The Cloud Kitchen Industry: Revolutionizing Traditional Restaurants for Evolving, New-Age Consumer Needs

Published on

Businesses, particularly dine-in restaurants, are struggling worldwide, and this now seems to be the new normal. It is a fact that unprecedented challenges trigger innovation; cloud kitchens are one such innovation, revolutionizing how traditional kitchens adapt to meet the increasing demand for online food delivery. In the current situation, when people are hesitant to visit crowded restaurants to enjoy their favorite meals, your stagnant business could not just survive but scale new heights with cloud kitchen technology.

Get The Full Ray Dalio Series in PDF

Get the entire 10-part series on Ray Dalio in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues

Q3 2021 hedge fund letters, conferences and more

What Is A Cloud Kitchen?

The world is heading towards virtualization faster than expected; blame the pandemic or simple operational inefficiency, but the demand for door-step food is at an all-time high and is expected to grow even further. Whether you call it a cloud kitchen, ghost kitchen, shared kitchen, or virtual kitchen, it is where foods are prepared for delivery and take-out only.

Food delivery isn’t new, as the pizza industry has relied on it for years. However, thanks to the technological advancements made in recent years, and consumer habits, anyone with a small space or even no space can start a new food delivery business or transform an existing restaurant into a roaring success with a cloud kitchen.

Since cost is a big challenge, cloud kitchens allow you to start, scale, and explore innovative concepts and new markets without the stress of the hefty cost involved in building new kitchens. It is all about improving operational efficiency by optimizing resources, ordering, inventory, and delivery and minimizing additional costs.

One option is to use a shared cloud kitchen, having your staff prepare and produce food for delivery using space and equipment owned by a third party. Here you will be sharing a common area with other similar businesses, so you save money to build dedicated kitchens in specific target markets.

Alternatively, you could opt for a dedicated-space cloud kitchen - a rented space used exclusively by your brand. This way, you have the liberty of using the area to experiment with different concepts. In addition, if you want to test some new ideas, you can use already established kitchens without the need for heavy investment in a new kitchen.

Cloud Kitchen vs. Ghost kitchens

Virtualization is the key here, so call it a ghost, virtual, commissary, dark, or cloud kitchen. Ultimately it is a kitchen conceptualized for delivery or take-away only, with no dine-in food. Instead, you take orders online or via call and prepare food in a cloud kitchen to be delivered to the doorstep quickly.

Both offer you the benefits of space optimization, and you remain focused on delivering quality food and exploring new markets. Technically, cloud kitchens give you a kitchen-as-service for rent, complete with all necessary services, including delivery solutions. As a result, you can launch a new delivery-only digital restaurant or expand your existing business with minimal risk and low capital.

How Does A Cloud Kitchen Operate?

“In simple words, you don’t invest your money in building a state-of-art fully equipped kitchen, but use a fully maintained kitchen to prepare foods and deliver at doorsteps. All your customers come via your website or from food-booking and delivery apps,” says Per Tannenberg, founder of Nivito, who has supplied kitchen equipment to various cloud kitchens.

Thanks to the tech advancements, your operational processes can be streamlined for easy monitoring and management. You can focus solely on building and positioning your digital restaurant brand, exploring new markets, and experimenting with new concepts without the stress of additional rent and labor costs. In addition, cloud kitchens allow you to maximize orders at a minimum price. In recent years, the success of cloud kitchen enterprises suggests that restaurants are successfully leveraging the potential and expanding their businesses.

You are free of the burden of investing money in creating an exclusive dine-in experience to attract and retain customers. In addition, unlike traditional restaurants, your margin improves significantly as you save money that goes to waste in high rental costs, maintenance, and waitstaff.

Cloud kitchens work on the concept of “economy of scale.” Hence, these ghost kitchens are state-of-the-art, full-service facilities with complete operational control using the most up-to-date technology, which is difficult for small and medium-sized restaurants. As a result, you get access to a world-class, highly advanced kitchen with highly trained staff to prepare quality foods and, most importantly, a highly-efficient food delivery system.

Advantages Of Cloud Kitchens

Using a cloud kitchen for your digital-only restaurant brand gives you the advantage of speed and scale at a  low cost. With minimal paperwork and capital, you can start your food delivery business almost instantly. In addition, if you want to test your concept, a cloud kitchen could be the best possible option before launching your full-fledged brick-and-mortar restaurant in the location of your choice. Some of the benefits that cloud kitchens offer are:

Low Capital: Restaurants are capital-intensive businesses, especially when launching in a busy market. You can avoid the exorbitantly high rent of an active marketplace using a cloud or ghost kitchen. Also, unlike traditional businesses, delivery-only digital restaurants don’t need to worry about the costs involved in maintenance, staffing, and creating a pleasant dine-in experience.

Highly Efficient: Besides cost-efficiency, cloud kitchens also offer you the benefit of operational efficiency, as you are using a highly-advanced, custom-built, state-of-the-art kitchen to prepare and deliver quality foods. Depending on your business model, you can use a cloud kitchen to operate several brands and menus from a single location.

Flexible Menu: The digital identity of your restaurant brand gives you the freedom to change the menu according to demand without any additional cost. You know your demand cycle, be it daily or seasonal, so you change the menu and ingredients and make them more cost-friendly for the target market.

Freedom to Experiment: No matter what, people’s tastes change, so you need to keep on experimenting without affecting your brand’s value. Cloud kitchens allow you to experiment with new concepts at a very minimal cost and make changes on the go.

Smooth Customer Relationship: Unlike traditional restaurants, cloud restaurants are fully digitalized to capture all relevant data from start to finish. So, you get high-quality customer data with feedback, allowing you to improve food quality accordingly. You can further optimize the process and staffing based on consumer data insights to make business more profitable.

Easy Marketing: You can leverage the potential of highly user-friendly third-party food delivery apps, who invest heavily in attracting customers. These apps offer you several features to get more exposure with several deals. You don’t have to waste money in blind marketing; invest wisely to reach the need-driven target audience.

Disadvantages Of Cloud Kitchens

Easy access to need-driven customers and maximum exposure to food-delivery apps is a great advantage. Still, competition can be fierce as several players vie to acquire the same customer. So, of course, you have to be intelligent and efficient in building a brand of trust to remain ahead of the competition both in terms of quality and efficiency.

The extraordinary dine-in ambiance of a walk-in establishment might be a tempting model, and it will remain an excellent option for many, at least on weekends. But when it comes to business and profitability, cloud kitchens give you the cost advantage to beat even the best-decorated local restaurants.

Modern food delivery is all about speed. Cloud kitchens located away from your target market could be a challenge if your target market is highly diversified and spread out.

You might be preparing the finest food using the finest ingredients, but when it goes out for delivery, anything can happen; there’s no telling how the food quality might be affected on the journey, so your reputation is at stake if delivery isn’t perfect.

Packaging your food is a big challenge, as sub-standard materials fail to offer the temperature maintenance required for quality food delivery. A slight delay and your customer will be flooding social media with feedback, and you won’t want your prospective customers to see that.

Cloud Kitchen In Here, But How To Choose Right Technology

Your digital restaurant brand will get orders from digital platforms, so your cloud kitchen technology must offer smooth streamlining of orders, payment processing, and seamless kitchen management. Cloud kitchens cut your rent and labor costs, but a highly-effective, integrated point-of-sale system is of the utmost importance. Your cloud kitchen must offer easy capture and display of customer data and any other relevant data so that you can use them effectively to improve profitability. The choice depends on the stage and goal of your business, so you should check suitability and options to scale. Speed is the key; the interface should be straightforward so that kitchen staff, delivery boy, and inventory manager can execute tasks effortlessly without a glitch. In just a week or so, you will notice a significant improvement in operational efficiency, reflected in your bottom line.