity firm as an investor. The following year, he established venture capital investment company Ripples Capital to invest in seed stage rounds in several ventures, with a focus on businesses that can be tech-enabled. But while he was angel investing in F&B concepts Ballout realized that they were struggling to grow. Setting up delivery operations was costly and would shrink their margins. In late-2017 Ballout reached out to his childhood friend, Darkan—now chief technology and product officer at Kitopi—and pitched a new idea: a tech-enabled company that could support F&B outlets. Darkan had previously worked with startups My Metro Talk, Central Tickets, and Little Bedoo, and was intrigued by Ballout's plan. With Ballout's industry knowledge and Darkan's digital experience, the duo began to build their platform in December 2017.
Kitopi was officially established in January 2018. Arenas and Ataya joined the founding team as Chief Property Officer and Chief Growth Officer in February and August 2018, respectively. Arenas came from a food production background in Peru while Ataya had previously cofounded e-commerce website Mumzworld. “I had known all three cofounders for many years, some through university and some as childhood friends ” explains Ballout. “Knowing them so well, I knew how they solved complex problems.”
In April 2018, Kitopi raised a $1.8 million seed round, followed by a $27.2 million Series A in November the same year, led by BECO Capital. By August 2019, Kitopi adding subscription-based meal plans to its business model and by November the startup had raised $60 million from 10 investors. Then came 2020 and a global pandemic. Consumer demand for online food ordering soared as restrictions accelerated a digital revolution. According to the Dubai Chamber, the value of the U.A.E.'s F&B market rose 255% in 2020 to hit $412
million. This was reflected in demand for cloud kitchen services. “Although cloud kitchens were already gaining prominence in the U.A.E., several restaurants started pivoting to this model after COVID-19 due to lower setup costs and improved margins,” says Ashish Tulsian, cofounder and CEO of restaurant management system, POSist. By 2030, the ghost kitchen market is forecast to be worth $1 trillion, according to market research company Euromonitor International.
Tapping into this opportunity, in April 2020, Kitopi launched its groceries vertical, Shop Kitopi, to deliver essentials and food products anywhere in Dubai within an hour. “Our vision of success starts with the customer, so our ability to deliver the highest quality food on their terms is one of our key measures of growth,” adds Ataya. Overall, the business grew 300% in 2020, according to Darkan, but it wasn't all good news. Hoping to replicate its success in the U.A.E., Kitopi had readied kitchens in New York and London pre-pandemic, but subsequent lockdowns halted the company's plans. In June 2020, as cases spiked in the U.S. and the U.K., Kitopi exited and pulled the shutter on its operations in the U.K. and the U.S., choosing instead to focus on the Middle East and Asia. And international expansion is not the only pandemic-induced challenge the company is currently facing in the market. “With the growing online demand and the lower costs associated with establishing a virtual restaurant, there are a lot of poorquality virtual brands out there,” says Darkan.
As it strives to stand out from the competition, Kitopi aims to feed the demand in Southeast Asia, but while the four cofounders built the foundations of the business, Ballout insists that its achievements be attributed to the broader team. “Kitopi is not a founder-led business,” the CEO insists. “We're proud founders, but it's a leadership-led team of 25 people that has enabled us to move across our markets much, much faster.” Kitopi's C-suite currently features alumni from McKinsey, Careem, and Talabat, among others, with the CEO saying that over 200 employees are currently shareholders in the company.
“I'm very proud that a lot of people have a stake in the game and feel like this is their business to grow,” says Ballout. “Our mission is to satisfy the world's appetite.”
“With the growing online demand and the lower costs associated with establishing a virtual restaurant, there are a lot of poor-quality virtual brands out there.”