Fire is the test of gold; adversity, of strong men, according to the Roman philosopher Seneca. This holds true in the case of Saudi entrepreneurs Walid Hajj and Fahad Alhokair, founders of Dubai-based Kitch – a hybrid delivery-focused cloud kitchen business.
Unfazed by coronavirus-induced disruptions and an economic slowdown, Mr Hajj and Mr Alhokair used their own savings to start Kitch last year amid the pandemic. They opened their first cloud kitchen in Riyadh last month and plan to expand to new territories in the coming months.
“This is definitely a tough time to start a new business ... a lot of people are struggling, many businesses are facing major difficulties, specifically in the hospitality sector,” says chief executive Mr Hajj, 52.
“But we are here to address some of the most perennial problems that businesses and end-consumers are facing through our tech-driven solutions ... Kitch is among those companies that hold the potential to convert adversity into infinite opportunities.”
A cloud kitchen, also known as a dark or ghost kitchen, is a restaurant that only accepts delivery orders.
The set-up consists of a shared kitchen that prepares food delivered to platforms such as Zomato, Deliveroo, Talabat and Uber Eats.
The size of the global cloud kitchen market stood at about $43.1 billion in 2019 and is expected to grow at an annual rate of 12 per cent to reach $71.4bn by 2027, according to Allied Market Research.
Kitch – a brand-name derived from kitchen and technology, the two key aspects of the business – plans to open four more units in Riyadh this month and an additional 15 across the GCC later this year.
With an area of about 500 square metres, each cloud kitchen will be fully equipped to house at least 10 different food concepts.
“The bulk of our immediate penetration plan is concentrated on Saudi Arabia ... this is a big market where we see a lot of value,” says Mr Hajj.
“In the last quarter of the year, we will definitely enter the UAE and other GCC markets.”
Mr Hajj is also confident about branching out to Asia, Europe and the US over the next three to four years.
The company’s first cloud kitchen in Riyadh received an “overwhelming” response, with eight of its concept kitchen spaces already rented out. The start-up retained two for itself.
Mr Hajj, a Harvard Business School graduate, is also the founder of Cravia, a food and hospitality group that includes franchises such as Zaatar W Zeit, Five Guys, Cinnabon and Seattle’s Best Coffee. However, he stepped down from his role at Cravia in 2016 after a private equity company bought a majority stake in the business.
“Until I sold Cravia in 2016, we saw a lot of changes in the [food] industry,” he says.
“But we never experienced such a massive disruption as we did in the past three to four years due to the widespread adoption of technology.”
The adoption of technology redefined the industry, enabled a shift by consumers to online orders and hastened the growth of the delivery business.
“Cloud kitchens offer cost-effective solutions to fulfil businesses’ demands very efficiently and let them scale up very quickly ... this is where the idea of Kitch came from,” says Mr Hajj.
The concept has become popular worldwide.
Key factors fuelling its growth include an acceptance of online ordering systems, economical business models and a surge in demand for food deliveries, which grew amid the Covid-19 pandemic.
Kitch was started with the founders’ capital of $15 million, and Mr Hajj and Mr Alhokair are in no hurry to raise additional funds externally. This allows them to focus on the core strategic growth areas.
“We have a different approach towards raising funds. We do not want to be under pressure to perform on the valuation side and ignore the basics of the business,” says Mr Hajj.
“However, with the aggressive growth plan that we have, we will definitely require more funds. We either raise internally or go to the market. But one thing is clear ... we will only go to the market at a point when we reach a proper size and we have proved the concept.”
Money will be used to invest in the technology that powers the company. Every order has about 3,000 data points such as the time an order is received and how long it takes to fulfil.
“If you have the right technology to analyse and derive the right inferences and conclusions from those points, it will definitely help to take the right business decisions at the right time,” says Mr Hajj.
Kitch’s plan includes the unveiling of its own food brand, the acquisition of potential food businesses and the introduction of international brands to the region, he says.
“We are eyeing a dominant position in the industry ... to have some control or association with the brands that are operating within our kitchens, rather than just working as a real estate player.”
Kitch’s online restaurants and bricks-and-mortar outlets will offer brands an avenue to enter new markets. The company’s network will also provide them with an option to diversify and scale up their food delivery operations and customer engagement with minimal investment.
“There is a lot of creativity in the market. If someone has a potential idea but does not have capital or resources, they can approach us with the concept,” says Mr Hajj.
“We will develop the idea and launch it with full support.”
Kitch intends to rapidly build its business and become profitable over the next couple of years.
“We understand that any start-up has to burn cash initially, but our prime focus is to be efficient,” says Mr Hajj.
“We aim to reach break-even and start making money by the end of second year,” he says. “That will be realised while achieving the scale. [However], there needs to be a balance between the two.”
Kitch currently employs 40 people and plans to grow its workforce to about 200 by the end of the year.
Q&A: Kitch’s co-founder Walid Hajj
Who is your role model?
I have two role models – my father and Apple founder Steve Jobs.
My father was only 19 when he came to Saudi Arabia from Palestine. He had no money but he worked very hard to support his family. He had a good fixed salary but one day he took the risk, leaving the job and starting his own business that was a huge success. His personality and journey inspire me a lot.
And I am a big fan of Steve Jobs’ management approach … the way he motivated his employees and pushed them to create new innovations by thinking out of the box.
How do you compare your first company Cravia with Kitch?
I developed my first company Cravia over 18-19 years before I sold it. But Kitch is going to move much faster on an accelerated trajectory. In the next five to 10 years, it will be a global company with a presence in more than 15 countries on four continents. It is going to dominate this industry and be a billion-dollar company.
If you could change one thing in your entrepreneurial journey, what would it be?
We had a brand called Zaatar W Zeit and we were a dominating player in food delivery between 2008 and 2010, with a fleet of 100 bikes and a dedicated call centre. We were really leading the delivery space in the UAE. At one point, I looked seriously at spinning off that business and creating a separate entity to serve other markets and brands but I didn’t do it. If things go back, I will definitely do it. That could be a significant business of its own and not just a support service.
Are you on a hiring spree?
Yes. Our philosophy is to have the best talent that will bring different perspectives and add value to our business. We are hiring quite aggressively from across the globe. Many talented people have joined our team in the past few weeks and many more will come on board soon.
Are you a risk-taker?
There is something about risks and rewards and that is so satisfying. I am a gifted risk-taker … always trust my gut feeling. Entrepreneurs have to take risks. Those who are afraid of taking risk, they will not achieve anything big in life.
How do you look at a post-Covid recovery?
We already see a recovery in our sector and hopefully we will get out of it completely very soon. Unfortunately, during the pandemic a lot of businesses disappeared … but people who remained standing on their feet will have less competition in the future. We are sure that the restaurant industry will rebound fast.
Company name: Kitch
Founders: Walid Hajj and Fahad Alhokair
Industry: Food technology
Initial investment: $15m
Future plan: To open 19 new cloud kitchens and expand in GCC this year