In 2018 consumers spent $10.2 billion on delivery services. This was an increase of 42% from the previous year. The rapid rise of food delivery, which will soon hit the $200 billion mark, is all poised to disrupt the global food industry. An off-shoot of this rising trend is cloud kitchens, also known as virtual, dark or ghost kitchens.
These are restaurants that do away with brick and mortar locations and focus only on takeaways, whereby a consumer has to use a website or mobile app to order food. While delivery services aren’t new to a restaurant’s business model, to uproot dine-in facilities completely from it, is an unprecedented move, which until a few years ago would’ve been unimaginable.
Restaurant experts unanimously predict the future as being delivery-oriented and there are several studies to support this claim. Leveraging on the robust online delivery market at the moment, the times ahead definitely look rosy for cloud kitchens. But like all businesses, even it has its own share of pitfalls.
Looking to invest in a cloud kitchen? Take an in-depth look at the pros and cons of this new restaurant concept to see if it suits your needs.
Pros of Cloud Kitchen
Low operation cost
For a cloud kitchen, a lot of the operating costs incurred by traditional restaurants are done away with. These include renting a larger space, which could be anywhere between $40,000 to $150,000+ annually, labor cost, decor and remodeling costs, etc.
Take the labor cost, for instance, that takes up 50% (or more) of the average restaurants monthly revenue. On the other hand, a 500 ft² cloud kitchen space can efficiently serve the same number of customers as a full-fledged 1500 ft² restaurant. Plus, anyone with a modest budget can start earning money from a cloud kitchen concept.
Owing to lower upfront expenses required to launch their ventures, this could be good for start-ups. Cloud kitchens are especially worth exploring for smaller enterprises like food trucks, home-based cooks or even those who’re interested in stepping foot into the business but have no prior restaurant experience.
Cloud kitchens can also be explored as a potential option for existing brick and mortar restaurants looking to scale up, but are concerned about high expansion budgets.
Another direct advantage of having lower operation cost is that cloud kitchens can use some of the profit margins to offer much more competitive pricing. Since there’s no need to invest in several areas that a traditional restaurant business normally would have to, virtual kitchens can price their menus more reasonably.
Not only through pricing, but these kitchens can improve the overall customer satisfaction by focusing entirely on two major areas — the quality of food and delivery services.
Since cloud kitchens are solely online-based businesses, the most efficient marketing channels for them is social media. With a smart social media strategy, these restaurants can reach out to their core audience.
The fact that now most online ordering services allow social media ordering can also work to their advantage. Email and SMS marketing are other effective channels. These are more cost-effective as compared to traditional advertising like billboards, and can further help cut expenses.
The expanding delivery market
In 2018, the Swiss investment bank and financial services company, UBS published a report titled, ‘Is the Kitchen Dead?’ The report predicts that by 2030 most meals will be ordered online thanks to time-strapped Millennials and ever-evolving technologies like mobile ordering apps, drone deliveries, and cloud kitchens.
These new-age restaurants, the report suggests can further reduce costs with robotics and AI. The fact that you could be one of the winners in this segment, which has the potential to reach $365 billion in the next 10 years, is a huge positive.
Cons of Cloud Kitchen
Online Only Visibility
Since it’s an online-only venture with limited customer interaction, cloud kitchens might find it difficult to build their brand at first. Reaching out to customers and seeking that all too important trust and loyalty from them will definitely be a huge challenge particularly with the older generation because Millenials and Get Z, being digital-first generations, will still be easier to approach.
Trust and loyalty are essential to the growth and sustenance of any brand and cloud kitchens will need to think out of the box and adopt innovative strategies in order to attract a dedicated customer base.
Dependence on technology
A cloud kitchen’s business model is totally dependent on technology. With more advances in the field like artificial intelligence, Voice Assistants, AR, and VR, drones, etc. productivity and convenience are expected to increase for both businesses and customers.
However, no matter how advanced technology gets, one cannot rule out snags, whether big or small, and any such interruption will cause difficulties even in basic operations of a cloud kitchen like taking orders and accepting payments.
There are cloud-based solutions available that allow restaurants to avoid such issues. Online ordering platforms like Restolabs, MenuDrive, Chownow, etc. offer a complete suite of solutions for restaurants planning to take their business online.
No business sector comes with guaranteed success and the same goes for cloud kitchens. There will always be upsides and downsides, not only in the beginning but throughout the business’s lifetime.
The key is to be aware of the challenges and find creative strategies to tackle them. Food delivery is definitely going to play a massive role in the future of restaurants and these are exciting times for those who want to explore this segment.
What are your thoughts on the Cloud kitchen? Share your views below.