What is a Cloud Kitchen?
With pandemics forcing the restaurants to close their dining areas, many cloud kitchens are popping up for business. Scrolling through Zomato, Swiggy, Uber Eats or Fatafat you might see some new delivery-only brands emerging every other day. Pandemic has triggered a rise of cloud kitchen (s) as delivery-only outfits. Which do not offer dine-ins and rely on online ordering from the food aggregators.
These are also known as cloud kitchens or Ghost Kitchen or Virtual Kitchens.
Cloud Kitchens are essentially commercial facilities purposely designed to make delivery-friendly food. With menus optimized for deliveries and located on the outskirts of a city. They also offer a waiting area for drivers. They are uniquely tech-enabled and take advantage of food delivery apps on your smartphone. According to a report by Rediff.com, the cloud kitchen industry in India is set to reach $1.05 Billion. While only 13% of the market is being utilized.
JungleWorks is on a mission to nurture this community. And help meet the upcoming food entrepreneurs to bridge the gap between supply and demand by enabling them with the right technology.
- Business Models
- Setup Cost
- Revenue and Profit Potential
- Pros of setting up Cloud Kitchen
- Cons of Cloud Kitchen Model
- The Future of Cloud Kitchens
Different Cloud Kitchen Business Models
There are multiple cloud kitchen models that you can adapt according to your convenience.
1 Adding a delivery module to your existing brick and mortar restaurant
This will help you maximize the profits from your existing staff, storage, ingredients, and kitchen. While creating an extra space for profits. You can also add a pick-up option to your existing restaurant and make it even more productive.
Though it’ll help you maximize the profits of your restaurant it also has some downsides. Your dine-in customers may not like delivery boys coming in and out of the restaurant as it disturbs the ambiance. As soon as you have customers filled up in your restaurant your delivery orders may move down the priority list. Since your kitchen is not optimized for the delivery menu. Things can get messy while juggling between different orders and managing two different sides of the business.
2 Running a Virtual Kitchen or Cloud Kitchen or Ghost Kitchen or Dark Kitchen
When the customer-facing side of your restaurant/kitchen is totally in the cloud and has no physical side such as food truck, pick-up location, or physical storefront then it is a cloud kitchen. Dedicated cloud kitchens solve some of the pain points of the above-mentioned model.
Using this model one can create multiple food brands according to the consumer liking and shape the brand accordingly. Each of these brands is known as a virtual restaurant and runs on the same delivery-only model. You can have one or more brands under your umbrella and scale them accordingly. To the customer, all these restaurants are independent brands. Whereas, they are all prepared under one roof in a food production facility located on the outskirts of the city.
To run a virtual restaurant or a cloud kitchen one requires all the operational needs of a restaurant. You’ll need a licensed brand or a concept, a commercial kitchen space. Along with visibility on or all the delivery applications in order to keep the orders coming. And an educated and manageable workforce, the right balance of supply of the raw products to meet the order demands.
3 Running a Shared Cloud Kitchen
Don’t want to operate on the above models? There is one more alternative to earn from the food business boom. These days many food entrepreneurs are making money by renting out commercial kitchen spaces to multiple brands. This is like a co-working space for cloud kitchens.
This model is more you being the landlord than a food producer. You will have to be more practical and hands-on the business to provide orders to the virtual restaurant that rents from you in order to enjoy the huge profits and rents. This model also involves roles like maintaining the property pest control services, equipment and security services for the staff. You can also go ahead and provide them with dishwashing and laundry services to make your proposition more lucrative and attractive.
Setup Cost of Cloud Kitchen
The most important part of setting up a cloud kitchen is getting all the licenses and clearances such as FSSAI license, GST Registration if you are in India, Fire Licenses, etc. It is advisable to hire an agency for the same. Since it is a very tedious task and that agency apart from the costs of the permit will charge an amount for its services.
Other variables that come into play are rent and the cost of equipment. This depends on the type of food you want to serve in your kitchen, for eg if you only want to serve burgers and fast food it’ll cost you less as compared to the cost of equipment needed for making traditional cuisines.
You can save up a lot of money by buying new electronics and old equipment such as tables, racks, and storage shelves, etc. Other requirements to open cloud kitchen.
The other most important cost is the salary of your staff. You will need min. of 5 employees, which will include 2 chefs, 2 cleaners, and 1 housekeeping staff. Your kitchen is as good as your chefs so you need to employ the best possible chefs to improve the food quality.
The cost of setting up your cloud kitchen in India can be around INR 2 Lakhs to INR 5 Lakhs.
Revenue and Profit Potential for Cloud Kitchens
The revenue potential mainly depends on the number of orders they are getting from the aggregators such as Zomato, Uber Eats, Swiggy, Fatafat, etc. Though these aggregators provide the cloud kitchen with orders they take up a huge chunk of the profit margin as commission, the solution to this is to get your own mobile application that can help you get orders without losing any profit to these aggregators.
With no frontend setup of the restaurants, the cloud kitchen saves up on the costs which then add up in the profits where a restaurant has a profit margin of 3-5% the cloud kitchens tend to have a 10-15% margin per order which increases if your menu is based on similar items which need the same raw materials and you end up saving the cooking gas cost by preparing the base of recipes together. Here are some strategies that can help you get an edge over others.
Pros of Setting Up a Cloud Kitchen Business
Using Custom-built Commercial Kitchens and optimizing them for delivery help cloud kitchens run in an efficient way. If you have multiple brands under one roof you can use batch processing and make the recipes with the same ingredients together to save time, you can also optimize the flow of the kitchen to hand over meals from chefs to drivers.
Data based Decisions and Real-Time Applications:
Since cloud kitchens are built upon technology they can use the data to optimize their process based on the consumer behavior data, this can help the kitchen to reduce food waste, increase the profit/meal and also boost the production of best selling items while removing the loss-leading items from the menu.
Lower barrier to entry:
Since the whole operation is limited to the kitchen the cost to entry is way less than opening up a restaurant. You can start it anywhere by renting a low-budget space on the outskirts of the city since there is no need for a view or setting up an ambiance for the customers, it is easy to get started even with lower budgets.
Lesser Operations and Workforce to Manager
Most of the managerial grunt work takes place on the cloud so you don’t have to worry about employing multiple people to manage your kitchen you just need good chefs and delivery people along with a cleaner. This also takes down the cost since you have a lot less workforce to manage and lesser wages to pay.
Fast and Experimental
Since you save up on a lot of budgets over wages, rent, and other expenses you have an appetite to experiment with different products on your menu, and with the help of the data, you can do it very fast and efficiently.
Scalable in Future of
You can open up a cloud kitchen anywhere in a very short period of time, once you establish your kitchen in one city it is very easy to replicate the model and scale fast.
Cons of Cloud Kitchen Model
No Foot Traffic
Your customers only have an option to order from you over the apps, they do not have any chance to stumble upon your brands while in a mall neither is it accessible to them at a physical location.
Since the 3rd party apps are your only source of orders they have the leverage to charge you a high commission since you are totally reliant on them to get you orders.
Less Control over Food Quality
Things can go wrong due to multiple reasons such as weather, changing staff, time is taken in delivery, traffic. There are many factors that cannot be controlled in the whole process.
Lack of Customer Interaction
The major reason why customers are attached to a restaurant is the dine-in experience, ambiance, and hospitality. Whereas in the cloud kitchen model your only connection with your customer is through your own app or 3rd party apps.
The Future of Cloud Kitchens
Increasing Demand for Delivery
With changing consumer behavior and everything shifting to make the life of the consumer easier and convenient. The food delivery industry is set to grow to a $200 Billion Industry according to a Forbes Article. With the rise in brands such as Zomato and Swiggy consumers are willing to pay a premium for getting their food delivered to their doorstep.
Decreasing Cost of Delivery with Upcoming Technologies
WIth drone deliveries and robots taking over the kitchens, the overall cost will reduce drastically, since cloud kitchens are optimized for technology this will be the next breakthrough in bringing down the cost of production and increasing the profits by a great margin,
Some Big Names in the Cloud Kitchen Industry
Mumbai-based cloud kitchen is now valued at more than $500 million. Started in 2011 it runs more than 2000 restaurants on the internet in more than 35 cities with brands such as Fasoos and Behrouz under its umbrella.
Virtual Kitchens Co
With a series, A funding of $15 Million Virtual Kitchens Co runs several delivery-only kitchens in San Francisco and is planning to open more in the coming time.
How Yelo fits in your Cloud Kitchen?
In order for you to launch a successful cloud kitchen business, you need to have the best technology available at your disposal that can help you function and scale your business.
This technology is mainly made up of a few key components a customer app for your customers to order food, a merchant app or panel for your restaurants to accept/reject and manage orders and catalog, an admin panel for you to manage everything from a single place, marketing tools that can help you market to your existing customers without any marketing spend, analytics that can help you make decisions based on real data not on your intuitions and an efficient delivery management system.
With JungleWorks you get all of this and industry-leading features not only this we also keep on upgrading our system to the latest trends and features so that you do not lag behind your competitors and have an edge over them.
Features like customer wallet to store the cashback and loyalty points and online payment options help your customers to re-order. They also get an option to rate and review your brands on the app according to their liking.
In order to keep the orders on track, we have merchant panels. They help merchants with the status of each order and manage it efficiently. They also have an option to update the catalog add or remove a discount on their products to make them more attractive.
You need to be able to keep track of all the orders, discounts, promotions, offers on your platform at any time and at any place. We address this requirement with our admin panel. That keeps you updated about everything on your platform. It gives you the ability to change or modify anything according to your needs
Delivery Management System:
One of the crucial parts of the cloud kitchen ecosystem is your delivery management. Having efficient delivery management will make your business boom. Since the customers need their food to be fresh and steamingly hot, you need to have an efficient delivery system. We make sure of that by enabling you with features like route optimization and intelligent auto allocation of your orders to the riders.