The Cloud Kitchen Business Model Explained

A cloud kitchen is a virtual restaurant with no physical dining space. It is a virtual kitchen space to prepare food for online delivery orders only. Cloud kitchens are also known by different names such as virtual kitchens, ghost kitchens, virtual restaurants, shared kitchens, shadow kitchens, etc. 

What is Cloud Kitchen Business Model:

The concept behind delivery-only restaurants is not something new. In early 2015, Grubhub and Seamless Grubhub of New York ran 10% of their business from their cloud kitchen startups. 

However, with COVID-19 and the lockdowns, people’s dining habits have adjusted drastically worldwide. More and more people prefer ordering food online instead of dining out. 

The online delivery business model saw a boom since the dine-in business stagnated due to the pandemic and worldwide lockdowns. Startups like Swiggy, Zomato, and Uber Eats, other online food delivery partners, saw a surge in their business, and their growth increased by including cloud kitchens in their kitty. All this resulted in the evolution of virtual kitchens by 5 years within 6 months in 2020-21.

Cloud Kitchen concept is prevalent in the food business because of their ease of building and function, minimal investment, ability to manage different brands under one roof, and more undersized space consumption. 

Also, the global cloud kitchen market is expected to create a $1 trillion global opportunity by 2030, and it was valued at USD 51.96 billion in 2020 and is further expected to grow at a CAGR of 12.4 from 2021 to 2028.

Benefits of the Cloud Kitchen Concept:

• Low investment-
  A cloud kitchen cost eliminates heavy decor, dinnerware, or place expenses. Startup costs are also downsized as there is no need for construction, inspections, or compliances.
  
• Lower overheads and higher profits-
  Traditional restaurants struggle to remain profitable as they are loaded with high overhead expenses, like labour costs of the staff, expensive utilities, maintenance, rent, and excessive property taxes- something cloud kitchens don’t need to bother about. Instead, cloud kitchen setup cost is very low and it also relies on limited staff with a chef or two. 
  
• Menu flexibility-
  An online food ordering system in cloud kitchens offers more flexibility by setting up a menu. The pricing of any dish can easily be changed based on customer feedback without having any extra cost on the printing menu.
  
• Lower marketing spending-
  Cloud kitchens promote their business online through social media channels and their delivery apps. They can get a wide audience while reducing the need for marketing or promotions.

Rahul Malodia– A top business coach from India, has assisted many small and medium-sized enterprises in managing their finances. He has helped over 500 business houses achieve financial success. He has the highest record of 1000+ webinars. Rahul Malodia has expertise in management, including employee, finance, sales, and mindset management, the most demanded and requested skills for a thriving business. 

Revolution of Cloud Kitchen Business Model:

Cloud kitchens are becoming a thing now because of their main advantages, like the lack of the need to own a shop or space. They can operate anywhere and offer popular meals.

When it comes to services and location, cloud kitchens In India are the chosen option because of their dynamic concept. If you wish to thrive in this specific business, you must understand all its aspects, including maintaining good quality, maintenance, delivery links, etc. 

You can create a profitable revenue stream once you find the correct elements blend.

Setting up a Cloud Kitchen:

Location – Doing initial market research on the location is very important. By understanding the area will give you an idea about the age groups, their food preferences, and their various likes. A location that gives you ample visibility will draw crowds easily.

Licences – Setting up any commercial business without licensing is impossible. The following licences are required in the first month of setting up a cloud kitchen:

• FSSAI license
• GST Registration
• Municipal health trade license
• Fire licenses, etc.

Types of kitchen equipment – One of the most fundamental requirements of every cloud kitchen is the type of kitchen equipment. It depends upon the cooking or based on your cloud kitchen concept. The various requirements are a stove, oven, microwave, deep freezers, refrigerators, knives, etc.

Online Connectivity – You need good telephone connectivity, seamless internet, and mobile phones. You will have to be digitally active since the entire concept runs on a virtual medium.

Staff – While the number of employees needed is a few, you have to ensure that they are well-trained, efficient, and have the requisite skills to execute your cloud kitchen’s business.

Cost Analysis of a Cloud Kitchen:

There are two cost features to a cloud kitchen: operations and marketing. To start a cloud kitchen franchise unit, you need approximately INR 30 lakhs. The rent for an area of 150 to 300 square feet is INR 45,000 to 1 lakh, which can be reduced to INR 7 lakh if you lease it annually. 

The cost of equipment can be somewhere around INR 3-4 lakh. Expenses such as licence, registration, and security deposit can be around INR 2 lakh. Plus, running costs around INR 1 lakh monthly if you employ 7-8 people for every shift.

You can use the remaining reserves for marketing and sales, such as getting new clients online, social media marketing, branding, packaging, point of sale, and stock. Building a social media presence requires approx INR 30,000 per month. And branding and packaging costs can be around INR 50,000 to 60,000. You must also evaluate the third-party aggregator cost, such as Zomato and Swiggy.

Comparison With Traditional Restaurant Setup:

1. Traditional restaurants need more capital and administrative costs- Traditional restaurants often require a huge space for dining, a bar, a waiting area, and separate washrooms for customers and staff. Cloud kitchens offer commercial kitchen spaces with no such overhead costs.

2. Traditional kitchens require more staff – Traditional restaurants can only run with good locations, experienced servers, chefs, and managers. In a cloud kitchen, you just need a chef and a few staff to prepare and pack the food.

3. Cloud Kitchens have low setting costs – A traditional restaurant requires capital to build kitchen equipment, furniture, etc. Cloud kitchens have flat-fee pricing, including janitorial costs, waste pool, and kitchen supplies.

4. Cloud kitchens have higher profit margins – Traditional restaurants generally suffer fewer profit margins than restaurants based in cloud kitchens.

How to Start a Cloud Kitchen?

1. Market research. A market analysis will help decide which areas have higher online traffic and demand. This information can help you determine the most effective location for your business.

2. Business plan. Outline the target market, menu, pricing, marketing plan, and financial points. Use this information to make a plan for promoting the business.

3. Commercial kitchen space. Choose a space that meets your size and location needs. If you are still in the testing phase, consider leasing a space.

4. Necessary permits and licences. Secure permits from the health department and business licences. Permits needed for bar or dining are no longer required for cloud kitchens.

5. Hire and train staff. The staff for your kitchen will mainly consist of chefs, kitchen staff, and delivery drivers.

Cloud Kitchen Franchise Opportunities in India:

The demand for online food delivery is skyrocketing, and cloud kitchens are becoming popular day by day because of a low-investment business model – the foco model. In this model, you get their brand name, and the brand helps you with merchandising, equipment, process, procurement, hiring cooks, and everything else that you need.

After signing up with any brand, you can sit back and relax. Registering your place on Swiggy, Zomato, etc., would be done by that brand.

Case Studies of Successful Cloud Kitchen Startups in India:

1. Faasos

This startup is one of the largest cloud kitchen companies in India. It is operational and active in around 15 states across India and is the most popular cloud kitchens in India.

2. Box8

Box8 focuses on keeping up with local preferences and sticking to Indian cuisine and promotes the idea of ‘keeping it desi’ in their cloud-kitchen business.

3. Behrouz Biryani

The company’s name has a history that is 2000 years old. The iconic Biryani recipe traces its roots to the Persian kingdom. Behrouz is famous for its flavour, essence, and association with its rich history.

4. Oven Story

It is a cloud-kitchen-based company that produces and delivers varieties of pizzas. Oven Story’s parent company is the well-known online restaurant company – Rebel Foods.

5. Sweet Truth

Sweet Truth is one of the most demanding brands to go for the best quality desserts. They have got everything from classic cakes and dessert jars to gourmet treats.

Conclusion:

Cloud Kitchen is one of the most trending businesses in India and worldwide. The cloud kitchen business model is where a small size and a limited group of individuals can effectively run their business. Cooking and Management is a business that provides customers with cuisines through an online food ordering system. Follow Rahul Malodia for free insights, case studies, and business strategies.

About Rahul Malodia:

Rahul Malodia helps to develop a strong brand or business. With his 5+ years of experience, the business coach has brand development and planning expertise. He can help businesses prepare perfect strategies and business models to help them reach out to the masses and stand out from their competitors.