Sat, 05 June 2021
Recently, some frequently used terms have the word “cloud” attached to them like cloud computing, cloud servers, etc. One such term that caught my eye recently was the concept of cloud kitchens. Simply put, these are delivery-only food service operators. This core concept got me very confused since to my mind, that’s really the same as a restaurant using a delivery platform like Zomato, etc. Turns out, this is just the tip of the iceberg and the potential of this business is significant.
So, what are cloud kitchens? Think of them as a large warehouse space where a custom-built assembly line and cleverly planned logistics and supply chains ensure quick turnarounds and efficient cost numbers. That’s exactly what cloud kitchens are – a very large food court where space is rented out for a fee and an online platform is provided to interact with customers. One popular format is to offer “Kitchen-as-a service (KaaS) or satellite kitchens” that provide a space to existing brands. The other format is “virtual restaurants” wherein the chefs, cuisines and menu items are curated and offered under a new umbrella.
How does this process begin? As always, with an investor, with deep enough financial resources, who owns or takes on a long-term lease for a significant space. This space is then custom-built or developed for either specific cuisines, specific brands or a mix of the above. It’s then organised for efficiency similar to an assembly line for a factory so that volume is easier and quality uncompromised. In return for this entire set up, a tenants fee plus a commission on each delivery is often charged.
As a business, it’s of significant interest. Online food delivery in the MENA region, which includes regular restaurants using delivery platforms, is a USD three billion market, more than 65% of which is accounted for by the UAE and Saudi Arabia. As per a KPMG Food and Beverage report for 2019-2020, more than 80% of consumers surveyed used apps to order food. Another interesting statistic out of the same report is that 22% of the operators saw delivery contributing more than 25% of sales and is on an upward trajectory.
By reducing overheads and making costs efficient, the barriers to entry for talent are reduced. Also, technology provides malleability and allows the menu options and cuisines themselves to be tweaked by demand. The data available with delivery apps allows cloud kitchens to offer food demanded by specific locations. The benefits of this system is the flexibility and opportunity that it provides for new talent to enter in a protected space.
Operationally, there is no physical interaction with any client and the entire loop of communication is virtual. Since the entire focus is efficient delivery, the staff and overhead costs- which form a significant part of operational expenses for a restaurant – are minimised. For the investor, the rent received and commission along with the diversified cuisines offer a commercial hedge from low demand.