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The 7 Cloud Kitchen Business Models & When To Choose Which

Cloud Kitchen Business Models. We’re serving it all on a silver platter right here, right now ! 

With a global market projected to be valued at $112.7 billion by 2030, it is no surprise that cloud kitchens are on every restaurant operator’s mind. These virtual kitchens are shaking things up, but what’s the real scoop behind them, and how do they actually operate ?

The 5 Cloud Kitchen Business Models - & Which One To Choose

 

This article explores the diverse business models of cloud kitchens. We’ll break down the different setups, unveil the pros and cons of each model, and provide insights on when each model makes the most sense to you as either a restaurant owner, or a cloud kitchen provider.

The 5 Cloud Kitchen Business Models - & Which One To Choose

1. The Ecosystem Needed To Run A Cloud Kitchen

A cloud kitchen, also known as a ghost kitchen or dark kitchen, is a type of commercial food preparation facility designed for virtual food brands operating on a delivery-only business model. You can read more about what cloud kitchens are here. 

It is key to know that a cloud kitchen cannot operate on its own. It requires several partners to keep the ecosystem functioning : 

  1. A food business : this food business can be an established, traditional restaurant, or a virtual brand ready to be launched. 
  2. An ordering platform : this is where customers put in their orders. An ordering app can be built for the brand (Pizza Hut’s app, for example), or a food business can join one of the popular ordering platforms such as Deliveroo or UberEats. Some businesses may opt to subscribe to several ordering platforms and aggregate them on a central order system.
  3. A Cloud Kitchen space : this is where orders are prepared and packaged. This article will explore the several ways cloud kitchens are organized.
  4. POS & Restaurant Inventory Management Software, which focus on recording orders and ensuring you have enough ingredients to avoid shortage, and not too many that would generate food waste.
  5. A delivery partner : this is the partner that takes care of delivering an order to the customer. A delivery partner can be outsourced to one of the popular delivery platforms (Deliveroo, Talabat, UberEats…), or managed in-house with a delivery fleet.
 
Although cloud kitchens can operate following different business models, they each require the involvement of each of those partners, wether outsourced, or managed in-house.

2. The Brand-Owned, Single-Location Cloud Kitchen Business Model, With No Physical Storefront

The 5 Cloud Kitchen Business Models - & Which One To Choose

This is the simplest of cloud kitchen business models. It is a cloud kitchen space designed for and operated by a single brand. The space is optimized for delivery-only and does not have a dine-in area. This model is typically used by brick-and-mortar restaurants looking to expand their delivery reach by establishing a virtual presence in a new location, without the overheads of another physical restaurant. It can also be used by virtual restaurants that have already established their online presence, and are looking to expand quickly in areas where shared cloud kitchens are not yet present. 

Brand-owned cloud kitchens require an upfront investment needed for the rent, equipment, staff, and training, making an investment worth thinking about before starting out. This investment is higher than a shared or multi-brand cloud kitchen, but lower than a physical restaurant. 

Brand-owned cloud kitchens typically operate by either combining several aggregators to take orders and outsourcing the delivery operation, or using their own ordering app and delivery fleet – in which case an added cost to the operating costs of the cloud kitchen.

How does this cloud kitchen business model generate revenue ?

Because the cloud kitchen is owned by the brand, revenue is generated by the number of sales generated.

 

Pros

A kitchen space optimized for your business, dedicated staff members, the ability to easily decide how the cloud kitchen should be run, increased overall control. As a restaurant owner, you’ll also have unlimited menu flexibility. You will be able to experience new dishes on the go with little investment of time or money.

 

Cons

Unless designed to serve every meal of the day, brands will experience busy and calm times during the day. Think of a breakfast restaurant, for example, where the kitchen will be busy in the morning, but not in the evening. This doesn’t allow you to leverage your kitchen operations to their full extent. You’ll also need to consider the upfront investment required to launch your own brand-own cloud kitchen.

The 5 Cloud Kitchen Business Models - & Which One To Choose

 

When should you go for such a model ?

  • You are a brick and mortar restaurant with a solid brand and reputation looking to expand your reach to another area. You know that customers will recognize your brand if they see you on a delivery platform. Your brand will speak for itself and your dishes will sell, making the investment worth it.
  • You’re a virtual brand and you wish to serve an area that does not yet have a shared or multi-brand cloud kitchen, but you’re convinced you need to move fast.
  • You’re ok with not making full use of your kitchen during different periods of the day.

3. The Shared Or Multi-Brand Cloud Kitchen

This cloud kitchen business model refers to a single kitchen space owned by a non-food business. This business rents out the kitchen space to several restaurant brands. This type of cloud kitchen can have several versions, namely have one large space with all staff dedicated to preparing all orders, or have several separate kitchens within a large warehouse, where each brand operates separately.

 

A multi-brand cloud kitchen hires its own chefs and kitchen staff who are trained to prepare a variety of dishes for these different restaurant brands, and the kitchen (or kitchens, if operating in separate kitchen spaces) is equipped with the necessary equipment and ingredients to accommodate the diverse menu offerings. As orders from the different brands come in, the order is assigned to a chef trained to cook different cuisines and items, or sent directly to the kitchen of the brand where staff are trained to cook the brand’s menu item, exclusively.

 

The multi-brand cloud kitchen business model enables restaurant brands to share the cost of running the cloud kitchen. For restaurant owners, the cost of launching their own virtual food brand, or virtual operations for their brick and mortar business, are significantly higher than joining a shared cloud kitchen :

 

  • By serving multiple brands from a single cloud kitchen, the operational costs (which include rent, utilities, kitchen staff, equipment costs…) can be shared among the brands. The shared expenses are often more cost-effective for each brand compared to maintaining individual kitchen facilities. 
  • For cloud kitchen providers, it’s also worth noting that the demand for each restaurant brand will likely peak and drop at different times. Think of a breakfast brand and a pizza brand. The breakfast brand will see a peak in demand in the morning, while the pizza brand will see more demand in the evening. By sharing the same facilities, the kitchen assets will be in use for longer periods of the day, which maximizes your revenues as a cloud kitchen business owner.
  • It is best practice to incubate restaurant brands that share similarities in the ingredients they use. For example, Lebanese, Turkish, and Greek brands. When brands share ingredients, procurement quantities are higher, and better deals can be negotiated with suppliers. This adds to the cost-effectiveness of choosing a multi-brand cloud kitchen, as savings can be made from bulk purchasing. 

 

How do multi-brand cloud kitchen business owners make money ?

Rent / usage : multi-brand cloud kitchens can charge a monthly fee for the kitchen space rented to a restaurant brand.

Subscriptions : multi-brand cloud kitchens can charge a subscription fee to the software they put at the disposal of the virtual brands. Similarly, cloud kitchen businesses can charge for services, such as procurement, or even delivery if taken care of in-house.

Commission : Multi-brand cloud kitchens can take a commission from every order produced. 

Revenue-sharing : Cloud kitchen operators and virtual brands may agree on a revenue-sharing model, whereby a percentage of the brand’s revenue is shared with the cloud kitchen operator.

Pros 

  • For multi-brand cloud kitchen business owners : you provide ready-to-use facilities for restaurant owners looking for a cheaper entry barrier into the world of virtual brands. You can manage a portfolio of brands in a way that your kitchen assets are kept in regular use throughout the day, without fearing peaks and dips in demand from each brand. You can base your income on several products other than just rent.
  • For virtual restaurant owners : you get access to a virtual kitchen at a lower cost than if you were to launch your own virtual kitchen. Your operational costs will also be lower, since you share the rent and utilities bill with the other brands that also use the same kitchen space. Furthermore, you can achieve further cost and waste reduction by sharing ingredient sourcing with other brands.

Cons

  • For multi-brand cloud kitchen business owners : managing different brands simultaneously, with a variety of dishes to master, can be operationally complex.  Coordinating staff, inventory, and equipment for different cuisines, can be challenging. It’s also key to ensure you have a manageable portfolio of brands. If a brand is known to peak at a certain time, and if you don’t have enough resources to manage the demand, then you should consider reorganizing your portfolio, or hiring more resources.
  • For virtual restaurant owners : sharing resources will reduce costs, but can lead to inefficiencies.  You may have limited control over the kitchen’s operations, which can result in slower service or problems with order accuracy. You’ll also experience higher fees despite the initial low barrier to entry, since every software, service, or space you use can be billed. This can eat into your profits. You’ll also experience limited menu flexibility, as each dish you want to try out will need to be taught to the cloud kitchen team. If the dish fails, you’ll have wasted time and money.l

4. Hybrid-Merged: Traditional Kitchen With Both Dine-In Service And Delivery-Only Line

This hybrid cloud kitchen business model is set up when restaurants are looking to jump on the delivery trend and expand their reach beyond the limits of their physical location. They would add a delivery-only line of operations to their existing kitchen. Restaurants typically select their best-sellers, and adapt them for delivery by ensuring an appropriate package and packaging method. 

 

The investment is lower than starting a separate, brand-owned cloud kitchen or joining a shared cloud kitchen, as most restaurant operators can build on their existing kitchen equipment to run their delivery operations. A chef receives orders in chronological order coming from both the dine-in and the delivery, and produces them as they come. Similarly, restaurants may opt for 2 separate lines, one for dine-in and one for delivery, to ensure smooth operations on both sides of the business.

 

How do you make money ? 

Just like a dine-in service, you make money by generating sales ! It is key to note however that the profits will not be the same, since delivery aggregators (should you choose to join one) will take their 30% cut.

Pros

As a restaurant owner, you’ll be able to expand the reach of your business by joining a delivery aggregator and leverage their existing customer base. You’ll be able to jump on the delivery trend with little upfront investment. You’ll maintain control over your menu and operations. 

 

Cons

 

Yes, you will be able to expand your reach by delivering meals, but you’ll still be limited compared to other brands operating cloud kitchens in several other areas in the city. If your delivery operations do succeed, it’ll be worth looking into expanding your business by launching a brand owned cloud kitchen or joining a shared cloud kitchen in an area you didn’t previously serve.

The 5 Cloud Kitchen Business Models - & Which One To Choose

When to go for this cloud kitchen business model ? 

You’re a brick and mortar restaurant looking to explore the delivery trend, see if your existing customers would order from, and if you could gain new customers online. You’re not ready to make the jump of launching your own cloud kitchen or investing in a shared kitchen space.

5. Hybrid-Separated : Traditional Kitchen For Dine-In, Cloud Kitchen For Deliveries

A traditional restaurant may wish to expand their reach beyond the delivery radius that their dine-in location serves, which is why they would decide to invest in a cloud kitchen at a further location. They would have either tried the hybrid-merged model, seen good results, and decided to now expand, or may have had the deep conviction that their products could work (perhaps by looking at what the competition is already doing) and want to pull the trigger and jump on the trend.

multi-brand Cloud kitchen

Pros

As a restaurant owner you get to expand your business rapidly by serving an under-served area. The separate cloud kitchen could be part of a multi-brand cloud kitchen, or a standalone, brand-owned cloud kitchen operating on its own. 

Cons

You’ll need to invest in another kitchen and team for this new kind of operation.

6. Commissary Cloud Kitchen (Aka Hub & Spoke): Central Cloud Kitchen Delivering Prepared Items To Pop Up Locations For Pick Up Or Dine-In Service

Imagine a network of pop up locations, each supplied by a central kitchen that delivers prepared menu items that only require the addition of last touches before serving – or delivering. 

 

A commissary cloud kitchen is a central cloud kitchen, typically located in an area where rent is low, that prepares items for a single or multiple brands under the same roof. This model ensures that the teams in pop up locations have as little work to do as possible, thus enabling smooth dine in and delivery operations.

The 5 Cloud Kitchen Business Models - & Which One To Choose

There are several varieties of this cloud kitchen business model, from a single brand commissary cloud kitchen, to a multi-brand model, or even a communal kitchen business model – where different brands use the space as a co-working area. This cloud kitchen business model ensures a higher level of consistency in the items produced across a brand’s branches. But the benefits don’t stop there : the quantities of ingredients ordered are so large that the savings a brand can make in procurement are significant. 

 

However, also due to the nature of this business model – with large volumes, the equipment needed, or the staff training – the initial investment to launch such an operation is hefty. 

 

Pros

  • For a cloud kitchen business owner : similarly to a multi-brand cloud kitchen, you host several kitchens for several brands, but you also take care of the delivery of the items to pop up locations for last minute touches. This adds a revenue stream to your operations. 
  • For a restaurant owner, this streamlines their operations and maximizes the productivity of their brick and mortar staff. Pop up locations serve as pick up locations.
  • For restaurants : reduces the investment needed in upgrading a kitchen to a fit a delivery-only model (this is how it differs from the Hybrid-Merged model).

Cons

  • For cloud kitchen business owners : Expect a lot of complexity in managing an even more complex operations setup than multi-brand cloud kitchens. 
  • For restaurant owners : you have little control over the entire operations
The 5 Cloud Kitchen Business Models - & Which One To Choose

When to go for this business model

  • You’re an experienced restaurant operator with several locations and are looking to expand aggressively within a given city ? This model might be for you. You have the means and the commitment to stick to your investment and scale your business with speed and ease.
  • You’re a cloud kitchen provider, and you’d like to serve the needs of numerous brands that wish to use their pop up locations as pick up spots. 

7. Delivery App-Owned Cloud Kitchens

This cloud kitchen business model is just what it sounds like! Delivery platforms such as UberEats, Deliveroo, or Zomato purchase kitchen space and allocate it to emerging virtual brands. The delivery platforms, which also manage the orders, provide space for the virtual brand, while the virtual brand showcases its products exclusively on the app. The virtual brand utilizes the app’s reach to attract more customers, while the food app leverages the virtual brand’s new and exciting products to boost engagement on their platform and increase revenue.

 

This business model can be a great fit for a new virtual brand that has tested its products on a platform and seen some success. Typically, these agreements are established through a partnerships manager from the delivery app’s side, who reaches out to the virtual brand.

Pros

  • For a delivery aggregator : you get to incubate exciting up and coming brands that sell their products exclusively on your app.
  • For virtual brands : you get a kitchen space and the exposure that a delivery app gives you on their platform.

Cons 

  • For virtual brands : you sign an exclusive agreement with the delivery app, and can miss out on opportunities with another delivery platform. 


When should you choose this cloud kitchen business model ? 

  • You’re an up and coming virtual brand and you’d like to bring your upfront investment to as little as possible. You choose to work in exclusivity with a delivery platform that promises to support you along the way, from both an operational and marketing standpoint.

8. The Fully Outsourced Cloud Kitchen Business Model

Just imagine unwrapping a pre-packaged item, adding that final touch, and handing it to the delivery driver or your dine-in customer. A fully outsourced cloud kitchen business model is popular among restaurant operators, both traditional and virtual, who want to delegate the entire food preparation process. The process is straightforward: food is prepared off-site and then delivered to your restaurant’s kitchen or cloud kitchen. There, the staff puts on the finishing touches, and your order is ready for delivery or service. There is no actual kitchen, even for the dine-in service. You won’t need much equipment or infrastructure for this, and your delivery operations can start smoothly and stay that way.

 

Pros

Fully outsourced food preparation operation, even for dine-in customers. The traditional restaurant does not have a fully functioning kitchen, and has little kitchen staff. This ensures streamlined operations, reduced operating costs. 

 

Cons

Very little control over the entire food preparation process, and very limited menu flexibility. Each item you wish to produce requires investment. 

The 5 Cloud Kitchen Business Models - & Which One To Choose
Who should sign up for such a business model : 
  • Any restaurant wishing to maximize their investment in marketing and brand-building, rather than needing to deal with kitchen operations and investments.

9. Conclusion

In conclusion, the world of cloud kitchens is still evolving and finding its footing in the food industry. It’s a space where innovation and adaptation are key. Let’s recap the different models we’ve explored:

  • Brand-owned, Single-Location Cloud Kitchen: This model is for established restaurants looking to expand their delivery services. It provides control and menu flexibility but requires a significant upfront investment.
  • Shared or Multi-Brand Cloud Kitchen: Shared kitchens are a cost-effective option for virtual brands and traditional restaurants looking to minimize expenses. They allow various brands to coexist and benefit from shared costs.
  • Hybrid-Merged: Traditional restaurants can test the delivery trend with their existing kitchen and benefit from low upfront costs. However, this model has limitations in terms of reach.
  • Hybrid-Separated: Traditional restaurants can expand to new locations by investing in separate cloud kitchens, either standalone or part of a multi-brand setup. This offers rapid expansion but requires additional investment.
  • Commissary Cloud Kitchen (Hub & Spoke): Central kitchens prepare items for multiple brands at pop-up locations, streamlining operations and procurement. This model offers consistency but demands substantial investment and complexity.
  • Delivery App-Owned Cloud Kitchens: Food delivery platforms provide kitchen space for emerging virtual brands, allowing for rapid entry into the market. However, it may involve exclusivity agreements.
  • Fully Outsourced Cloud Kitchen: Traditional and virtual restaurants can delegate food preparation entirely, reducing operational costs and simplifying the process. But it comes at the expense of control and menu flexibility.

In the world of cloud kitchens, one size doesn’t fit all. Your choice depends on your goals, resources, and adaptability. Whether you’re an established brand expanding, a virtual restaurant entering new markets, or a delivery platform boosting engagement, cloud kitchens offer diverse options. As the industry evolves, expect fresh business models.  Stay informed, embrace experimentation, and prioritize the customer experience. In this dynamic phase, adaptability is your key strength.

10. About Supy

Supy is the data-driven restaurant inventory management software designed to help cloud kitchens operate efficiently, cut costs, reduce waste, and boost profits. Managing inventory in cloud kitchens presents unique challenges due to limited physical space, diverse menu offerings, fluctuating demand, and a need for precise inventory forecasting. Ensuring food safety and quality while balancing inventory levels and coordinating with multiple suppliers are key concerns, and Supy satisfies all those needs using a state of the art back of house platform covering all operations, including procurement, menu engineering, inventory, reports and analytics, and more. Effective inventory management is crucial for cost control and customer satisfaction in the cloud kitchen model.

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