Will Dine Outs be Cloud Kitchens Scapegoat?

With Foodtechs betting big on cloud kitchens would it hurt the business of the physical restaurants? Let’s take a look at how Cloud Kitchens change the landscape of traditional restaurant business.

Cloud kitchen primarily has a cooking place at one location or multiple locations and accepts food orders only online. They don’t have any dine-in facility. On placing the order the food is delivered to customer’s doorstep from the cloud kitchen.

In recent year’s global companies as Uber Eats, Doordash, Grubhub and many more have invested in cloud kitchens. In India, foodtech companies as Swiggy, Zomato and Foodpanda are already in the business and scouting for more places to expand. Traditionally these brands pick food from restaurants and deliver it to customers. 

With cloud kitchens sprouting, would it disrupt the business of the physical restaurants? Let’s take a look at how Cloud Kitchens can change the landscape of traditional restaurant business.

Online Aggregators betting big on Cloud Kitchens:

In India, with cloud kitchen concept more promising, various food aggregators have started to invest in the model. Foodtechs as Swiggy & Zomato have launched their own network of cloud kitchens. Cloud kitchen company Rebel Foods runs multiple delivery-only brands as Fassos and Oven Story. Travis Kalanick, co-founder Uber is in talks with partners to start a cloud kitchen in India through his company “City Storage Systems”. 

Online aggregators are heavy with market intelligence data. The algorithms help them identify the food categories that have high consumer demand in a particular territory and at same time not enough restaurants to serve these food categories. Online aggregators can build cloud kitchens and serve food categories that are in demand in an underseved market. These food techs run their own brands in cloud kitchens and also host other brands.

How Cloud Kitchens Work?

Online aggregators takes a space for lease in a location that it identifies as good delivery catchment. The aggregator then set the basic kitchen infrastructure required for the food brands like preparation tables, ventilator, sinks etc. Based on its intelligence data, the aggregator chooses right food brands that could serve the cuisine demand of that particular location. Each food brand will have a separate cooking area and they have to hire their own cooking equipments, food materials and cook. The food brands pay rent to aggregators for the space. The online aggregator takes the responsibility of booking orders online and deliver the food. Aggregators also help the brands by arming them with customer insights.

Will Cloud Kitchens benefit Restaurant Brands:

• Cloud Kitchens are a big opportunity for restaurant brands that have limited dine outs and want to take their services to neighborhood localities that couldn’t be serviced through their existing dine outs. Non availability of perfect locations, high rentals could restrict these brands from starting new dine outs in neighborhood. Cloud kitchens can work exceptionally well for restaurant brands, as it help them shore up operations and spread to neighboring localities. It also help cut the real estate expenses required for setting expensive dining spaces.
• Secondly restaurants that eye expansion in smaller cities can experiment with cloud kitchen model to first understand the consumer behavior, cuisine preferences and consumer demand in these cities. Customer response study could help them tailor make right food menus for the market without investing in physical outlets.
• Food brands that operate through cloud kitchens are high on profit as they need not have to operate a store front at prime location.
• Food companies that serve through multiple cloud kitchens in different areas can look at launching their own online platform. This helps them save commissions that they have to pay to the foodtechs that run the kitchens.

The concept of cloud kitchen is revolutionizing the food business. Cloud Kitchen can bring in quality brands to smaller cities, which have limited access to a great variety of food. There is less capital involved for the hoteliers to serve through cloud kitchens and doesn’t require front end dining spaces. Hence cloud kitchens are a concept that works in favor of both food aggregators and food brands that are ready to embrace technology and expand reach.

Other Models of Cloud Kitchen:

Certain aggregators invests capital in various online only food brands and have these brands listed in their online platform. The aggregator sets cloud kitchen at multiple locations to address the demand in that locality. There would be one central purchase unit that purchase food raw materials for all brands and distributes it to the kitchens in various locations. This keeps their supply chain more efficient. The brands prepare the food from cloud kitchen and delivery happens through the aggregator.

Harish Kumar, Apr’20