How Are Cloud Kitchens Changing the Restaurant Industry?

Cloud Kitchens

Cloud kitchens are becoming profitable ventures, with their low operational costs, increased scope of innovation and speedy expansions.

Since Covid-induced restaurant shutdowns, online food delivery has increased considerably. So much so that the global online food delivery market is expected to reach US$306 million by the end of 2021. The lockdown and other restrictions resulted in the closure of many restaurants and eateries. To survive, restaurateurs had to come up with innovative and economical solutions. Enter: Cloud Kitchens.

Cloud kitchens are like tech-based coworking spaces for eateries. Kitchens of various restaurants work together in a mega-kitchen. The restaurants have no physical outlets or dine-in services and they only exist online. People can place their orders only via online apps. Then, a delivery person picks up the order from the establishment and delivers it to the customer.

According to Statista, cloud kitchens are expected to grow at 12% CAGR through 2024. The growing preference for online food delivery among customers and minimizing costs among restaurateurs begs the question: are cloud kitchens the future of restaurants?

Some restaurateurs and startup enthusiasts say yes. Here’s why:

Low costs

According to the founder of two successful cloud kitchens Gurmeet Kochhar, “The working capital and infrastructure expenses needed to run the day-to-day operations itself make it an expensive proposition to run a restaurant.” A cloud kitchen reduces many costs, such as real estate, operational and labor costs and overheads. As per a Harvard report, a brick-and-mortar restaurant in New York City costs between US$1 million and US$1.5 million to set up, while a cloud kitchen can get up and running for US$100,000.

Increased profitability

Combining the costs of raw materials, fixed costs (rent, wages, etc.), material, commissions, front staff and maintenance, a report by Finology found that the profit margin of cloud kitchen was 10% as compared to the 3% of dine-in restaurants.

More scope for expansion

Given that cloud kitchens are largely Internet-based, expanding your restaurant to different regions is super cost-effective. You don’t need to worry about the rent or front staff, like waiters and hostesses. Often, the cloud kitchen comes equipped with chefs that specialize in different cuisines. That makes it easier for restaurants with cloud kitchens to scale.

Technology to enhance the consumer experience

Needless to say, the quality of food is essential for the success of a restaurant. But, for a cloud kitchen, the technology is at the heart of it. From the platform-to-consumer interaction to marketing and performance analysis, cloud kitchens rely on technology to function smoothly. In an interview, the Chief Executive of Singapore’s Ebb & Flow Group Lim Kian Chun said, “We were able to combine advanced behavioral data capabilities and pattern analyses with the expertise of our chefs to create a brand and menu that was specifically tailored for our customers.” With cloud kitchens, you have the freedom to customize your menu frequently and enhance the overall customer experience. As customers are favoring convenience above all else, cloud kitchens give restaurant owners and startup founders an opportunity to successfully cater to that sentiment.

Cloud kitchens are all set to be a US$2 billion industry in India by 2024. While they may not be replacing restaurants any time soon, cloud kitchens are here to stay and transform the F&B industry.

Image Source: UnSplash

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