September 15th, 2021: Cloud kitchen simply explained by Newzpepper editor
A Cloud Kitchen also known by the names Ghost Kitchen or Virtual Kitchen is a commercial kitchen space that provides food businesses the facilities and services needed to prepare menu items for delivery and takeout. Unlike traditional brick-and-mortar locations, cloud kitchens allow food businesses to create and deliver food products with minimal overhead. More and more restaurant owners and food entrepreneurs are turning to cloud kitchens as an ideal business solution to capture this increase in food delivery demand.
SIMPLY EXPLAINED: A cloud kitchen is basically a Kitchen that accepts incoming orders only through online ordering systems and does not offer dine-in facility. Cloud kitchens are also known as ghost kitchens, virtual restaurants and satellite kitchens.
Cloud kitchens flourished during the pandemic when eating out was not an option due to restrictions and not preferred even after the Lock Down, Social distancing restrictions were eased by Authorities.
It has proved to be a low cost model for a lot of entrepreneurs who do not have the funds or the risk appetite to open a Dine in restaurant.
Most Food business professionals will agree that the 3 most important things for a restaurant business to be successful are " LOCATION LOCATION LOCATION" which obviously also means high rentals. Cloud Kitchens, though might not generate as much revenue as a Dine In restaurant, but are definitely less risky as a business venture for a startup with limited funds or an unestablished Brand trying to test waters before they take a plunge.
To briefly list a few major costs which are lower in a Cloud Kitchen than a Dine In restaurant
Space cost: Or simply put - Rent of additional space required to run a Restaurant which would include the Seating area, Beverage dispensing area, Washrooms for guests etc. Agreed that Dine in Restaurants are also supposed to attract more revenue to cover up for the rent of space but it discourages a lot of enthusiasts to get into this business. As per the Industry thumb rule the rent of space for a Restaurant should ideally not exceed 10%-12% of the Sales generated. But with a Cloud kitchen it could come down to 5% of Sales
Infrastructure Cost: Larger space would require more CAPEX (Capital Expenditure) or simply put the cost involved in designing and building the Dine In area, Air conditioning system, Interiors and procuring Furniture etc. A typical QSR (Quick Service Restaurant) in India costs anywhere between Rs.800/- to Rs.1400/- per sq. ft. Which means if the Dine In Space is 500 square feet it could use up anywhere between Rs. 4 Lacs to 7.5 Lacs of additional funds
Manpower Cost: A restaurant needs additional manpower to serve Customers and take care of cleanliness, hygiene etc. The Restaurant business does provide employment to skilled and unskilled manpower which is great for the economy of any country and well being of people but for an entrepreneur keen on starting with low funds and lower risk additional manpower employment becomes a deterrent. Again, depending on the Restaurant format, the cost of additional manpower for Customer facing roles varies between 5% - 8%
Overhead Cost: Apart from manpower, the other additional costs (related to Dine In Restaurant) which fall under Overhead Cost are cost of Electricity, Water, Maintenance, Licenses, to name a few, which are incurred additionally in the running of a Dine In Restaurant. Depending on the type of Restaurant (Fine dining, QSR, Casual Dining etc.) and the theme if the Restaurant, the Overhead costs could vary anywhere between 8%-20% of the Total sales
COMING BACK TO CLOUD KITCHEN:
All cloud kitchens have the same operational process, wherein an order is received, food is prepared and delivered at the customer's doorstep. However, there is a difference in the way their operations are executed. There are different business models for these delivery-only restaurants. As the Cloud kitchen Model is evolving the Models and Terminology is also expanding but we have listed below the 3 Basic Models for understanding of readers:
Standalone Cloud Kitchen | Multi-brand Cloud kitchen | Co - Cloud Kitchen |
Only kitchens where one brand either owns or rents a kitchen location without offering a dining space. These can either deliver through their own Team or rely on different food aggregators or delivery channels/ partners | Multiple Brands operating out of a Large Kitchen space owned by a parent Company. This helps the Parent Company operate various cuisines/ food formats by sharing certain resources and space. For example, 5 different brands/ cuisines might require Chefs/ Kitchen Team skilled in specific cuisines but could use a common team for basic food preparation, pre preparation of food ingredients and Cleaning. The Storage and utility spaces are also shared. The common resources bring down the cost | Or Shared Cloud Kitchen. A co- cloud kitchen is a large kitchen infrastructure, which multiple restaurant brands can rent and run operations from. These kitchen spaces work well if located at strategic locations. They either offer individual kitchen units for each brand fitted with equipment and utilities as per their requirement or they could offer a bare shell and basic Cooking and Kitchen equipment to various Brands |