Cloud Kitchen: The Newest Innovation in the Restaurant Business

Technology has started impacting all businesses. The restaurant business is no different. Earlier, restaurants used to be low tech and were businesses which were run by moms and pops. However, now restaurants have gone high tech. Several innovations are now part of the restaurant model. The “Cloud-Kitchen” is one such innovation. In this article, we will have a closer look at what a cloud kitchen is. We will also look at the advantages and disadvantages of using this model. Lastly, we will try to understand why this model has become the darling of venture capitalists worldwide.

What is A Cloud Kitchen?

A cloud kitchen is a restaurant that focuses exclusively on takeaways. These restaurants do not offer dine-in facilities. These outlets should be viewed as food factories. In these outlets, only the production of food happens. The orders are only received online. Hence, the term “cloud kitchen” is used. The food is then sent to the customer in the form of a takeaway.

Advantages of a Cloud Kitchen

The cloud kitchen model has several advantages. Some of them have been listed below.

• Lower Operational Costs: the restaurant industry is known for having very high operational costs. Real estate costs are burgeoning across every city. This is severely impacting the bottom line of restaurants. Also, the culture of going to restaurants is slowly fading away. Nowadays, both spouses are working. Families want to spend their weekends in the comfort of their homes, away from the traffic as well as hustle-bustle. This is the reason why more than 35% of all meals from now restaurants are now delivered to the customer’s homes. The cloud kitchen model allows the restaurant to bypass expensive real estate costs and focus more on the food.
• Competitive Pricing: On one hand restaurants are struggling to make any money whereas on the other hand, customers find the food to be extremely expensive. If the food were fairly priced and prepared in a homely manner, many customers would prefer to order daily. Once again, this is because of the rise of working spouses who have no time for cooking. Cloud kitchens can keep the real estate costs low. This is because since customers never visit these kitchens, they do not need to be at prime locations. This allows the restaurants to cut costs. They can provide good quality food to the customers for a fraction of the costs.
• Automation: Cloud kitchens also tend to have a limited menu. Instead of offering many items, cloud kitchens focus on simplifying the menu so that more automation can be introduced. Cloud kitchen companies have successfully automated all the packaging activities. These activities contribute to about 25% of the total workload. A lot of pre-preparation activities have also been fully automated. Cloud kitchen startups are also trying to aggressively explore more technologies that will allow them to automate the entire operation.
• Food Quality: Traditional restaurants face a lot of overhead expenses. This is the reason why they have very little money left to incorporate good quality food items in their dishes. This is the reason why restaurant food has traditionally been considered to be unhealthy. However, cloud kitchens are changing that. The objective of these kitchens is to add value to the customers. Many of these customers buy daily from these kitchens. Hence, they are very concerned about the quality of inputs that are used since it directly impacts their health. This is the reason why cloud kitchens focus on food quality. In fact, many of these kitchens have built their entire marketing programs around the promise of better quality food at the same or lower price.

Challenges Facing Cloud Kitchens

• Technological Expenses: The biggest problem with cloud kitchen model is that it has replaced real estate costs with technological costs. Cloud kitchens have astronomical technical costs. This is because these kitchens have to communicate with a lot of food delivery apps. The orders have to be received and communicated to the kitchen which is the nearest to the customer’s location. There are cloud-based solutions available which allow restaurants to go high tech without any major upfront costs. However, the monthly subscriber fee also burns a hole through the wallets of many startup kitchens. Hence, the costs end up being very similar to traditional restaurants. However, the number of the users is severely restricted since these outlets do not provide the dine-in facility.
• Hygiene: The cloud kitchen model is difficult to scale. The problem is that many times companies build their kitchens in unhygienic conditions. This is done in order to lower the costs as much as possible. Customers don’t really want to be served from prime real estate. However, any chosen kitchen needs to be hygienic so that the food is edible. There have been many cases reported on social media wherein the food served to customers was unhygienic.

To sum it up, the restaurant industry has undergone a major transformation. Cloud kitchens are a relatively new invention. However, they help serve a very important market niche which was earlier being neglected by traditional restaurants. As a result, they are not taking market share away from current restaurant owners. Instead, they are expanding existing markets thereby benefitting the industry as a whole.

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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.