A couple of decades ago, it would have been impossible to wrap your head around the idea that technology would become the key driver in the food industry – but with the passage of time, and especially in today’s coronavirus-stricken times, the role and application of technology has come like a godsend for many industries, including the foodservice industry.
Thanks to technology, instead of going to restaurants and food outlets, people are preferring to stay indoors and order food online via a multitude of online apps that serve as food aggregators. People now have the option to order whatever they want from wherever they want it and have that food item delivered at their doorstep. No more prior bookings or waiting in queues or putting up with lazy waiters – it’s all online and for the better, it seems. These kitchens that are accessible only via the online platforms are known as cloud kitchens.
Cloud kitchens, also popularly referred to as dark kitchens, ghost kitchens, virtual restaurants, or restaurant-as-a-service (RAAS), are kitchens, which focus exclusively on takeaways. These kitchens work on a hub-&-spoke model – where ‘hub’ refers to the kitchen where food is produced and ‘spoke’ refers to the delivery partner that makes sure the food reaches in time to the customers. Depending upon the popularity of a kitchen and the scale of demand it receives, a hub can have multiple spokes i.e., multiple delivery partners.
Ordering food from a cloud kitchen means ordering from a website or an app without ever seeing or having to visit the said facility, which, in essence, is the penetration of the same old e-commerce cloud retail into food. With the comfort, speed and ease of transaction that it offers, the cloud kitchen industry has evolved at an exponential rate in the last few years and the curve shows no signs of flattening. Let us now peel back the layers and try to understand why this industry is growing so fast.
Lower investment in infrastructure means better and cheaper food
Since the cloud kitchens do not host customers therefore, they do not need dining space which considerably reduces the cost of renting the space for business. Also, only a one-time investment is needed at the starting of the business for buying utensils and basic kitchen appliances that are necessary for producing quality food. Since the overhead expenses are significantly lower for cloud kitchens, it allows them to serve food at a lower price as well, which attracts customers like moth to a flame.
The option for scalability
Unlike physical restaurants that have to do a lot to build good customer relations to gain recurring customers, all cloud kitchens have to do is serve good food. Usually, cloud kitchens serve the area within a radius of 3 to 5 kilometres. Once they start getting traction in their zone, they can think about expanding to other areas as well. Compared to opening a new restaurant, opening a new cloud kitchen is much more feasible and much less risky. Therefore, giving a better chance at business growth compared to conventional restaurants. According to a report by Economic Times, India’s cloud kitchen industry is expected to grow at a robust CAGR of 25 percent to US$ 8 billion by the year 2022.
With a model of minimum capital investment, low risk, high margins and endless opportunities, cloud kitchens are becoming one of the safest food business formats. The impact of cloud kitchen has been so pronounced that many traditional restaurants have completely revamped and transformed themselves into cloud kitchens.
Support from the evolving lifestyle
Our lifestyle is not the same as it once was. As we stand on the brink of the fourth industrial revolution, both men and women are entering the job market at a rapid pace. With busy lifestyle and tight schedule, people no more have the time for cooking. This is another reason for the success of cloud kitchens. The cloud kitchen space is majorly a mass-market play because it is adding to the convenience of easy lunches at office or dinner at homes.
So, majorly it is replacing home cooking and casual eating by providing food quickly at affordable prices. People used to eat out 2-4 times a month but now with the entry of cloud kitchens, people order more than 15 times a month – even if we take the conservative side. Naturally, if people are going to be buying so much food so regularly, they’d want it to be affordable as well. Such a high demand under a comfortable budget cannot be fulfilled by traditional restaurants; cloud kitchen is the only way to cater to this demand because of its no-frills attached economic structure.
Same kitchen can
One of the most fascinating features of a cloud kitchen is that it facilitates the operation of multiple brands with multiple identities from the same kitchen. Compared to opening a brand that exists physically at a particular location, it is a whole lot easier to open an online brand. For cloud kitchen operators, it is very easy to create more digital assets in the form of online brands and generate demand for each of them separately.
The operator can have multiple brands operating from the same kitchen which results in better unit economics for each individual brand. The advantage of this is that on a food aggregator app, you may see two different brands that serve different cuisines, but in reality all that process is happening in the same kitchen.
Needless to say, there are lesser risks and better margins for entrepreneurs in the cloud kitchen industry as compared to the traditional brick and mortar restaurants that require control over a number of fluctuating variables to get even a whiff of success. It isn’t too difficult to see that the future of commercial food industry is going to be cloud kitchens and those operators that maintain hygiene professionalism in their kitchens are much more likely to excel and lead the race.
Going forward, restaurants are likely to operate with minimal back-end staff to compensate for the ongoing downturn in their businesses. With the focus on keeping operating costs down, there will be more reliance on generating orders through online food ordering portals and through cloud kitchens.