Cloud Kitchen Business Model
Overview
A cloud kitchen is a delivery-only restaurant that has no physical space for dine-in. It relies entirely on online orders placed through online food aggregators or an online ordering-enabled website or mobile app.
The cloud kitchen format gives the restaurant the flexibility to launch more than one brand using the same kitchen infrastructure. Multi-brand cloud kitchens allow the restaurateur to utilize the same kitchen infrastructure and resources to operate multiple brands.
For example, a restaurateur who owns a delivery-only kitchen and delivers South Indian food can start offering Mexican food as well. But instead of adding Mexican to the menu of his current band, he can begin to operate a different brand that sells Mexican from the same delivery-only kitchen.
The reason restaurateurs prefer to start a new brand instead of introducing new items on the same menu is that customers prefer to order from a different restaurant if they think it specializes in that cuisine.
Examples of Cloud Kitchen Models
1) The Rebel foods (Faasos) business model: Multi-brand (cuisine), single kitchen, multiple outlets, no storefront.
The more elaborate cloud kitchens are based on data intelligence such as area wise demographics of residents, popular cuisines, and hyperlocal demand-supply. The idea here is to address the demand for the most ordered cuisine (Biriyani, North-Indian, Chinese, Burgers, Pizza & Pasta – that’s really it in India) in a neighborhood (a 5-6 km radius) with relatively lesser restaurant options that serve these dishes. This model is clever because it positions the separate brands as their own individual establishments. And having a single shared kitchen keeps operational costs low. This model closely resembles the original cloud kitchen model with no physical storefront. You could think of it as specialized cuisine-based cloud restaurants, owned by the same mother brand, sharing the same kitchen.
How it works :
Orders come from online sources
Single kitchen, multiple brands
Each brand specialized in a cuisine
Delivery only
A mix of aggregator dependency and self-reliance for orders and deliveries
2) The Swiggy Access business model: Aggregator owned, multi (restaurant) brand, rented co-working kitchens, no storefront.
This cloud kitchen model often called the “shell” in the food business circles, is basically an optimally located empty kitchen space with the bare minimum infrastructure – gas pipelines, drainage and ventilation systems. Established (or new) restaurant businesses rent that kitchen space, make use of Swiggy’s online ordering, delivery fleet and menu intelligence to set-up a restaurant. The restaurant brings the equipment, staff, raw materials, and recipes. In simple, the restaurant does the cooking and Swiggy does the rest.
Typical kitchen size – Each kitchen is 100-500 sq ft within a larger kitchen.
How it works :
Orders come from Swiggy
Single kitchen, multiple restaurant “partner” brand
The Restaurant takes care of the menu, kitchen equipment, and staff
Delivery and fulfillment, by Swiggy
3) The Zomato Infrastructure Services business model: Aggregator owned, multi-restaurant brand, rented kitchens, with a storefront.
One-up from the bare bones Swiggy access model, the Zomato model is based on the idea of rented kitchens but with built-in kitchen equipment and comprehensive processes. In this model, Zomato also shares its know-how on order demand management. Like the Freshmenu model, these cloud kitchens also have a storefront where customers can walk in. A mash-up between a cloud kitchen and takeaway restaurant, similar to the Freshmenu example. Powered by Zomato’s insights.
Typical kitchen size – 250-500 sq ft
How it works :
Orders come from Zomato
Single kitchen, multiple restaurant “partner” brand
The Restaurant takes care of the menu
Zomato does everything else
Customers have the option of walking into physical storefronts
What are the benefits of cloud kitchens for businesses?
Low overheads
One of the biggest challenges for restaurant operators is staffing costs and compliance with ever-stricter labor laws. Cloud kitchens can more easily take advantage of on-demand labor and don’t have to worry about service staff at all.
The barrier for entry is far lower for cloud kitchens compared with traditional restaurants. Ghost kitchens theoretically incur lower costs by eliminating the need for any front-of-house operations, floor space for seating, or high rents for storefronts with high foot traffic in prime locations.
It’s also possible to save on ingredient costs by taking advantage of economies of scale. For example, making larger orders for several different delivery-only brands operating from the same kitchen. These savings can be passed onto the consumer to give virtual restaurants a competitive edge over traditional restaurant.
Better efficiency
Using custom-built spaces and optimizing their processes specifically for delivery, ghost kitchens can run very efficiently. If you are operating several brands from one kitchen, you can batch prep ingredients for several different menus and design the kitchen to prioritize the speed of preparation and the process of handing over meals to delivery drivers.
Access to user data and real-time adaptability
Because they are designed with tech in mind, cloud kitchens can optimize processes, ordering, and staff scheduling based on consumer behavior. The menu can also be adapted to suit demand and increase margins, optimizing the model over time.
Not being tied to a physical location means you can change the menu or operating times to suit business needs without as much of an impact on customer satisfaction. This can also help to decrease food waste, as you can be smarter with ordering and prep decisions.
In fact, virtual restaurants are so adaptable, you can even launch a brand just for a season. For instance, you could launch a healthy salad brand for the summer and a hearty poutine concept for the winter months, allowing you to take advantage of the seasonal demand for each type of food without enduring any downturn.
Digital brand awareness without high marketing spend
Virtual restaurant brands can gain quick exposure through delivery apps, rather than having to market themselves. Although a new virtual restaurant concept will have to pay for visibility, which is part of the delivery app business model, this can still work out cheaper overall, especially if you are creative about building your brand.
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