Cloud Kitchens suddenly seems like the only logical thing to do and manage the high rentals and poor restaurant margins. Especially, with the advent of cloud technology facilitating online ordering, cloud kitchens are finally here.
Cloud kitchens or the digital restaurant is the latest trend that has quickly established itself. Not to mention, in the restaurant space as a formidable restaurant format.
And with extreme competition in the restaurant space, high rentals, and rising costs, Cloud Kitchens seem like a smarter way to run the restaurant business. In 2018 consumers spent $10.2 billion on delivery services. This was an increase of 42% from the previous year.
The rapid rise of food delivery, which will soon hit the $200 billion mark, is all poised to disrupt the global food industry. An off-shoot of this rising trend is cloud kitchens, also known as virtual, dark, or ghost kitchens.
What are Cloud Kitchens?
Cloud Kitchens are primarily a restaurant kitchen that accepts incoming orders. But, only through online ordering systems and offers no dine-in facility. In addition, they have a base kitchen that delivers food to the customers’ doorstep.
To simply put, these are restaurants that do away with brick and mortar locations and focus only on takeaways. Whereby, a consumer has to use a website or mobile app to order food.
While delivery services aren’t new to a restaurant’s business model, to uproot dine-in facilities completely from it, is an unprecedented move. Of course, which until a few years ago would’ve been unimaginable.
With the rising competition and ever-growing technology, the food space has been volatile for quite some time now. Newer innovations are kicking in every day and creating for themselves an identity and a cult. The latest on the scene is cloud kitchens.
There have been many restaurateurs raving over the concept and even more trying to figure out the intricacies of it. So much so, that cloud kitchens are being considered as the smarter way to run the restaurant business.
Read ahead if you want to understand how a cloud kitchen works, its model, operations & other factors to take into consideration.
Which are the Main Cloud Kitchens?
First, we looked at what is a cloud kitchen. And a popular belief is that a cloud kitchen is any restaurant that operates just from its kitchen. It has no dine-in or takeaway place physically and thrives on home deliveries. While this is true, this image is incomplete.
The business model of a cloud kitchen is very different from what we hold in popular belief. To understand this in detail, we will introduce some of the lesser-known terms of the restaurant industry. Such as Delivery Kitchens, Dark or Ghost Kitchens, and Cloud Kitchens.
How a cloud kitchen works are defined by its mode of operations. Which includes;
- Delivery Kitchens
- Cloud Kitchens
- Dark Kitchens or Ghost Kitchens
1. Delivery Kitchens
A Delivery Kitchen is a restaurant that has no physical space and no dine-in or takeaway facility. As it does not exist as a restaurant of any sort. It relies entirely on third-party integrations or home delivery orders placed on call or through a website.
The main difference between a cloud kitchen and a delivery kitchen is that in a Delivery Kitchen the outlet operates independently for a single brand name. The orders are received and prepared under the same brand.
If the owner runs the restaurant under one single name, then the format is that of a Delivery Kitchen.
2. Cloud Kitchens
A Cloud Kitchen, like a Delivery Kitchen, is a restaurant where there is no physical outlet and the food is prepared for all sorts of deliveries. What differentiates a Cloud Kitchen from a Delivery Kitchen, is the number of brands or restaurants operating in the same outlet.
For instance, in a cloud kitchen, the number of restaurants operating per se are more than one. Although, the owner could be the same person or different people.
As an example, if a restaurateur who owns a delivery kitchen and delivers Coastal dishes, decides that he should start delivering Mexican food as well. But, instead of adding Mexican to the menu of his current brand, starts operating a different brand that sells Mexican from the same delivery kitchen. Then he turns his delivery kitchen into a Cloud Kitchen.
In other words, customers are most likely to order pasta from a restaurant named La Italiana instead of Kentashi Delight. Even if the same chef is preparing the pasta. But the customers don’t need to know that!
2. Dark/Ghost Kitchens
Ghost or Dark Kitchens are delivery/cloud kitchens that are virtually located in different destinations but operate on a hub and spokesmodel. This means that there is one central kitchen where the food is prepared and delivered to the subsidiary kitchen.
Generally, these subsidiary kitchens are located in different areas. When a customer orders, he is rerouted to the nearest virtual kitchen from where the food prepared in the central kitchen is delivered.
Now that you understand the difference between a delivery, cloud, and ghost kitchen, it is simple enough to understand the business model of a cloud kitchen. In the simple structure of the model, a cloud kitchen is a delivery kitchen with two or more brands belonging to different people. Or the same person operating from the same kitchen.
How do Cloud Kitchens operate?
As the number of delivery orders increases, restaurants are now moving towards cloud kitchen operations. According to a report, the market share of delivery restaurants in 2013 was 15%.
The rise of food tech startups has made it much easier for consumers to order and pay for food online, thus increasing food delivery orders. Earlier, the market share of delivery orders was 35%.
Furthermore, the size of the online food delivery market reached over Kshs. 500 K by the end of 2016. This is a growth rate of 150% from the previous year.
Cloud kitchens focus on maximizing the number of orders per day. By focusing on the mass production of food and decreasing the overall production and packaging time.
Restaurants are now also looking to automate the preliminary aspects of food production to cut down the time. This would be achieved by adopting the Hub and Spokes model and Central Kitchen Management.
Food is prepared preliminary at the central kitchen (called the Hub). And then delivered to the spokes, or the food outlets, where the remaining cooking is done. Let us take a look into what it takes to run a cloud kitchen restaurant.
1. Order Taking
Since the primary source of order-taking is online, a cloud POS is a must for Cloud Kitchens and Delivery Kitchens. This is so because there are multiple restaurants and multiple channels being dealt with when it comes to collecting orders.
Especially in a cloud kitchen and it is virtually impossible to keep up with different orders pouring in from different sites. Without a POS that will not only handle this task but also give you an analytic report regarding it.
Another means of taking orders is through telephonic calls. For this, you need a Call-Center Panel that will route the orders to the right brand and outlet.
When you have multiple brands operating at the same outlet, you need a robust POS system that can give you detailed insights about the number of orders received for each brand.
2. Order Processing
Orders collected in a cloud kitchen are processed like normal orders. The only difference lies in the fact that each order can belong to a different brand and so the unique taste of each one needs to be maintained.
To solve this, you can have different chefs catering to different brands or different kitchen areas designated to the team of different brands under the same chef.
Investing in a POS with a Kitchen Display System will be helpful as it will display orders directly in the kitchen on a screen and enable your staff to keep track of all the orders that have been prepared and need to be prepared.
3. Staffs Management
A cloud kitchen because of the lack of a dine-in or take away facility does not require any wait staff but it does require a highly skilled kitchen staff. Your food is the only thing that the customer is in contact with so it has to be flawless.
In cloud kitchens, the same chef may prepare the food of different brands or there may be different chefs designated for each brand. Either way, the full kitchen staff is the apex staff requirement in a Cloud Kitchen.
Apart from that, you will only need delivery boys, if you plan on having an in-house delivery system and kitchen helpers.
4. Suppliers Management
Suppliers in a cloud kitchen can vary from a single establishment supplying for all the brands in the cloud kitchen to different suppliers for each brand. In some cases, you can even have a combination of both.
While finalizing suppliers for a cloud kitchen is not too different from a regular commercial restaurant kitchen, you must still look for a combination that is the best for you.
And if your brands have the same base ingredient but some different ingredients, you can order the base ingredient from the same supplier. And the different ingredients from different suppliers. If your supplier has a different variety of ingredients, you can order for all your brands from the same supplier.
Just like in the case of a restaurant supplier, you need to ensure that the supplier for your cloud kitchen is just as punctual and particular with the orders.
5. Inventory Management
Managing the inventory in a Cloud Kitchen is thought to be the most complicated task of running a cloud kitchen. That is not entirely true.
Yes, having multiple brands under the same roof can make managing inventory a little tedious but by developing a system of checks and numbers, you can handle it without much problem.
Now compute the ingredients that are the same across all brands together, and different ingredients separately. Here is a detailed guide on how to partner with online ordering platforms.
What are the Pros of Online Ordering?
Surprisingly, online food delivery websites have created a revolution in the field of shopping. Online shopping whether it is of clothes; shoes or food it has become easier for each to access various websites. While at the same time, offering unlimited and unmatched online service.
It has given comfort to people by which they can order by their home. And can have their orders in a couple of minutes or days depending on what they have ordered at their door. In other words, the online food ordering solution platform is designed to simplify ordering food online.
Now people can order fresh food online, according to their choice. Ordering food online solution has made people’s life easy and comfortable. They can now order from anywhere fresh food anytime.
Finally, Online food delivery companies also offer their customers seasonal food and food of their choice. Having said that, Are you looking forward to investing in a cloud kitchen? Take an in-depth look at the pros and cons of this new restaurant concept. And then see if it suits your needs.
1. There is a low operation cost
For a cloud kitchen, a lot of the operating costs incurred by traditional restaurants are done away with. These include;
- renting a larger space (that could be anywhere between $40,000 to $150,000+ annually),
- labor cost,
- decoration and remodeling costs, etc.
Take the labor cost, for instance, that takes up 50% (or more) of the average restaurants monthly revenue.
On the other hand, a 500 ft² cloud kitchen space can efficiently serve the same number of customers as a full-fledged 1500 ft² restaurant.
Plus, anyone with a modest budget can start earning money from a cloud kitchen concept.
2. It has low risks compared to traditional
Owing to lower upfront expenses required to launch their ventures, this could be good for start-ups. Cloud kitchens are especially worth exploring for smaller enterprises.
Like food trucks, home-based cooks, or even those who’re interested in stepping foot into the business but have no prior restaurant experience.
Cloud kitchens can also be explored as a potential option for existing brick and mortar restaurants looking to scale up, but are concerned about high expansion budgets.
3. Offers competitiveness in consumer pricing
Another direct advantage of having lower operation cost is that cloud kitchens can use some of the profit margins to offer much more competitive pricing.
Since there’s no need to invest in several areas that a traditional restaurant business normally would have to, virtual kitchens can price their menus more reasonably.
Not only through pricing, but these kitchens can improve the overall customer satisfaction by focusing entirely on two major areas — the quality of food and delivery services.
4. Provides a cheaper advertising channel
Since cloud kitchens are solely online-based businesses, the most efficient marketing channels for them is social media. With a smart social media strategy, these restaurants can reach out to their core audience.
The fact that now most online ordering services allow social media ordering can also work to their advantage. Email and SMS marketing are other effective channels. These are more cost-effective as compared to traditional advertising like billboards, and can further help cut expenses.
5. There is an ever-expanding delivery market
In 2018, the Swiss investment bank and financial services company, UBS published a report titled, ‘Is the Kitchen Dead?’ The report predicts that by 2030 most meals will be ordered online.
Thanks to time-strapped Millennials and ever-evolving technologies. Like mobile ordering apps, drone deliveries, and cloud kitchens. These new-age restaurants, the report suggests can further reduce costs with robotics and AI.
The fact that you could be one of the winners in this segment, which has the potential to reach $365 billion in the next 10 years, is a huge positive.
Get 10+ Apps in 1 system for your Virtual Kiosk
What this means is that you can start accepting orders from online customers looking for delivery options nearby.
With the help of a fast, easy, and powerful ordering platform that comes included with Linga rOS to help your customers with;
- online ordering,
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- scheduling, and more.
Basically, rOS offers a complete array of business applications from online ordering, loyalty, text alerts, inventory, scheduling, customer-facing technology, kitchen display systems, and more.
In short, it’s what a POS system wants to be when it grows up. This is one of the best-operating systems that adapt to you.
With a powerful cloud-based infrastructure and industry-leading integrations and features, Linga is the only solution that can adapt to businesses of all sizes and kinds. Learn how to start with Lingaros or even Get a Demo.
What are the Cons of Online Ordering?
Getting food delivered right at your doorstep anytime anywhere is easier than ever. Thanks to all the incredible on-demand delivery apps available nowadays.
All you need to do is download one of the best food delivery apps. Then thereafter, make a selection, place an order, and make payment via your smartphone, or pay on delivery.
After all, with the massive development of technology, people rely on mobile apps for every big or small work. From paying electricity bills to buying groceries–everything can be ordered with the help of mobile apps. But, do virtual restaurants have any downsides?
1. It is limited to online visibility
Since it’s an online-only venture with limited customer interaction, cloud kitchens might find it difficult to build their brand at first. For instance, reaching out to customers and seeking all that is too important.
Often, trust and loyalty from them will definitely be a huge challenge, particularly with the older generation. Simply, because Millenials and Get Z, being digital-first generations, will still be easier to approach.
Bearing in mind, trust, and loyalty are essential to the growth and sustenance of any brand. And cloud kitchens will need to think out of the box too. By adopting innovative strategies in order to attract a dedicated customer base.
2. It is also much dependence on technology
A cloud kitchen’s business model is totally dependent on technology. Particularly, with more advances in the field like artificial intelligence, Voice Assistants, AR, VR, drones, etc. Therefore, productivity and convenience are expected to increase for both businesses and customers.
However, no matter how advanced technology gets, one cannot rule out the outcomes of various snags. Whether big or small, and any such interruption will cause difficulties. Even in basic operations of a cloud kitchen like taking orders and accepting payments.
There are cloud-based solutions available that allow restaurants to avoid such issues. In that case, some of the online ordering platforms you can utilize include Restolabs, MenuDrive, Chownow, etc. Offering a complete suite of solutions for restaurants planning to take their business online.
Generally speaking, eCommerce has enabled merchants to profit substantially, and the trade, that has seen a noteworthy development, is the food industry. Currently, a large urban population, given the pace of life, doesn’t find the time to prepare meals at home.
Consequently, they look for options in the best possible way. And that’s where food delivery apps jump in to make life easier for customers.
Restaurant experts unanimously predict the future as being delivery-oriented and there are several studies to support this claim. Leveraging on the robust online delivery market at the moment, the times ahead definitely look rosy for cloud kitchens. But like all businesses, even it has its own share of pitfalls.
While cloud kitchen formats are indeed one of the most profitable restaurant formats, with minimum risks involved, you still need to stay on your toes to make it a success. Employ these tips to increase the sales of your online restaurant, and let us know how they worked out for you.
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