Why Cloud Kitchens?
Cloud kitchens have been around since before the coronavirus pandemic. They are, however, better adapted to customers’ needs for social distancing than traditional restaurants. While the pandemic forced many restaurants to shut down or go into survival mode, cloud kitchens weren’t affected as much. This is not to say that there was no negative impact on them. During government-imposed lockdowns, food consumption outside the home completely stopped, and even now, many customers remain hesitant to try food not prepared at home due to potential risks.
The online food delivery business is booming, with its revenues increasing at an exponential rate each year, and cloud kitchens are here to capture this market. Technological advancements have led to significant changes in consumer behavior, which has become increasingly inclined toward online delivery as opposed to dining in restaurants, thus opening up new avenues for cloud kitchens. Even traditional restaurants have begun to take cognizance of these developments and are now venturing into this field. But what exactly is a cloud kitchen? Let’s take a look!
Cloud Kitchens and Their Advantages
A cloud kitchen is a commercial kitchen that operates without a storefront and offers online ordering and delivery services. It can operate 24 hours a day or even during specific time slots, for example, specifically for late-night delivery.
Since cloud kitchens do not require a shop front, there is significant cost-cutting in terms of setting up a brick-and-mortar shop with decor, maintenance, and serving staff. This allows the owners to focus primarily on the quality of the food and its timely delivery. Furthermore, since cloud kitchens can be operated during specific timings for specific purposes, it helps cut down costs of rent, infrastructure, and equipment.
Types of Cloud Kitchens
- Independent Cloud Kitchen: This is the classic cloud kitchen model. It is a restaurant without a physical component. It consists of a single brand that prepares its food in a kitchen according to the orders it receives online. It’s a business model that is self-reliant in terms of receiving orders and delivering packed meals.
- Multi-Brand Cloud Kitchen: This business model is based on a close analysis of food consumption trends in a particular locality. The most popular or most ordered cuisines in a given area or demographic are identified and catered to. The food preparation occurs in a shared commercial kitchen where different brands prepare and package the meals. It is a strategic and efficient model that generates profits and saves costs.
- Hybrid Cloud Kitchen: This model is a mix of a takeout restaurant and a cloud kitchen. It works in the same way as a cloud kitchen except it also has a front that allows customers to come and get their food. The food is also delivered. The delivery process is either independent or happens through an aggregator food delivery app such as Zomato or Swiggy. This model has a single brand working in a single kitchen but also has multiple walk-in outlets offering both takeaway and delivery services.
- Cloud Kitchens Owned by Delivery Apps: In this model, a delivery app company leases or purchases a conveniently located kitchen space and allots it to various up-and-coming food brands. The orders are placed via these apps, and the delivery fleet also belongs to these apps. This model involves a symbiotic relationship between the app company and the food brand. The food brands make use of the app’s reach to get more customers, and the app provides its users with more options.
Cloud Kitchens as High-Profit, Low-Risk Ventures
Most cloud kitchens were able to stay afloat because they did not have storefronts to maintain or pay rent for, and they employed a minimal number of staff. The ratio of rent to revenue is low, which is one of the primary reasons this format was founded and continues to grow. A commercial kitchen is typically rented in the cheapest possible location. Although profit margins may not always be high, the speed of production and savings on various fronts make it a low-risk, lucrative investment. These factors contribute significantly to the scalability of this type of business.
Traditional Restaurants Versus Cloud Kitchens
In a nutshell, a cloud kitchen operates out of a cost-effective location and aims to deliver delicious, high-quality food right to your doorstep. Statistics before COVID-19 showed a 12% growth rate in cloud kitchen businesses compared to a mere 7.2% growth rate in traditional restaurants. By 2024, it is projected that cloud kitchens will overtake the dine-in restaurant business. The pandemic has further slowed the growth rate of traditional restaurants, potentially accelerating this shift. A decline in dine-in trends means that many restaurants may have to pivot their business models to include cloud kitchens to remain viable. While the pandemic accelerated the cloud kitchen business, these changes are likely to persist and cause a paradigm shift.
How Did Cloud Kitchens Develop?
Market researchers attribute technological advancements and the emergence of a new demographic as the primary drivers behind the development of the cloud kitchen business in India. After economic liberalization, the increase in job opportunities opened up new avenues for women. The rise of nuclear families with working women led to a higher demand for food delivery services. Furthermore, the internet and smartphone revolution transformed the way food was consumed. Apps like Zomato and Swiggy now host numerous restaurants and cuisines, provide delivery services, and integrate digital payment gateways into a single platform. These aggregators have significantly boosted the growth of commercial kitchen businesses.
Conclusion
The change in consumer behavior has encouraged many entrepreneurs to venture into the cloud kitchen space. However, takeout is unlikely to replace traditional restaurants entirely, as people will always seek the unique experience of dining out. Instead, cloud kitchens and traditional restaurants will likely coexist, each fulfilling different needs and preferences in the evolving food industry landscape.