With the rising competition and ever-growing technology, the food industry has always been under multiple technological innovations. Cloud Kitchen is one such concept that has sneaked in the food industry recently and has taken the global restaurant industry by storm. Reports suggest that the Cloud kitchen concept is marching ahead at the highest CAGR (Compound Annual Growth Rate) among the other segment in the restaurant industry and is considered as the smarter way to run the restaurant business.
Considering the potential of the delivery-only segment, we have explained how a cloud kitchen works, its business model, advantages, disadvantages & other factors to take into consideration
What Is A Cloud Kitchen?
A cloud kitchen is a concept of delivery-only restaurant with no physical space, no dine-in space, or takeaway counter. It is a restaurant kitchen that accepts delivery-only orders without a traditional restaurant or dining-in facility. Just an operational kitchen for the preparation of food that functions as a production unit. No fancy infrastructure, no waiters, no tables, no furniture, nothing at all. Customers can place their orders online through the online food aggregator apps or the restaurant app, hence, the name cloud kitchen. These kitchens are sometimes also known as ghost kitchens, dark kitchens, or virtual kitchens.
What Are Different Cloud Kitchen Business Models?
All cloud kitchens have the same operational process, wherein an order is received, food is prepared and delivered at the customer's doorstep. However, there is a difference in the way their operations are executed. There are different business models for these delivery-only restaurants.
Standalone Cloud Kitchen - These are the independent kitchens where one brand owns or rents a single kitchen location without offering a dining space. These restaurants generally focus on a single type of cuisine and rely on different food aggregators or delivery channels.
Multi-brand Cloud kitchen - In this business model, multiple brands under one parent company share one kitchen, keeping operational costs down. Every brand/restaurant is cuisine-specific and caters to different customer needs sharing a large kitchen space, under one roof.
Commissary (Aggregator) Kitchen - Leveraging on the robust online delivery market, many delivery aggregators have kicked off their own cloud kitchen models, offering empty kitchen space and minimal infrastructure that restaurant businesses can rent. Restaurants can use these fully stacked or a shell kitchen depending upon their requirement on a shared basis. So basically, many small kitchens can operate within one larger kitchen space, with multiple restaurant brands cooking at any given moment.
Outsourced Cloud Kitchen - As the name suggests, this model allows a restaurant to outsource almost any - or every - process, except the finishing touches. The chef provides the final touch before the food goes out for delivery. Rest all the operations, from food preparation to customer-facing operations, are outsourced.
Co-Working Cloud Kitchen - A co-working cloud kitchen is a large kitchen infrastructure, which multiple restaurant brands can rent and run operations from. These kitchen spaces are located at strategic locations and have individual kitchen units for each brand, fitted with the necessary equipment and utilities.
Advantages of Cloud Kitchen
Cloud kitchens offer the following advantages over traditional restaurants
Low Operational Costs - For a cloud kitchen, a lot of the operating costs incurred by traditional restaurants are done away with. Be it infrastructure costs, overheads cost, logistics cost, etc., cloud kitchens theoretically incur lower costs and have an edge over the brick and mortar restaurant.
No Investment Business - A cloud kitchen can be designed to be a very lean operation - with less staff and infrastructure, enabling a low-risk venture. The initial investment required for starting a cloud kitchen is quite less as compared to a brick-and-mortar restaurant.
Lesser Human Resources Required - Since you don’t need a restaurant at a prime location or hire staff to serve customers, it takes only one-third of the time and resources to open a cloud kitchen as compared to a traditional dine-in restaurant.
High-Profit Venture - It is possible to start a cloud kitchen with less staff, minimal kitchen equipment, no furniture cost, no décor cost. Thus, it gives restaurant operators the flexibility to experiment, cut down on the overheads, and quickly reach operating breakeven making it a profitable venture.
Easy Expansion - As the operation is just limited to a kitchen, the total Capex cost is much lower than a full-fledged restaurant. Restaurants can leverage the scale of cloud kitchens to test new geographies and consumer adoption without investing in infrastructure.
Disadvantages of Cloud Kitchen
Cloud kitchens have their share of a disadvantage as well.
Building Brand - Since it’s an online-only venture with limited customer interaction, cloud kitchens might find it difficult to build their brand at first. With no physical location, cloud kitchens are competing exclusively in a crowded online marketplace. Customers are less likely to become regular and won’t be able to connect with a particular restaurant brand because they are ordering from a third-party app with various restaurants listed.
Dependence On Food Aggregators - Unless a restaurant has its own delivery app, the access to the customers is through third-party food aggregators like Zomato and Swiggy. These aggregators charge between 15% and 35% to restaurants as commission. Ideally, the restaurant doesn’t mind the commission due to the order volumes generated by these services. But is worried about the impact high commissions can have on their business in the long term.
Masked Customer Data - Dealing with third-party food aggregators would leave the restaurant with no customer data of their own. The restaurant would be provided masked customer data, which means they would not know who their customers are. This impacts sales in the longer run, as there would be minimal customer retention.
Business Growth Of A Cloud Kitchen
With increased internet penetration and the age of millennials with disposable income demanding digital, mobile-friendly solutions, the trend of virtual restaurants (delivery-only brands) has lately garnered attention. Cloud Kitchens have evolved the traditional restaurant industry, just like meatless burgers have. And, this is more likely to grow with the next generation, who has grown up with the internet and smartphones, entering the marketplace, advances in kitchen automation, drone delivery. So, many restaurants are now moving towards cloud kitchen operations. Tech platforms like Uengage are helping these restaurants, making it much easier for their customers to order, pay online and get the food delivered to their homes at the click of a few buttons.
Since the cloud kitchen business still has a huge untapped potential, this might be the best time for you to invest in a cloud kitchen business model. With minimum risks involved, it is one of the safest bids, if you are planning to invest in the food industry. And, even if you a running a profitable restaurant, investing in a cloud kitchen would require less investment compared to the classic dine-in restaurant and would add more profits at a lower cost.