Image source: The Guam Daily

Demystifying Cloud Kitchen Concept & Keys to Make It a Striking Success

Whereas the future is unwritten, the prospects for cloud kitchens are expected to be spectacularly flourishing. Yet, to be a big winner within such landscape, never sleep on forming a robust online presence to drive stunning success for your virtual business.
By Kaley Nguyen | 9 min read
on October 28, 2020
Image source: The Guam Daily

In the light of the cut-throat competition and ever-evolving technological advancement, the food and beverage (F&B) landscape has been volatile for a good while. The burgeoning demand for online food delivery, high real-estate costs, and thinning margins have resulted in the birth of delivery-only restaurants or cloud kitchens. Also referred to as ghost kitchens, dark kitchens, virtual restaurants, or satellite restaurants, this concept has gained increasing popularity within the F&B sphere.

Whereas there have been numerous restaurateurs raving over the cloud kitchen concept and managing to figure out its intricacies, this not-very-new model concept remains quite new for several others. Besides, given that you can establish your food court very quickly and quite effortlessly, especially with the provision of infrastructure by third-party vendors such as CloudKitchens, it is you and your marketing efforts that make your virtual kitchen a striking success. Whether you are an established restaurateur wishing to adopt the novel delivery-first concept or a newbie looking for a fast and inexpensive way to join such an exciting hospitality world, let’s read on to demystify the cloud kitchen business as well as adopt winning practices to ride on the crest of a wave.

Cloud Kitchen Business Model Decoded

Cloud kitchen infrastructure
Image source: Press Associates

Cloud Kitchen Business Model & Its Promisingly Lucrative Future

Cloud kitchen can be defined as a delivery-only restaurant that has no physical space for dine-in. It solely acts as a unit of food production where online orders are prepared, packaged, and dispatched from, without the on-premises dining or direct customer interaction.

Since there is no “Front-of-the-House” with no host, no wait staff, and no cashier, the expense involved in the interiors and staffing is minimized. On average, a virtual kitchen can be well opened at one-third of the cost and time which is typically taken to operate a traditional dine-in restaurant. In addition to cost-cutting, the cloud kitchen business model is on a meteoric rise as it empowers food operators to experiment and bring about innovations in the way food is prepared and delivered to the end customers.

In fact, there now exist immense market opportunities for this business model. As the demand for food delivery continues to soar, cloud kitchens are increasingly becoming a popular option. According to USB's report, the online food delivery market is projected to grow from $35 billion globally in 2018 to staggeringly $365 billion by 2030, a striking ten-fold increase in the 12-year period. Since online food delivery, combined with on-demand and sharing economies, is a lasting part of the global mega-trend, there may come a time when most meals currently cooked at home are instead ordered online and delivered from either restaurants or central kitchens.

And actually, we all almost observe this scenario during the quarantine period within the COVID-19 outbreak. Although such “black swan” pandemic wreaked havoc on the whole economy and resulted in entire shuts-down of almost all dine-in facilities of restaurants, restaurateurs adopting the operational philosophy of cloud kitchens have witnessed spectacular success. Based on POSist’s prime report on the Restaurant Industry & Market Evolution, more than half of food service providers placed their bets on setting up a delivery-only outlet of their brand.

After all, the low investment and operating costs incurred when setting up and running a virtual kitchen, together with the ease of experimentation and expansion, as well as promising business opportunities, makes cloud kitchens an extremely lucrative restaurant format for restaurateurs to capitalize on.

Types of Cloud Kitchen Business Model

Whilst this business model has undergone a plethora of variations, it can be classified into three main types demonstrated as follows:

Alternative #1: Shared Space Cloud Kitchen

This type refers to one operating out of a rented infrastructure, which is typically large co-working kitchen spaces set up specifically for multiple cloud kitchen units to simultaneously share.

These units are well-equipped and replete with restaurant appliances and other modern amenities required for a standalone cloud kitchen. Shared kitchen spaces typically provide a common storage facility and cleaning and dishwashing services, making it easier for the individual to simply focus on food preparation.

In some cases, the shared space may also come with pre-existing technology that a brand can leverage to get into the swing of things.

Alternative #2: Dedicated Space Cloud Kitchen, or so-called Dark Kitchen

A dedicated space cloud kitchen can be understood as either a newly built or existing kitchen that has been rented (or purchased) by a brand - solely for its own use.

This brand may decide to put one concept or several different concepts in one single location. Yet, unlike the shared space cloud kitchen accommodating the operations of multiple brands, a dark kitchen doesn’t have other brands operating out of that space.

Alternative #3: Virtual Brand

A virtual brand allows you to diversify your offering and reach new customers.

Should you choose to adopt this type of virtual brand, this means that you utilize the existing infrastructure and resources – your long-established kitchen, equipment, and supplies - but under new branding, with a view to testing out a new concept or cuisine without heavy investment.

In other words, a virtual brand will offer a food menu that is different from the restaurant housing the virtual brand. Hence, in this way, the two brands don’t compete with each other, and the revenue generated from the virtual brand is incremental to the whole business. Besides, virtual restaurants are brands that exist solely online, usually relying on third-party online food aggregators or their own online-ordering enabled website.

This cloud kitchen type presents precious business opportunities to:

  • Deploy new ideas and new concepts under a new brand name with lower risks and costs
  • Reduce food wastage in your kitchen
  • Experiment and test new dishes and cuisine styles before officially adding them to your established brand menu
A kitchen for rent in San Diego
Image source: Press Associate

Of course, these mentioned types have their own merits and drawbacks. Should you still be swithering about which one to choose, let’s cast a quick glimpse over the pros and cons of each cloud kitchen type outlined below:

Shared Space Cloud Kitchen
Merits:
- Very few or no restaurant appliances and equipment cost
Reduced staffing cost with available services provided such as cleaning
- Less risk, especially in case the venture doesn’t work out, due to minimal expenses
- Potential technology base, which may be integrated with delivery services

Drawbacks:
- Month-to-month fees, which may be higher in the long-term compared to a bulk up-front cost
- Lack of control to the extent that restaurateurs may have to use what is in the space (they cannot move/replace equipment)
- Little likelihood to have a tailored customer space for order pickup, which means all orders will go through the delivery
Dedicated Space Cloud Kitchen (Dark Kitchen)
Merits:
- Own autonomy over the brand image – its core message, its look and feel
- Full control over equipment, which means you can move, replace and of course sell things around as needed
- Available space for customers’ order pick-up
- Full control over who goes in and out of the space

Drawbacks:
- Higher initial investment, including the cost for own equipment
- High risk for non-established brands
- Medium risk for established brands (which can be mitigated with meticulous “pre-market” research)
Virtual Brand
Merits:
- Minimal start-up investment Ability to utilize existing kitchen space, which may already have the equipment or can repurpose existing equipment
- Low risk: should it not turn out a success, you can shut down the operation without worrying about rent and selling equipment
- Well-suited for established brands solely wishing to test a new recipe or cuisine styles

Drawbacks:
- Possibility to take up essential space in a crowded kitchen
- Requirements to effectively separate out the reporting of multiple concepts to properly evaluate its profitability
- No foot traffic (so as to avoid branding confusion, operation is done as delivery-only)
- Being tough to promote, which results in additional marketing costs  

Is the Rising Startup Cloudkitchens Already A Well-Rounded Solution for Your Cloud Kitchen Model?

CloudKitchens homepage
Courtesy: CloudKitchens

CloudKitchens as an Infrastructure Provider

Undeniably, CloudKitchens is among the leading players within the market for cloud kitchen space provision and well-adopted by a large number of restaurant owners. Before delving into CloudKitchens, let’s first grasp a brief overview of this dynamic market.

Since the concept of cloud kitchen has gained momentum in the collective consciousness, several investors have been jumping on board, investing money to build out cloud kitchen spaces specifically catering for restaurateurs. Actually, with high hopes of yielding great returns when becoming early market entrants, a great number of high-profile venture capitalists have emerged as the key players within this business sphere. Among them is Travis Kalanick, the co-founder and former CEO of Uber.

Having resigned from the company in June 2017 amid heated controversy, the ousted Uber cofounder has pivoted from the ride-hailing scene to cloud kitchen business - another kind of shareable market. Aligning with the hot trend in the food-delivery arena, Travis Kalanick has invested staggeringly $150 million into City Storage Systems, which will focus on undervalued real-estate. His holding company has two businesses, CloudKitchens and CloudRetail, with the former opening large-scale shared kitchens with the aim of taking advantage of the delivery-only boom.

Travis Kalanick with his CloudKitchens startup
Image credit: EnvZone

Back to the business of CloudKitchens, it is, in essence, a real estate company that provides smart kitchens for delivery-only restaurants. Specifically, CloudKitchens offers commercial spaces with essential infrastructure and amenities, allowing restaurant owners and chefs to pivot their business with delivery-only kitchens designed for efficiency.

In addition to providing a turn-key solution helping restauranteurs “launch a kitchen in one month”, CloudKitchens also handles the logistics and fulfillment as well as covers the facility management and cleaning. Plus, by working with CloudKitchens, food operators gain access to its software that streamlines delivery orders straight onto a single tablet. Besides, it enables restauranteurs to build multiple concepts out of one kitchen and “unleash your creativity in the kitchen without losing your shirt, thanks to a low investment”.

Positioning itself as one who “serve[s] those who serve others”, CloudKitchens can be an ideal choice for those who consider adopting the cloud kitchen model, no matter which type among the given three you wish to operate in.

Nevertheless, whereas CloudKitchens addresses almost “all the pieces of the operations puzzle”, from kitchen space, logistics to proprietary technology, and facility management, it is yet to cover your marketing aspects. You shouldn’t expect it will, either.

After all, since you decide to establish a virtual kitchen which 100% relies on the digital “virtual” world, it’s a “must” and also a “should” that you manage your online presence for flourishing sales performance.

So, what should you do?

Winning Marketing Practices to Ignite Your Online Presence

Once again, marketing is pivotal for cloud kitchens as it’s almost the single source of driving awareness and generating orders. Since you're not spending money on setting up a brick and mortar restaurant with heavy expenses on fit-out, furniture, decorations, and front of house staff, let’s set aside a reasonable sum for marketing. Whereas there exists a myriad of marketing tactics, below are some which are particularly tailored for your virtual business.

#1. Harness the Power of Social Media

Amongst various social sites, Instagram turns out to be the perfect channel to showcase visual content to grab your target customers’ attention and tease them into trying out your food. Since your Instagram content has strong potential to establish stronger connections with your customers, you’d better off orienting your efforts on crafting compelling pieces of content and including eye-catchy visuals, including product photos, playful videos, behind-the-scenes photos, and so on. Also, never forget to keep it dynamic. It’s a great idea to repost/share the content of your loyal customers as well as highlight news and special features in your stories.

Equally important as Instagram, Facebook - one of the biggest social media channels today, can pull in a plethora of customers, if you can leverage it well, especially when utilizing it to promote discounts or special offers. That way, be 200% sure that your posts on Facebook engage people into taking action by adding calls to actions.

Besides Instagram and Facebook, Twitter is another indispensable social media platform. It proves to be an excellent medium to talk to your customers or send out a Tweet relaying your viewpoints. For instance, should you own a vegan restaurant, you could share about your communal engagement to decrease pollution by supporting a charity, using organic produce or recyclable products, etc.

These social media platforms are likely to empower you to target by demographic and location to ensure you’re reaching the right audience. Plus, you can set daily limits on your advertising so as to ensure you stay within your budget. Some easy-to-use graphic design platforms, such as Canva, are also of great help in creating eye-catching social posts.

#2. Pay Close Attention to Customer Relationship Management

Once you’ve successfully convinced customers to land on your food court and order a dish, you should wish them to come back – again and again. Towards your efforts of customer retention, there are a few incentives you can offer to drive a repeat purchase, which consists of loyalty rewards, discounts on their next order, or certain special offers when they make referrals to their friends or order big portions catered for groups.

Besides, there exist other workable practices to form long-term customer relationships.  From the moment a customer has ordered their first meal, you are left with some basic pieces of information, such as their email address and/or phone number. It’s a “should” that you leverage these channels – i.e. sending out newsletters via mails - to occupy your customers’ mind, whether it is to offer promotions for special occasions, to inform them that you have a new menu, or communicate any other news that will be of interest to them.

#3. Tie-up with Third-Party Online Food Aggregators

Partnering with third-party food aggregators such as UberEats, Zomato, Swiggy, Grubhub or DoorDash is undoubtedly more than crucial to level up your marketing game and to stay afloat, given the extreme competition.

Yet, having your food court available on these platforms is not enough yet. These online food aggregators typically offer several restaurant marketing packages that allow cloud kitchen operators to promote their brand at an affordable price. Certain aggregator-based platforms also run ad retargeting which helps increases the restaurant brand’s conversions. Given that engaging in these programs will incur additional expenses, it grants you golden chances to widen your visibility and garner more orders, especially if your cloud kitchen brand is still in its nascent stages.

Cloud kitchen staff prepares Uber Eats order
Image source: Sifted

#4. Establish A Solid Online Presence with A Stunning Website

Last but obviously not least, developing a website with full options to order food online is no longer a nice-to-have, but a must-have for a delivery-only business. Beyond any doubt, having a proper website in place not only widens the scope of your revenue streams but also brings out lucrative customer engagement opportunities.

Since your target customers are likely to search for details about your restaurant online, ascertain that your website is optimized with an updated menu as well as features all the essential information such as delivery estimated time, details of multiple channels for ordering food, delivery areas, etc. 

Positive customer testimonials do wonders for your virtual kitchen, thus considering including them while also highlighting the best reviews for better credibility with customers. Another wise marketing tactic is to add an option of location services and pre-orders to deliver the best sense of ease and comfort to your customers. Additionally, should you be running promotional offers, let’s highlight them on the main page of your website. Also, don’t forget to showcase your social media profiles on your site pages to connect directly with your customers, which will also help increase the chances of receiving orders from the customers.

The Bottom Line

Whereas the future is unwritten, the prospects for cloud kitchens are expected to be spectacularly flourishing. Should you decide to jump in such a potential sphere, partnering with such infrastructure providers as CloudKitchens can be a smart strategic move to get off to a good start. Yet, within such an ever-evolving competitive landscape, you should also prepare yourself with sound and unique market tactics to actually make a killing.

And again, never ever sleep on setting up a robust online presence for your virtual business. If you find it too overwhelmed to handle all on your own and need any help with a dedicated team to get your cloud kitchen exposed to the digital world, don’t hesitate to get an online presence manager.

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