What are cloud kitchens?
All you've ever wondered about cloud kitchens.
Cloud kitchens. Dark kitchens. Ghost kitchens. Internet-only restaurants. If at all you’re interested in the world of food & restaurants, you’ve probably come across one or more of these terms in the past couple of years. Thankfully, they all mean the same.
A cloud kitchen is a delivery-only restaurant. It does not offer any seating. Customers order via the restaurant’s own website/app, or, typically via one or more of the delivery platforms available in the region.
Why are cloud kitchens all the rage suddenly?
Well, the rise of delivery startups across the globe has played an important role in the growth in the number of cloud kitchens being set up. DoorDash, UberEats, GrubHub1, and Postmates2 in the US. Foodpanda (called Foodora in some markets) across Europe, Asia, and Australia. Swiggy, Zomato, and Scootsy3 in India. Delivery Hero, Just Eat, and Deliveroo in many European markets. The list keeps growing. And these are just food delivery startups (many are now giants). Several generic delivery startups also do food delivery. (Go-Jek, Stuart, Glovo, and Dunzo are just some big names in this space). In each market that they operate, these delivery platforms have been burning millions of dollars each month on the acquisition and retention of customers. And a significant chunk of those marketing dollars has been discounts offered to customers. Ultimately, all this means more people are now browsing restaurant menus online and also ordering food online. While the global pandemic has been a bane for most brick & mortar restaurants, what with all the lockdowns and curfews, it has, in many ways, been a godsend for cloud kitchens. In several economies around the world, food delivery has remained a permitted economic activity, usually classified as an essential service. As food delivery becomes second nature in more and more markets, order volumes and average order values have both seen a steady increase.
Cloud kitchens are also very popular with aspiring restaurateurs, thanks to their lower cost structures. Real estate costs for brick & mortar restaurants can often be exorbitant; cloud kitchens on the other hand are usually set up on non-prime real estate, often on side streets, and many a-times even in real estate usually occupied by offices (think the second floor of a commercial building). Equipment costs can be low, as many restaurateurs end up buying used kitchen equipment. Payroll costs are significantly lower since there is no need for any service staff. All of this means that contribution margins4 are a fair bit higher than your average restaurant.
Possibly the biggest advantage of the cloud kitchen business model is the ability to run multiple brands out of one single kitchen. Since customers only ‘see’ your restaurant online, you can target different audiences in your market through the confines of one kitchen space. This leads to pretty good economies of scale; from simplifying your sourcing & procurement to cross-trained kitchen staff manning different stations during different rush hours… the advantages are varied. This multi-brand approach also helps de-risk the overall business to some extent.
Low barriers to entry mean we’re likely to see a proliferation of cloud kitchens across the world over the next few years. Some startups have already been maximising the potential of the cloud kitchen business model; popular names that come to my mind include Rebel Foods5 in India (think Behrouz Biryani, Faasos, and other brands) and Taster in France and the UK (think Stacksando and Out Fry).
In subsequent articles, I will take you through the many other aspects of the cloud kitchen business. I hope you enjoyed reading this.
Tips at: saketpandit@gmail.com
Just Eat Takeaway.com acquired GrubHub for $7.3 billion in June 2020.
Uber acquired Postmates for $2.65 billion in July 2020.
Swiggy acquired smaller rival Scootsy for INR 50 crores (ca. $8 million) in August 2018.
Investopedia defines contribution margin as the profitability of an individual product or line of products.
Rebel Foods claims to be the world's largest cloud kitchen company, with 3,500 restaurants being run out of 350 kitchens across 6 countries.