San Jose business leaders have high hopes for a digital food hall to spice up the heart of downtown.
City Storage Systems, a real estate company owned by former Uber CEO Travis Kalanick, is constructing a new location for several delivery-oriented restaurants in downtown San Jose. The historic building at East Santa Clara and South Third streets used to be Hank Coca’s Downtown Furniture, which shut down in 2017.
Part of the building will house a CloudKitchens venue, which will contain several restaurants that primarily produce food for delivery and pick-up, and accommodate some on-site seating. Generally known as a ghost kitchen, this business concept picked up steam during the pandemic as demand for delivery services increased. Several ghost kitchen companies have opened in the South Bay this past year, and the multi-billion dollar industry is expected to continue growing.
San Jose business leaders say Kalanick’s company will provide a much-needed economic boost for the downtown area, where retailers struggle due to reduced foot traffic during the pandemic.
“I think it’s a really exciting idea for downtown,” said Scott Knies, executive director of the San Jose Downtown Association. He’s also pleased to see a company investing in the nearly 140-year-old Odd Fellows building, which has been vacant for several years.
Business leaders dismissed the idea that the proliferation of digital food halls could negatively affect sit-down restaurants downtown, noting there’s strong demand for both take-out and indoor dining experiences.
“I think all restaurants during COVID realized they needed to pivot toward delivery and off-site consumption,” said Sean Kali-rai, a lobbyist who recently helped launch the Silicon Valley Restaurant Association. “There’s enough space for everybody.”
Kali-rai said the presence of San Jose State University just a few blocks away offers a strong market for food delivery, as well as a source of labor.
“Maybe it’s a great place for San Jose State students who want to get into hospitality, get a job there and understand the future of tech and restaurants,” he said. “There’s a lot of ways to look at this thing, but you really have to look at it as a value added.”
The company is well-positioned to service delivery demands once Google completes its massive campus near Diridon Station, which could add up to 25,000 workers downtown.
It’s not clear yet which restaurants will operate in the CloudKitchens venue or when it will open. The company did not respond to a request for comment.
Kalanick isn’t the only entrepreneur entering the ghost kitchen space. Earlier this year, the company Local Kitchens opened several digital food halls in the South Bay, including one north of downtown San Jose. Digital food halls rely on online ordering, but some also use digital kiosks where customers can order. Knies also noted that DoorDash recently announced plans to open a brick-and-mortar retail delivery store in the SoFa District.
Knies said Kalanick’s company has to figure out a curb management plan to avoid causing traffic problems for downtown commuters or VTA buses. But he said a little extra bustle along the street isn’t necessarily a bad thing.
“Downtown could use a little congestion,” he said.
San Jose’s downtown suffered serious economic losses from the pandemic, with many businesses—including restaurants—closing due to shelter in place mandates. Business leaders complain that foot traffic hasn’t recovered because tech companies allow their workforce to telecommute.
Digital food halls allow some on-site dining, but mostly cater to delivery and pick-up service. Knies said the food hall will still bring people into the downtown area where they can shop.
Derrick Seaver, head of the San Jose Chamber of Commerce, said he expects to see a proliferation of similar businesses oriented around food delivery service in the post-pandemic world. He noted that one potential issue companies like CloudKitchens may face is a scarcity of gig workers available for deliveries.
“We hear about the same workforce shortage issues that a myriad of other sectors are dealing with right now,” Seaver told San José Spotlight.