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Todd Collins sees community kitchens as a smart niche as food purveyors face a shifting market.
It wasn’t long before chef Sam Diminich’s newly launched home-delivery meal service, Your Farms, Your Table, began to outgrow the capacity of his tiny apartment kitchen. Preparing and distributing fresh three-course meals daily across the Charlotte region proved wildly popular as the pandemic constrained restaurant dining when Diminich opened last March.
“I started with a couple dozen meals delivered daily, and demand quickly accelerated,” Diminich says. When he learned of a Queen City-based shared-use kitchen business called The City Kitch, he immediately saw growth potential. In October, he signed a multiyear contract at City Kitch’s new west Charlotte facility, which is close to Interstates 77 and 85, providing better access to thousands of potential customers.
The COVID-19 crisis has had a massive impact on the N.C. restaurant industry, inflicting considerable damage while creating new opportunities. In normal times, restaurants are risky with as many as 80% failing within their first five years. The pandemic caused revenue in the state’s overall hospitality industry, including bars and hotels, to slide by $4 billion between March and December. Industry employment declined by 20%, or about 103,000 positions, and many favorite spots have closed.
Charlotte investor Todd Collins saw opportunity as the crisis forced food purveyors to become more innovative as they produce delectables for groceries, gourmet providers, convenience stores and others. Ghost kitchens, the industry term for shared kitchens supporting brick-and-mortar restaurants and those offering only carryout or delivery, started looking more attractive for people or operators seeking to establish a business without immense capital investment.
Former Johnson & Wales University senior culinary instructor Carrie Hegnauer opened City Kitch in 2013 as a shared kitchen near UNC Charlotte. Over the years, she helped food-truck clients gain permits and learn how to operate their businesses while developing a rapport with the local restaurant community. In January 2020, City Kitch partnered with Charlotte-based Red Hill Ventures, a real estate and technology investment firm owned by Collins. He has since invested more than $2 million, including in the west Charlotte kitchen. A Greensboro site is planned later this year, and Collins expects further expansion in North Carolina in an effort to become a market leader.
“How people access and consume food will change through technology, and our business model is well positioned to play a large role in these shifts,” Collins says. “We thought this was an opportunity to take a successful business where we could implement deeper processes and deeper technology and help it grow in a repeatable manner. Although it’s not our standard investment profile, we can implement lessons we’ve learned in the past into this business and build even greater success.”
Collins had seen coverage in national media about rapid changes in the hospitality business because of the pandemic. High-profile investors have raised the status of ghost kitchens. Most notable is CloudKitchens, a startup by the founder of Uber Technologies, Travis Kalanick, who has invested more than $130 million in 40 locations across the U.S., according to The Wall Street Journal.
“I’d read about the concept and seen where [it was taking hold] in cities like San Francisco and New York,” Collins says. “I believe in the vision and know this can be expanded throughout the Southeast. It’s not radically different from [commercial real estate development]. We’re providing space and a service and are effectively a landlord for our culinary clients.”
Postpandemic, restaurants are still likely to be operating differently, with social distancing and more takeout service becoming a norm, says Alistair Williams, a professor in the College of Hospitality Management at Johnson & Wales. “It is likely the focus of marketing will be microlocal and community-based,” he says. “Menus will be streamlined and simplified to reduce costs, technology will increase in importance, and food safety and hygiene will become drivers of business.”
Like most real estate, proximity to high-density areas can be a key for shared kitchens. The Greensboro location is a former cafeteria within 2 miles of UNC Greensboro and Guilford College, lending itself to restaurants that rely on DoorDash, Postmates and other delivery services. “In Charlotte, we’re in the university area, a mile away from UNC Charlotte. We’re in [the South End neighborhood], right in the middle of a rapidly growing area. We’re looking for the same sorts of locations in Raleigh, Durham, Wilmington, and Greenville, S.C.,” Collins says. About 15,000 square feet is the ideal size, he says.
Focusing on local restaurant-community cultures helps set City Kitch apart from 30 or 40 other commissary kitchens operating across North Carolina, says Dana Winstead, director of operations and a Johnson & Wales graduate. Many of those are focused solely on baked goods.
“We have learned to focus first and foremost on our communities and on our clients being able to support one another,” she says. “These businesses are their babies. They appreciate and grow when they have the support of that community. It’s impressive how they share resources with each other.”
Honeybear Bake Shop founder Hannah Neville says the community aspect of City Kitch was as big a draw as the state-of-the-art kitchens. She owns an online cookie business that routinely sells out its $3 cookies featuring flavors such as PB&J, apple crumb pie and cinnamon roll. “The team at City Kitch invested in my success, offering introductions to other entrepreneurs and [making] customer referrals,” says Neville, who signed a multiyear contract for a private prep suite in September.
She is using services such as open retail space allowing her to host pop-up sales, advice on pricing strategies, and kitchen cleaning and maintenance. That gives her time to focus on her core business of making cookies and customer service.
Collins says Red Hill Ventures has helped City Kitch broaden its revenue with expanded services. “We create a technical platform for client businesses, allowing them to post the menu online and integrate with third-party delivery services,” Collins says. “We help clients secure insurance. It’s a big deal because they can’t operate without the right insurance coverage. For many of our clients, this is the first time they’ve gone through the process.”
Collins worked for the Accenture consulting firm for nine years before starting Red Hill. Its offshoot, Red Hill Capital, is an angel investor fund Collins developed to support businesses historically overlooked by other funders. As one of Charlotte’s few Black commercial real estate developers, he knows the challenges that minority-owned businesses face in raising capital.
“One thing we’ve noticed with a lot of the culinary entrepreneurs is capital is a challenge,” Collins says. “I’m not talking large amounts of money. In some cases, it’s small amounts of maybe $2,000 or $3,000 worth of repairs preventing a food truck from getting permitted. The restaurant business is a super-risky business because it’s so capital-intensive. It’s shocking how much it takes to start up a small restaurant.”
There’s no typical cost for a new restaurant because style, capacity and other factors differ widely, but about $400,000 is in the ballpark, according to Williams. City Kitch’s offerings start at $640 a month for a 12-month contract, Winstead says.
“It’s less risky by working with us,” Collins says. “Which is why we’re willing to provide small amounts of capital for some of our clients and exploring this type of offering.” ■