If you’ve been hovering around the food industry, you’ve probably heard the term cloud kitchen and ghost kitchen being used quite often. This is especially the case ever since the pandemic hit and restaurants had to rely on delivery services.
Today we’re going to cover what are cloud kitchens, the pros and cons of this restaurant business model and whether you should invest in one.
You’ll also see how you can take advantage of this growing trend and be one step ahead of the competition.
Let’s dive right in.
What is a cloud kitchen?
A cloud kitchen is a restaurant with no physical storefront.
This means that people are operating in a commercial, centralized kitchen where they partner up with third-party delivery service apps, such as Uber Eats, Grubhub, Postmates, to distribute their food offerings to the public.
They are also commonly referred to as ghost kitchens, virtual kitchens, dark kitchens, or delivery-only restaurants.
So how do you visit these cloud kitchens?
You can’t. These are restaurants without storefronts and the only way you can consume their product is by ordering through these different delivery apps. Their focus specifically are on mass production. They just want to produce a ton of items and service through all these delivery apps.
Should You Start A Cloud Kitchen?
By 2022, this food delivery service industry is going to be more than $70B. SEVENTY BILLION.
So this is just in the very beginning of the trend. The movement is just picking up now. This is the reason why if you pay attention right now, you can actually take advantage and be in the forefront before it really takes off.
We’re talking about tons of people jumping into this industry to the point where the ex-CEO of Uber Travis Kalanick has raised more than $400 million his own cloud kitchen.
So now that you what a cloud kitchen is, we’re going to dive into the pros and the cons of this business model.
The Pros Of A Cloud Kitchen
1. Cloud kitchens have significantly lower operating costs
The beauty of cloud kitchens are the low startup capital needed.
With a restaurant, you may need $100K or $1M depending on the concept. Not a lot of people have that type of money without taking on a massive loan. And that can be scary to jump into and tends to push people away.
Whereas with a cloud kitchen, you only need a commercial kitchen space to get up and running. Since you don’t do dine-in, you don’t need to worry about having a beautifully designed interior or a big space to service 80 people either.
And since you’re renting a kitchen space, you bypass the need to buy or lease the pricey equipment.
All of these things are things you don’t need to worry about walk-in traffic. You don’t need to spend thousands of dollars on a premium location because you’re relying specifically on food delivery apps.
On the contrary, when it’s raining, when there’s typhoon, your business will probably spike!
This means that you can start a cloud kitchen restaurant with just a fraction of what it would cost to open a restaurant.
That is great news for people who don’t have a huge budget to work with and are looking to possibly take their first step into the restaurant business by starting with a cloud kitchen first, then a brick & mortar after they get some traction and brand awareness. That is a common path you see with food truck owners.
2.) Cloud Kitchens are quick to get started
Cloud kitchens are super quick to get set up, unlike a brick or mortar shop. It is night and day difference.
Not needing to own your equipment, not needing to go through all the business license infrastructure and the months and months of getting locked down into a space, and no need renovating the space.
You can just SKIP ALL THOSE, which typically takes months to wrap up.
You don’t need any of those because you can just go into a cloud kitchen facility, sign a lease contract for a year to two years, and you are ready for a business.
It is THAT easy.
3. Cloud Kitchens have lower labor costs
If you don’t have a physical storefront or dine-in service, it also means you don’t have to worry about front-of-house staff. So no servers or greeters or someone on cash.
That itself cuts your labor costs significantly.
The only staff you need are cooks and individuals savvy with operations.
All you have to do is focus on your craft and produce good quality food for your customers.
The Cons of A Cloud Kitchen
1. Cloud Kitchens Have Reduced Visibility
Since cloud kitchens tend to be in buildings that are just commercial kitchens, you lose the ability to attract customers via. walk-in traffic or drive-by traffic.
This means your customers can only find you online.
To some that is okay. But it is dangerous for others – especially if you aren’t savvy with technology and digital marketing.
For most people delivery apps will be the main source of customers. They will become your whole lifeline. Essentially…you’re going to be held by the neck by these food delivery apps.
So, if they do decide to favour certain restaurants, then you’re going to be in trouble.
If they do decide to charge you a premium, to charge you 5% more, you don’t have any leverage or bargaining power with these food delivery service apps.
2. Cloud Kitchens Don’t Have Leverage
A big detriment to any business is if you rely solely on one point of distribution.
I highly recommend any of the people that I talk to that if they are in this business to be at a standpoint where they have leverage.
You need a year to two years to build a substantial base, to build their own brand name, and until they can prove their own concept, and then they should move out and rent their own brick and mortar to invest in this model that has worked for them.
Then that way, you’re not being putting all your eggs in one basket. You’re diversifying.
So then, if the food delivery services decide to kick you out or decide to raise the rates, you can now have much more bargaining power. You can tell them that you have a restaurant down the street and that you don’t really need these delivery apps. You can still have the opportunity to do that.
This is called leverage – that there are still other opportunities for you to make money.
3. You Don’t Own Your Customers
The delivery apps own your customers. Not you.
And why would you want to own your own customers?
At the end of the day, in a food-based business, it’s all about the community. It’s all about getting your loyal customers to come back again and again to have and enjoy your offering.
So many times we go to that special place or special restaurant to celebrate a milestone maybe because we have that emotional connection with the owner there or the vibe there, which is the reason why we are lifelong customers to these restaurants.
In the food and beverage industry, this is super important for you to be able to build your own customer profile.
This is exactly what is lacking in this business model.
Once again, I highly recommend that you leverage off this model, build it for a year to two years, and build your own only after you’ve proven that you have a successful recipe and a successful model.
3 Types Of Cloud Kitchens
Now that you understand the pros and cons of cloud kitchens, we’re going to be talking about the three different types of cloud kitchens available for you to choose and pursue.
1. Exclusive To Delivery Apps
The number one type of cloud kitchen are the ones that are specialized exclusive to delivery apps such as Uber, DoorDash or Deliveroo
Some of these delivery brands have their own cloud kitchens created to be rented out. So if you’re operating inside these cloud kitchens, you can only service their specific delivery apps.
Now, the advantage of doing something like that is that you get premium spot and treatment because they want you to be successful. These delivery apps want you to be successful so then that way you can drive them much more value and in turn their customers are happier because they have a better experience.
Now, the disadvantage of going through these kitchens that are super exclusive to their own delivery apps is the fact that you’re missing out on a big chunk of pie.
If you’re only allowed to be servicing people who use Uber Eats, you’re missing out on people who use Grubhub. You’re missing out on people who are using Postmates, or SkipTheDishes, or any other food delivery apps out there.
There are the pros. There are the cons. You get to choose which one you like.
Non-exclusive cloud kitchens operate as a huge commercial kitchen and you can operate within their own facility.
Unlike exclusive cloud kitchens, you can partner up with ANY food delivery apps out there as you wish. This means you have more flexibility to work with multiple delivery brands and take advantage of all the eyeballs each of their marketplaces have each day.
But the cons of doing that, you don’t get that special treatment or that special feature from these delivery apps because you’re not exclusive with them.
3. Mobile Cloud Kitchen
The third type of cloud kitchen we’re talking about, mobile cloud kitchen.
We’re talking about these giant food trucks that go around the neighbourhood, like Zoomies Cloud Kitchen.
These guys are basically food trucks, but then they rent out their kitchen in closer proximity to your customer neighbourhoods. That itself is an added bonus because the convenience and also the quicker delivery time.
Now, the disadvantage of that is that this type of model is not super popular because you’re not servicing a huge, wide range of people and you’re always operating within a food truck, the space is not as clean, the space is much more cramped. However, the cost is substantially lower than if you were to rent a commercial kitchen like cloud kitchen and and so on, so forth.
These are the three types of cloud kitchens. Even though I listed the pros and cons of each one, it’s all up to your profile, what you would enjoy, and find which one is best suited for you.
As a bonus, we’re going to give you bonus number four.
It is pick-up-only delivery service.
So who is this for?
This model is specifically for the people who has a passion for delivering their grandma’s recipe to the world, yet they don’t have that much funding.
They don’t have the money to spend on the equipments. They don’t have the money to sign a 5-year, 10-year lease and do all the renovations. They don’t have the expertise to run a full-scale restaurant.
This model is specifically for that type of people that want to start off, has an amazing, delicious recipe that they want to bring to the world, yet they don’t have the resources to do so.
If you fall within this demographic, then this is a really, really promising model which I highly recommend you to do.
For more tips and strategies to build a ghost kitchen, head over to our cloud kitchen page.