During my 4-month quarantine in the early days of the pandemic, I became a bi-daily user of Dubai’s trinity of online food delivery: Deliveroo, Talabat, and Careem. Day in day out, I’d look for deals, explore new restaurants, and think about my next meal of the day, in this new normal of a homestay.
I came across this restaurant - Cali-Poke - that serves three of my favorite dishes: Ceviche, Poke, and Acai. When quarantine rules were relaxed, I decided to go check that restaurant for myself, only to realize it wasn’t a restaurant, it was a kitchen. A cloud kitchen, to be exact!
Cloud kitchens are centralized food production facilities that offer delivery-only menu items for consumers. Dozens of restaurants can lease out space in the kitchen; like WeWork, but for restaurateurs. Alternatively, cloud kitchens can develop their own ‘virtual’ brands. But why are cloud kitchens the future?
1. The Booming Demand for Online Food Delivery
According to Statista, the global online food delivery market will reach USD 154B by 2023, currently growing at a CAGR of 12%. With 32% of operators (vs. only 21% last year) attributing more than a quarter of their revenue to the delivery channel, it’s easy to see the appeal of KaaS.1
As restaurateurs continue to adjust for that growing demand for food delivery - especially after the role of the pandemic, greater flexibility is needed. Cloud kitchens will be there to provide the infrastructure for restaurants wanting to fulfill more off-premises orders and also expand into new geographic areas where they might not have a brick-and-mortar location. This ultimately serves a double effect on revenue growth: providing additional capacity for delivery that didn’t initially exist, as well as expanding the restaurant’s delivery reach.
2. Cost Optimization and Economies of Scale
Not only do KaaS providers generate additional revenue streams for restaurateurs, but they also provide lower costs.
Cloud kitchens eliminate the traditional costs associated with managing a brick-and-mortar restaurant such as high rentals, FOH2 labor costs, décor and remodeling costs, etc. Additionally, it also eliminates the initial capital investment of opening up a restaurant. And lastly, in benefitting from economies of scale, procurement efficiency, and operational knowledge, cloud kitchens ultimately optimize most, if not all, direct costs.
Reduced costs can serve two purposes: provide enhanced margins in a significantly-low-margin restaurant industry, or allow restaurants to provide more competitive pricing. And while various cloud kitchens - like Kitopi - keep ~85% of the brand’s revenues and pays them 10-15% in royalties, this still proves profitable for many restaurants.
3. Data, Data, Data
As always, companies that fully leverage the substantial amount of data they can get from consumers are the ultimate winners, and cloud kitchens do exactly that.
Like Netflix, cloud kitchens can capitalize on massive sets of data to identify consumer preferences on a granular level, and customize their offerings to serve consumers with exactly what they need. Ashley Colpart on The Food Corridor explains it perfectly:
“Cloud kitchens are uniquely tech-enabled. They take advantage of the now ubiquitous food delivery apps on your smartphone, such as UberEats, Grubhub, and Doordash. In doing so, they use large amounts of data to determine what types of foods to produce for specific neighborhoods and when the demand is likely to be greatest. For example, hot wings tend to be really popular between 11pm-2am near college campuses. This data is fueling rapid adaptation and optimization, almost in real-time.”
In essence, Cali-Poke wasn’t coincidentally the perfect match - it was on purpose. And such is the case with so many other ‘virtual’ restaurants. With more and more cloud kitchens on the rise, I’m beyond excited to see what the future holds for this industry. Enjoy your meals!
Kitchen-as-a-service
Front-of-house