What Is A Cloud Kitchen & How To Run One Successfully
- September 20, 2023
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Jean-Philippe Serhal
Welcome to the era of Cloud Kitchens, a culinary innovation that’s reshaping the landscape of food delivery and redefining the very essence of how we consume food. As the online food delivery market in the US alone surged to a staggering $221 billion in 2022, it is no surprise that more and more cloud kitchens, also known as virtual restaurants, are growing by the day across the world.
But, what are they and what does it take to launch one ?
This article covers all you need to know about cloud kitchens : what are cloud kitchens, how do they work, what are their pros and cons, how you can start your own cloud kitchen, and what you should absolutely nail to get it right.
Table Of Contents
1. What Is 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. Unlike traditional restaurants, cloud kitchen concepts do not have a physical dining area or storefront where customers can dine in. Instead, they operate primarily through online ordering platforms, mobile apps, or phone orders.
There are several benefits to a cloud kitchen, with the most compelling ones being that it allows a new virtual restaurant to start with relatively low costs, it helps established brick-and-mortar restaurants expand fast, and it supports F&B groups save expenses and reduce food waste by operating several food concepts using the same cloud kitchen.
The growth of cloud kitchens isn’t unexplained. Covid19 changed the way consumers purchase food. With people required to stay at home, the online food delivery business boomed, so much so that, in the US alone, the online food delivery market was valued at $221 billion in 2022 and is expected to continue to grow at an annual rate of 10% over the next few years. With this growth in mind and given the shift in consumer behavior, many food entrepreneurs and businesses are turning to cloud kitchens as a sound and exciting investment.
2. How Does A Cloud Kitchen Work ?
A cloud kitchen operates differently from a traditional restaurant. Cloud kitchens are centralized food production facilities that rent kitchen spaces to food businesses. You could find more than a dozen different brands operating within the same cloud kitchen, on either a shared space (1 team cooking for different brands), or private spaces (each brand has its own kitchen, within the same warehouse).
Each kitchen within the warehouse contains the basics you would need in a typical kitchen : fridge, prep area, fryer, oven, and sink. You could subscribe to a cloud kitchen provider based on the equipment and appliances they include in their package, or you could bring your own, if that fits the cloud kitchen provider’s policy.
These kitchens are built specifically for delivery-only models, meaning that you’ll find a dedicated space for your order-receiving hardware, rest and pick-up areas dedicated to delivery drivers, and dedicated item packaging areas, amongst other things.
2A. The Primary Steps Needed To Run A Cloud Kitchen Concept
1. Taking Orders In A Cloud Kitchen
Cloud Kitchens are digital natives and are heavily tech-reliant.
Orders come in primarily from delivery aggregators, or from a business’s own virtual restaurant’s app or website. In all cases, your team will need an order-receiving hardware and software. These are usually provided by the delivery aggregators (if you choose to work with them), or can be bought from a POS System provider. If you choose to maximize your reach and subscribe to all delivery aggregators, you can also use a delivery app aggregator that centralizes all the orders you’re receiving across platforms.
2. Processing Orders In A Cloud Kitchen
Once an order is placed, the chef will see the order and will understand what item is ordered, from which brand, and from which delivery platform. The chef starts to cook.
It is worth noting that a cloud kitchen can operate in 2 ways :
a. A chef will cook different dishes for several brands that share a common space.
b. A separate team and space are dedicated to a unique brand.
Either way, you’ll need a skilled chef who will ensure consistency. 2 or 3 chefs and a few helpers should be enough if you’re leading a high-demand brand.
3. Delivering The Orders From A Cloud Kitchen To Customers
Once the dish is prepared, it is moved to the packing staff. Each virtual restaurant needs to think about its food package and packaging method. Think about packaging a drink in a way that it does not fall during transport, or adding an ice pack around ice cream so that it doesn’t melt on the way to the customer. Nailing the packaging is an important step for any virtual restaurant, as how an item is received plays its role in the reputation of your business.
The item is then handed over to the delivery driver.
2B. The Secondary Steps Necessary To Run A Cloud Kitchen Concept
1. Don’t Forget Your Suppliers !
There’s not much of a difference when it comes to managing suppliers in a cloud kitchen compared to a traditional restaurant. You’ll still need to build your relationships and find the handful of reliable suppliers to run your business with. If you operate several brands, it is advised to list the ingredients you share across brands and to consolidate your orders with just a few suppliers. You’ll end up benefiting from more attractive prices due to bigger orders, which benefits your bottom line.
Opting for a smart procurement software is also something to seriously consider. A smart procurement software would help you order ingredients based on your Par Level, which reduces shortage and over-ordering risks. This is in addition to the hours it saves your staff in filling out purchase orders, which can be done digitally with ease and speed.
2. Managing An Inventory For Cloud Kitchens
What is thought to be “the most complicated of tasks” for cloud kitchens isn’t actually that difficult – when you choose the right software. An advanced inventory management system will save you hours of work, headaches, and frustration. When provided with a best-in-class inventory management software built specifically for cloud kitchens, and that provides the insights you need to stay in the know of your cloud kitchen’s health, managing your inventory will be a breeze.
3. The Benefits Of A Cloud Kitchen
1. Low Rental, Operating, & Labor ExpensesCloud kitchens cut costs down significantly by eliminating the need for a physical dine-in space. This translates to lower expenses like rent, utilities, and maintenance, and more capital to invest in marketing your products and improving your recipes, which increases your chances of success in an F&B world that’s more competitive than ever.
Also, since cloud kitchens focus solely on food preparation and delivery, they do not require service staff and don’t need to deal with the admin work that comes with staffing compliance. Cloud kitchens can leverage on-demand labor, whenever needed.
2. Reduced Food Waste, Increased ROI
Cloud kitchens often host multiple virtual restaurant brands in the same kitchen space. This shared-resource model allows for efficient use of kitchen equipment and ingredients, reducing waste and boosting efficiency. The savings generated from this model can then be passed down to the customer, which gives virtual brands a competitive advantage over traditional restaurants.
3. Informed Decision-Making
Cloud kitchens are digital-native by design. Since cloud kitchens rely heavily on delivery platforms, they’re born with data flowing within their operations, which gives them insights onto everything, namely data related to menu performance and sales analytics. This allows them to optimize ordering, processes, marketing, and staff schedules based on consumer behavior. Access to clear and accurate data means cloud kitchens can also change their menu or operating times in a way that not only suits business needs, but maximizes sales and resource management.
4. Wider Market Reach
Cloud kitchens can operate in and serve premium locations at a fraction of the cost – were they to launch a traditional restaurant with a storefront and dining space. Food brands can increase their reach significantly by simply cooking their recipes closer to where a considerable part of their customer base lives. This extended reach can lead to increased sales and better brand exposure.
5. Lower Barrier To Entry & Lower Risk For Entrepreneurs
Starting a cloud kitchen typically requires a smaller initial investment compared to launching a traditional restaurant. This reduced financial burden makes it more accessible for aspiring chefs and entrepreneurs to enter the food industry.
With lower overhead costs, adaptable concepts, and data-driven insights, cloud kitchens are often less risky than traditional restaurants. This flexibility allows entrepreneurs to experiment and pivot more easily.
6. Rapid Scaling
Cloud kitchen concepts can expand quickly by launching additional virtual restaurants in various locations or by partnering with existing kitchen facilities. This scalability enables faster growth compared to opening multiple physical restaurants.
4. What Are The Challenges Of Cloud Kitchens ?
1. Tough Online Competition
The cloud kitchen space is becoming increasingly crowded, with numerous virtual restaurant brands and cloud kitchen operators vying for customer attention. And since cloud kitchens aren’t physically visible to the public, they could be losing potential customers to brick and mortar locations that happen to be where their customers are.
Competition can make it challenging to stand out and attract a consistent customer base, which is also why many cloud kitchen concepts run on a discount-based business model. For smaller brands with little visibility to start with, numerous marketing tactics will need to be employed in order to differentiate yourself from the competition. It’s important to build loyalty for your cloud kitchen by building a strong digital brand, namely through social media and online advertising.
2. No Direct Feedback Or Customer interaction
Cloud Kitchens separate themselves a little from the hospitality business. Indeed, no human interaction goes in the business model of cloud kitchens, meaning that cloud kitchens do not get a chance to build loyalty through its service or customer service. Becoming a restaurant regular and being known by your name does have its effect, and is a reason why many people go back to their favorite spots.
Furthermore, feedback cannot be given directly. Instead, cloud kitchens have to resort to limited feedback (a 1 to 5 star rating system) that often lacks constructive criticism, which is in part due to low user patience when it comes to providing feedback on apps.
3. Dependence On & Profits Cuts From Delivery Platforms
Paying for a cloud kitchen is one thing, and paying for the delivery aggregator is another. With profit cuts up to 35% per menu item sold, cloud kitchen concepts must take into consideration the lowered profit margins they’ll experience compared to dine-in restaurants. Cloud Kitchens also have little control over the last-mile delivery experience. This means that any bad experience (slow delivery, cold food) may be reflected on their brand, rather than on the delivery aggregator.
The only way to counter this would be to build your own delivery service, however, this will require a tremendous investment in marketing, since you’ll have to compete with delivery aggregators and their already well-established presence, rather than other virtual restaurants present within these platforms.
4. Solid Quality Control
Cloud kitchens means business owners focus mostly on building tasty recipes, and producing them with ultra-high consistency – since the rest of the logistics is taken care of for them. It is crucial to nail operational efficiency, quality control, preparation, and consistency in order to deliver your dish with the same standards, over and over again.
This means business owners will need to try out different packages and packaging methods. You may want to invest in more premium packaging that will better preserve your food. Although it will cost more, it’ll undoubtedly beat receiving room temperature, soggy, leaky items. Keep in mind that a single accident may turn off a customer for life.
5. Supply Chain Disruptions
Like traditional restaurants, cloud kitchens can be affected by supply chain disruptions, such as ingredient shortages or price fluctuations.
5. Transforming Your Brick And Mortar Kitchen Into A Cloud Kitchen
Many restaurants have seen the shift in consumption behavior and have invested in their existing kitchens to serve the delivery arm of their operations. Some have gone further by creating brand new food brands that operate out of their existing brick and mortar kitchen.
This strategy enables these restaurateurs to make the most out of their existing staff and facilities (inventory, kitchen equipment, storage area, location). Furthermore, with delivery apps now offering pick-up options for a discounted price (10% to 15%), these brick and mortar restaurants – which are often located in prime locations – can easily promote pick up services; an attractive proposition for nearby customers.
However, you should keep the following in mind : your kitchen won’t be as advanced and optimized for a delivery business model as a cloud kitchen would. As your restaurant experiences busy dining-in hours, delivery may suddenly become a second-tier priority, putting your delivery operations – and therefore delivery reputation – at stake.
6. How To Set Up Your Own Cloud Kitchen, Delivery-Only Brand
Starting a cloud kitchen concept involves several key steps and considerations. Here’s a general overview of what it takes to establish and launch a successful cloud kitchen concept:
1. Business Concept & Branding
- You’ll need to build your concept from the ground up. You’ll need to analyze the market, identify gaps, and decide what kind of cuisine and concept you will launch to fill that gap.
- You’ll need to create a unique and appealing brand identity, including a name, logo, and visual elements that resonate with your target audience.
2. Select The Location
Take into consideration the delivery radius, accessibility to delivery drivers, and proximity to target customers. Take into account the cost of renting kitchen spaces in different areas.
3. Develop Your Menu
Aside from engineering a menu that you think will perform, it is key to think about the deliverability of the menu items you will propose, and the packaging investment you will need to make to ensure they’ll reach your customers in perfect condition.
Engineer your menu in a way that your food cost percentage will make the entire operation profitable for you.
4. Choose Your Cloud Kitchen Provider
You’ll need to choose a cloud kitchen provider to rent a kitchen space from. You’ll need to take into consideration several key factors:
- Location : Cloud kitchens are typically located in strategic areas to reach a wide customer base. Choose the cloud kitchen provider that serves the areas you want to operate in.
- Business Package : are staff, maintenance, utilities included in your contract ? Make sure to clearly understand what is in your package to not get surprised when the bill shows up.
- Do they have the equipment and appliances you need to produce your menu items, or will you have to invest in some of your own ?
- Do they have a strong track record of compliance with local health and safety regulations?
- Whether or not they provide a delivery fleet and ordering platform – if you choose to subscribe to theirs instead of third party providers.
5. Hire Staff
These are the people that will turn your vision into reality. With food quality and consistency being a key factor in the success of your virtual food business, opt for a chef that is both skilled and consistent.
6. Subscribe To Best-In-Class Restaurant Software
The entire cloud kitchen business model runs on data, and it is crucial that you be data-driven from the start. You can either opt for an all-in-one platform or a portfolio of best-in-class tools, although, in most cases, a suite of best-in-class is usually advised, especially when it comes to your back-of-house and inventory management. Running an efficient inventory, maintaining the right amount of stock, and monitoring your operations easily will save you hours of painful work and thousands of dollars in food waste, low menu performance, and shortages.
7. Choose Your Delivery Partner
You can choose to build your own fleet of delivery guys, or join a delivery aggregator to either receive orders or deliver them, or both. Joining a delivery aggregator will take away the need to think of an entire delivery logistics operation, and will give you immediate access to a large customer base. Yes, running a paid ad campaign or having a profit percentage taken out of the items you sold will cost you, but it will provide a lower barrier to entry for you to launch your business.
8. Measure The Feasibility Of Your Business Model
Prepare a detailed business plan that includes startup costs, operating expenses, revenue projections, and break-even analysis. Secure funding if necessary, whether through personal savings, loans, or investors.
9. Promote Your Business
Create a digital presence early-on on social platforms. Run a paid ad campaign on delivery aggregators to get your brand to be at the top of the list. Consider offering promotions and discounts to attract initial customers. You can also choose to distribute flyers in order to redirect customers to your website for example, if you choose to start taking orders and delivering them independently. Flyers are a great way to also promote new dishes you’ve produced that your customers can find on their favorite ordering apps.
10. Monitor Customer Feedback & Overall Operations Performance
Use customer insights to make improvements to your menu, service, and operations. Look into the performance of each aspect of your business, from procurement to sales, and from inventory metrics to menu performance. Understand how your business is doing and optimize each department every time you can. Scale once you’ve nailed down on your first cloud kitchen operations.
2. Select The Location
Take into consideration the delivery radius, accessibility to delivery drivers, and proximity to target customers. Take into account the cost of renting kitchen spaces in different areas.
3. Develop Your Menu
Aside from engineering a menu that you think will perform, it is key to think about the deliverability of the menu items you will propose, and the packaging investment you will need to make to ensure they’ll reach your customers in perfect condition.
Engineer your menu in a way that your food cost percentage will make the entire operation profitable for you.
4. Choose Your Cloud Kitchen Provider
You’ll need to choose a cloud kitchen provider to rent a kitchen space from. You’ll need to take into consideration several key factors:
- Location : Cloud kitchens are typically located in strategic areas to reach a wide customer base. Choose the cloud kitchen provider that serves the areas you want to operate in.
- Business Package : are staff, maintenance, utilities included in your contract ? Make sure to clearly understand what is in your package to not get surprised when the bill shows up.
- Do they have the equipment and appliances you need to produce your menu items, or will you have to invest in some of your own ?
- Do they have a strong track record of compliance with local health and safety regulations?
- Whether or not they provide a delivery fleet and ordering platform – if you choose to subscribe to theirs instead of third party providers.
5. Hire Staff
These are the people that will turn your vision into reality. With food quality and consistency being a key factor in the success of your virtual food business, opt for a chef that is both skilled and consistent.
6. Subscribe To Best-In-Class Restaurant Software
The entire cloud kitchen business model runs on data, and it is crucial that you be data-driven from the start. You can either opt for an all-in-one platform or a portfolio of best-in-class tools, although, in most cases, a suite of best-in-class is usually advised, especially when it comes to your back-of-house and inventory management. Running an efficient inventory, maintaining the right amount of stock, and monitoring your operations easily will save you hours of painful work and thousands of dollars in food waste, low menu performance, and shortages.
7. Choose Your Delivery Partner
You can choose to build your own fleet of delivery guys, or join a delivery aggregator to either receive orders or deliver them, or both. Joining a delivery aggregator will take away the need to think of an entire delivery logistics operation, and will give you immediate access to a large customer base. Yes, running a paid ad campaign or having a profit percentage taken out of the items you sold will cost you, but it will provide a lower barrier to entry for you to launch your business.
8. Measure The Feasibility Of Your Business Model
Prepare a detailed business plan that includes startup costs, operating expenses, revenue projections, and break-even analysis. Secure funding if necessary, whether through personal savings, loans, or investors.
9. Promote Your Business
Create a digital presence early-on on social platforms. Run a paid ad campaign on delivery aggregators to get your brand to be at the top of the list. Consider offering promotions and discounts to attract initial customers. You can also choose to distribute flyers in order to redirect customers to your website for example, if you choose to start taking orders and delivering them independently. Flyers are a great way to also promote new dishes you’ve produced that your customers can find on their favorite ordering apps.
10. Monitor Customer Feedback & Overall Operations Performance
Use customer insights to make improvements to your menu, service, and operations. Look into the performance of each aspect of your business, from procurement to sales, and from inventory metrics to menu performance. Understand how your business is doing and optimize each department every time you can. Scale once you’ve nailed down on your first cloud kitchen operations.
“Supy’s built-in dashboards give us real time data for real time decision-making
Starting a cloud kitchen concept requires careful planning, a clear understanding of the market, effective branding and marketing, and a commitment to providing high-quality food and service. Flexibility and adaptability are essential as you navigate the challenges and opportunities in the evolving food delivery industry.
7. Conclusion
Cloud kitchens aren’t just a trend: they’re a culinary game-changer. From cost-effective operations and resource optimization to the freedom to experiment with menus, they have a lot to offer. But, they’re not without their challenges, namely an intense online competition and the reliance on delivery platforms. Yet despite their challenges, these delivery-centric kitchens are opening doors for budding chefs and seasoned restaurant pros alike. They offer food entrepreneurs a chance to explore culinary passions, and give established brick-and-mortar restaurants a chance to expand their business without breaking the bank.
A cloud kitchen business needs 3 essential parts to function : the ability to receive, produce, and deliver orders efficiently. Marketing the business, staying on top of procurement, and keeping the inventory healthy are also key pillars for the business to run smoothly. Luckily, numerous tools and processes have been tried and tested, making running such a business easier than expected.
8. About Supy
Supy is the data-driven restaurant inventory management software designed to help cloud kitchens run efficient back-of-house operations. With several integrated back of house modules, namely procurement, menu engineering, inventory management, and reports and analytics, Supy’s the tool of choice for anyone looking to launch their own cloud kitchen business. Furthermore, with numerous integration to the leading POS systems, Supy helps running businesses leverage the front-of-house data even further, thanks to our built-in analytics module, which inputs and mixes sales data with back-of-house insights.
