Thinking of starting a Cloud Kitchen? Familiar with the cloud kitchen concept? The cloud kitchen business plan centres on a professional kitchen with no seating or waiting staff. Menu selection for cloud kitchens is virtual, and food delivery is usually outsourced. For cloud kitchen menu ideas and other tips for cloud kitchen startups, read on …
What are cloud kitchens? You would be right in thinking that cloud kitchens are something to do with the internet cloud: specifically, the ‘cloud’ in ‘cloud kitchen’ refers to customers choosing from online menus. Cloud kitchens are professional kitchens preparing food for private customers who order online and then get their food delivered to them.
For new restaurateurs, cloud kitchens are a great way to dip your toe into the restaurant business and experiment. That’s because cloud kitchens are much cheaper and quicker to set up than conventional restaurants. And, when they are up and running, they save on costs for the restaurateur and save on time for the customer.
The chief downside with the cloud kitchen business model is the lack of human contact between restaurateur and customer. You can’t rely on personal charm and restaurant ambience to develop patronage. Instead, if you want to go for it with a cloud kitchen, you need to nail your marketing online.
Pizza delivery restaurants kickstarted the cloud kitchen model, so they are not new. But the rise of smartphones allied with customers having less and less time means that cloud kitchens have been growing in popularity; and then Covid-19 struck, and the concept went from being a choice to a necessity for a sector in which dining out was suddenly not possible in many countries.
Are cloud kitchens profitable?
Definitely! Globally, cloud kitchens netted 161.65bn Riyals ($43.1bn) in 2019. The market for cloud kitchens is expected to top 262bn Riyals ($70bn) by 2027 – that’s an impressive Compound Annual Growth Rate (CAGR) of 12% (figures from Allied Market Research).
The banks are behind cloud kitchens. Dubai-based Kitopi – who operate sixty cloud kitchens across the Middle East – secured 1,556m Riyals ($415m) in venture funding in early July 2021.
Cloud kitchens are the newest offshoot of the booming online food delivery market in Saudi Arabia. Reportlinker.com observe that, ‘the Saudi Arabian Online Food Ordering and Delivery Market was valued at USD 511.21 Million [1.917bn Riyals] in 2020 which is forecast to grow at 10.05% CAGR during 2021 – 2026.’
Cloud kitchens are sometimes called ‘dark kitchens’, ‘virtual kitchens’ or ‘ghost kitchens’.
"For new restaurateurs, cloud kitchens are a great way to dip your toe into the restaurant business and experiment. That’s because cloud kitchens are much cheaper and quicker to set up than conventional restaurants".
What Is The ‘CLOUD KITCHEN’ Business Model?
The basic model for a cloud kitchen has 3 components. The idea is to combine:
- a bricks-and-mortar kitchen, with …
- A virtual ordering system, with …
- Take-away, or more commonly, home delivery.
CLOUD KITCHEN = BRICKS-AND-MORTAR KITCHEN + VIRTUAL ORDERING + DELIVERY
What Are The Different Kinds of Cloud Kitchen?
Business models for cloud kitchens generally combine some or all of the following options:
| ‘Bricks-and-mortar’ kitchen | Equipment | Branded offering | Ordering | Delivery |
You use one purpose-built bricks-and-mortar kitchen. | You purchase all your kitchen equipment. | You offer one branded menu. | Customers order via your website. | You offer physical delivery yourself. |
| You share one purpose-built bricks-and-mortar kitchen, which is owned by a third party, with other brands. These are often called commissary, or aggregator, kitchens. | You rent your equipment under short or long term contracts. You choose a mix of buying and renting your equipment. | You offer a number of branded menus. | Customers order via a third-party delivery specialist (otherwise known as ‘food aggregator’). Customers can order your brand from a number of different third-party delivery specialist.
| You team up with a number of delivery partners. You offer a take-out service, using food lockers onsite linked to your bricks-and-mortar kitchen.
|
| You add a delivery service to your existing restaurant kitchen. You use a ‘pod’ kitchen. This is a compact pre-built kitchen unit which can be placed outside in areas of high footfall. (Pod kitchens are usually made of metal and not actually bricks-and-mortar). You use one central kitchen to supply a number of smaller kitchens. This is called the ‘hub and spoke’ model; not for newbies! |
How Does A Cloud Kitchen Operate?
A cloud kitchen operates on the basis of making professional dishes for home consumption, with ordering and delivery outsourced to what are known as ‘food aggregators’. These are companies specialising in linking up cloud kitchens with their clientele. Customers download an app or use a website to order.
The advantage to the customer is that they can select from many hundreds of menus from different brands. The advantage to the restaurateur is that their food is widely promoted, but the disadvantage is that there is loads of competition!
Key food aggregators in Saudi Arabia include: Hunger Station, Talabat, Careem, Jahez, Mathaqui and The Cheftz.
How Do I Start A Successful Cloud Kitchen?
Want to start your own cloud kitchen? Here’s Raqtan’s top tip: get some experience working in somebody else’s cloud kitchen first! Then you can learn how to run it properly from direct experience, without making newbie mistakes at your own expense.
What is the best location for my cloud kitchen?
With a cloud kitchen, your offering is advertised virtually: customers pick from an online menu, and are delivered their food. Your business does not have physical footfall. But you still need to think carefully about where you locate your cloud kitchen. Primarily that’s because your offering will be limited to a certain geographical area. This area will be determined by how quickly your food can be delivered and remain edible.
Some top-end kitchens can be persuaded to fly food around the world, but this is not a common business model; other businesses rely on motorised transport, so that means geographical location is important.
Key factors in locating your bricks-and-mortar cloud kitchen:
- Proximity to delivery partners
- Proximity to suppliers
- Distance from other competing restaurants
- Match between level of cuisine and local level of prosperity
- Match between type of cuisine and local preferences
A key advantage of a cloud kitchen is that you do not need to site it in expensive retail areas. You can position your cloud kitchen in the middle of a residential area and benefit from having customers right on your doorstep – but you will need to balance the need to have suppliers of fresh produce close too.
Alternatively, you can use the pod kitchen model and set up on the street in areas of high footfall for take-away and delivery; make sure you thoroughly investigate what permits are required!
How do I ensure safe and hygienic packaging for my cloud kitchen?
Because of the Covid-19 pandemic, hygienic packaging for cloud kitchens is a hot issue. Many countries have strict regulations in place. Make sure you find out what these regulations are, and stick to them rigorously. Be sure to factor into your budget the cost of top-notch packaging that keeps your food hot and infection-free as it transits from your kitchen to the customer. Liaise with your delivery partners to see what, if any, Best Practice they recommend.
How do I ensure a smooth delivery process for my cloud kitchen?
Most cloud kitchens use a number of delivery partners to maximise their brand exposure and get their dishes in front of as many potential customers as possible. A good idea – if expensive – is to ensure that you have your own virtual delivery system as a back-up.
What is the correct technology for my cloud kitchen?
It makes sense to promote your brand(s) with as many order/delivery specialists as possible. This maximises the number of potential customers who get to see your menus.
A key technology to employ in this case is a centralised menu dashboard, which allows you to change your menu and then updates the changes across all linked menus. Otherwise, whenever you change your menu, you will laboriously have to update all the menus you have out with your various order/delivery partners.
What is the best way to manage orders in my cloud kitchen?
A delivery aggregator (such as offered by Deliverect) provides software which means that all your menus go through a central dashboard. As outlined above, this means that you only have to make one change onscreen and that change is sent out to all your delivery partners.
What staff do I need for my cloud kitchen?
The big advantage of a cloud kitchen is that you only need staff for the kitchen itself. You do not need waiting staff, because all food is delivered direct to the customer. You may choose to run your own delivery system, but otherwise you can outsource it and save on delivery staff too.
Should I outsource delivery for my cloud kitchen?
Generally, cloud kitchens outsource delivery. That is because delivery providers tend to be plentiful and thus offer competitive prices. Also, big delivery providers tend to offer an online ordering service and delivery as one complete package; this reduces your responsibilities massively and gives you more time to focus on your food and your branding.
Can I open a cloud kitchen from home?
Yes, you can. That’s because a cloud kitchen always offers delivery (and sometimes take-away) only. You do not need to provide seating or waiting staff.
If you do open up from home, be sure that your kitchen is large and well-equipped enough to handle multiple orders at once. Be sure also that you are happy to have staff working in your own kitchen, because you will need help! You will also need to comply with all hygiene and safety regulations relating to professional food preparation. And, because you will have at least some staff, you will need to look into labour legislation too. Just because you are a home-based operation, does not mean you can be casual!
What Are The Benefits Of A Cloud Kitchen?
The main advantage of a cloud kitchen is that you can concentrate on the cooking and leave out customer service altogether. This means that a big chunk of hassle is cut out of your new business equation:
- As the restaurateur, you save time: both in planning your business, and in running it.
- You don’t have to pay for, and run, a seating area.
- You don’t have to buy or rent expensive premises in areas of high customer footfall - because your cloud kitchen is delivery only.
- You don’t need to pay for floor staff (waiters and waitresses).
- You can collate valuable customer data about menu selection - because ordering is online only. This means that (thanks to ordering software) you can pinpoint which dishes are popular without having to do the calculations yourself - as you would with the paper ordering system of a conventional physical restaurant. Online ordering systems also give the customer the chance to give immediate feedback and rate their experience.
What Are The Drawbacks Of A Cloud Kitchen?
Kitchen hygiene has always been a professional priority. But, with the onset of Covid-19, the need to sanitise has become even more important, with many governments globally introducing new regulations.
On the other hand, the Coronavirus pandemic has done the restaurant industry a favour by encouraging the development of cloud kitchens. In Covid-19 times, most countries have banned eating out – and customers have shown little interest in risking their health and that of others in doing so. Customers have still wanted to eat professionally-cooked food, so the demand for online food delivery has risen.
What Are The Best Marketing Strategies For Cloud Kitchens?
With a cloud kitchen you do not benefit from passing trade. That’s because, unlike with a conventional restaurant, you are delivery only, with no seating area. This means that your marketing strategy can include local advertising to match your delivery area – but the main focus should be online.
The best marketing strategies for cloud kitchens blend some of the following:
- An instantly-memorable brand name. Keep it simple!
- A Unique Single-minded Proposition (USP). This means a simple phrase which sums up what is different and better about your offering.
- A simple, striking colour scheme that fits the type of cuisine you are offering.
- A proprietary website which features your menu and, ideally, your own menu/ordering system.
- Penetration of social media: use Facebook to feature stories and photos of your staff and food to bring a personal touch to your offering. Use Instagram to feature ‘Instagrammable’ snaps of your dishes. Use Twitter to keep customers informed of news, special offers and competitions.
- Online, you can use Pay Per Click advertising (like Google’s Adwords) to lead potential customers to your website.
- Even though your shopfront with a cloud kitchen is virtual, you can still advertise locally within your delivery area. That means posters, flyers, and local radio.
In the final analysis, two questions perhaps spring to mind:
Question: are cloud kitchens cost-effective?
Answer: cloud kitchens are significantly more cost-effective than conventional restaurant business models, even when you take into account paying your delivery partners. That’s because you don’t need to pay for/rent premises or pay for waiting staff.
Question: why do cloud kitchens fail?
Answer: cloud kitchens fail far less than conventional restaurants. But when they do, the reason varies: it could be that your food is simply not up to scratch, or that your branding is not simple and striking enough, or because you are serving a cuisine that is simply not wanted locally.
A key way to maximise your chances of success as a cloud kitchen owner is to be sensible when it comes to equipping it. Did you know you can rent kitchen equipment? Raqtan offers a number of flexible cloud kitchen options to get your restaurant start-up up and running without breaking the bank.
Thank you for reading Raqtan’s overview of the successful and popular cloud kitchen business model. We would be delighted to answer any queries you have. Please leave comments in the section below.
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