From photos, music, movies to games and businesses, everything is streamed on the cloud. Adopted due to the sheer dependence on electronic technology, online food delivery has been an absolute success. Building upon this idea comes to the concept of Cloud Kitchens. Cloud Kitchens (also called Virtual or Ghost Kitchens) are commercial facilities built for a sole purpose of food delivery i.e. these outsource food for the delivery without any restraint-like infrastructure or dine-in facilities.
Tracing the Trend
Pizza delivery dates back to 1950s but it was a sudden acceptance of Swiggy and Zomato (who aggregate i.e. are a third party supervisor managing multiple food delivery brands) in 2018 which sky rocketed the trend of cloud kitchens. In October during the same year, FoodPanda acquire Halochef hospitality, a food tech startup and empowered itself to adapting to cloud kitchens. Since then, the cloud kitchen market has seen a rise in key players either shutting restaurants, switching to cloud kitchen or continuing both simultaneously.
Now, the ongoing pandemic, with the prohibition of dining-in restaurants amidst the lockdown, is considered another major blow to the food industry in general and has compelled many startups, both big and small, to switch to cloud kitchens. Morgan Stanley suggests that revenue from food delivery could account for about 40% of the total food industry revenue by the end of 2020 while USB wrote that ‘By the end of 2030, most home cooked food today would be ordered online and delivered by central kitchens and restaurants’.
The Business Model- Features and Working
The basic rule remains the food delivery facility to not be a physical dining entity. A single facility may accommodate multiple brand or the kitchen may be worked up as an incubator with several sellers having their share of the business. The location may be pictured as a food factory with separate stations or counters for distinguished food brands to operate. Entrepreneurs may also be a part of this industry by adding cloud kitchen facility to their existing hotels or running a shared cloud kitchen as a landlord.
For owning or starting a cloud kitchen, an entrepreneur needs a licensed brand, commercial facility space, and lastly, a properly functional food delivery app. The other major requirements of cloud kitchens include kitchen staff and equipment, delivery staff and vehicles, raw ingredients and a hygienic storage facility.
Monetisation of Cloud Kitchens
- DIRECT PROFIT- The basic revenue earned from the delivery foods after deducting the staff salary, cost of preparation and delivery etc. is the primary monetization of cloud kitchens.
- ADVERTISING- Pop-up advertisements and video ads on the personal food delivery app may also be a source of revenue for the cloud kitchen. Other businesses can also be advertised through discount coupons and cashbacks for which they pay the cloud kitchen.
- COMMISSION- As an aggregator such as Swiggy or Zomato, monetization can happen by monetary commission on the basis of per order delivery and delivery charges for several locations.
Why Do Cloud Kitchens Have a Promising Future?
The several reasons why cloud kitchen is a lucrative concept for business and an ideal industry to enter are as follows:
LOW INFRASTRUCTURE – As the business model suggests, no major infrastructure costs need to be incurred barring the market price of the property because the facility is only used for cooking. This makes it a solid one-time investment. The kitchen space cost can further be scaled down by acquiring property located at the outskirts of urban areas as the market price is relatively cheaper.
EXTRAORDINARY PROFIT MARGINS- There is no obligation to spend a fortune on interior design, furniture, parking area etc. for attracting customers. With the absence of dine-in facility, the startup works primarily on the quality of food, time of delivery and proficiency of the food delivery app. This causes a multifold increase in profits and becomes a major reason for hotel owners to turn to cloud kitchens.
EASE OF OPTIMISATION- The single-serviced business model limits the areas that the owner of a cloud kitchen needs to master. This increases the efficiency of the business. For instance, operating multiple brands from one facility can be managed by optimizing the menus and planning the ingredients accordingly. The only other plausible goals remain speedy delivery and quality of food which have their respective teams for monitoring.
GREATER FLEXIBILITY- Being stringently tied to technology makes the startup immune to geographical restrictions. It is easier to alter the features and quality of services in accordance to the customers’ needs. This has a positive impact on customer satisfaction, increases their loyalty and leads to longevity of a successful business run.
LOW MARKETING EXPENDITURE- All the efforts of marketing can be completely routed towards the food delivery app. A business without any physical customer relationship management can spend solely on digital marketing such as in-app rewards/incentives and sponsor ads on facebook and instagram are sufficient for the startup to garner the optimal count of customers.
Forecasted Growth of Cloud Kitchens Through Stats and Trends
- SURGE IN DEMAND OF FOOD DELIVERY– As of now, more than 50% of the customers prefer eating at home. Due to this change in preferences, food delivery industry is expected to grow into a $200 billion industry by 2025. With customers willingly to pay for the convenience of food being delivered, cloud kitchen seems the best industry to flourish in the near future.
- MARKET SIZE- The global market size of cloud kitchen industry summed up to $0.65 billion in 2018 and is expected to mount to $2.63 billion by 2026, a growth rate of 17.2% and doubling rate of about 6 years. This quick expansive encourages more people to join this industry.
- SWITCH TO MOBILE PHONES- The mobile component of the industry is set to have a growth rate of 23.7% pertaining to the recent switch to digital modes of payment and dependence on smartphones.
- MODERN DELIVERY- Despite a major role of delivery staff in the current industry, the tech-abled future of cloud kitchens has unconventional methods of delivery in store. A progressive adaptation of technology would result in the use of robots and drones for delivery which would cut down the cost of production and increase profitability.
- MINIMISATION OF RISKS- Over 60% of dine-in inclusive hotels and restaurants fail in their first year of business and about 80% are shut down within 5 years. Cloud kitchens will largely reduce this risk by a high probability of becoming successful by the correct use of data analysis such as taste, time of order, ingredients and location.
WE, at Game App studio, are a food delivery app development company with more than 7 years of experience in the field of app development. Our company offers effective communication and 24/7 availability with a great sense of customer satisfaction and adaptability.