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 ?
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.
Table Of Contents
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 :
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.
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.
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.
When should you go for such a model ?
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 :
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.
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.
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.
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.
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.
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.
You’ll need to invest in another kitchen and team for this new kind of operation.
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.
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.
When to go for this business model
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.
When should you choose this 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.
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.
Very little control over the entire food preparation process, and very limited menu flexibility. Each item you wish to produce requires investment.
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:
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.
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.