With off-premise dining spiking in popularity in 2020 due to the pandemic, cloud kitchens have become a hot topic of conversation for restaurant operators. But what is a cloud kitchen? And what are the advantages to your business in using their business model to fulfill delivery orders? Read on for five advantages of a cloud kitchen business model for restaurateurs. Plus, what technology considerations you should be thinking about to best serve your business.
What is a cloud kitchen?
A cloud kitchen is a food-delivery-only concept often operated out of a commercial or commissary kitchen; some operators also use excess capacity in their existing full-service kitchens to offer multiple food delivery concepts. Cloud kitchens are also colloquially known as ghost kitchens, virtual kitchens, virtual restaurants, delivery-only restaurants, or delivery-only brands/concepts.
Notable brands, like CloudKitchens, Kitchen United and Reef, have popped up across the U.S. to make fulfilling food delivery orders a more seamless process. The popularity of off-premise with consumers has created strong demand for cloud kitchens, with an estimated industry valuation of $71.4 billion dollars by the year 2027. For restaurant operators wanting to reach a broader audience outside their neighborhoods and maximize delivery sales, cloud kitchens provide one potential solution.
Advantages of a cloud kitchen business model
1. Opportunity to Experiment
A virtual restaurant concept allows operators to get creative and test new offerings, all without the added pressure of sky-high rents or having to simultaneously execute on an in-service experience for guests. A ghost kitchen can bring your new ideas to life and gives you the opportunity to test new offerings. Take Melt Shop for example, which utilized cloud kitchens to launch a new concept, Melt’s Wing Shop, focusing solely on wings.
MINA Family Kitchen, a takeout-and-delivery-only concept in San Francisco, serves as another great example of the profit a cloud kitchen concept can generate, especially when utilizing a direct online ordering solution. They generated 2,300 orders in the first four months of operation, totaling over $300K in sales – and saved an estimated $43K in commission fees by driving consumers to their direct online ordering platform. Plus, they’re collecting valuable guest data that they can then use to turn those first-time orders into repeat customers for MINA Family Kitchen, as well as the brick-and-mortar restaurants in the MINA Group portfolio.
Using data insights, you can also determine what will be a hot seller or what should be replaced with a higher margin item. If you have a brick-and-mortar restaurant, cloud kitchens also enable you to test and learn before bringing that experience to your in-service guests.
With the sole purpose of enabling an experience specifically tailored to food delivery – from tools and processes, to custom-built spaces and technology – a cloud kitchen makes it simple to execute on to-go orders. Plus, restaurants can operate more than one brand from a kitchen, making it easier to batch-prep all ingredients for various types of menus and cuisines.
Plus, as noted earlier, there are a multitude of technology providers whose entire business is helping your restaurant operate a successful ghost kitchen – everything from helping refine your concept and piloting, to proprietary technologies that help with supply chain, logistics and fulfillment, and facility management.
3. Property and Location
One of the biggest advantages to a cloud kitchen is its flexibility in property cost and location. For a physical restaurant, rent accounts for a high percentage of overall budget. Cloud kitchens, however, can operate in a whole host of areas where a traditional brick-and-mortar location would never have been possible — like a basement, catering kitchen, warehouse or a parking lot. That flexibility can be a big advantage when you’re tight on cash, but have a loyal customer base ordering delivery.
When searching for the right location, ensure that the location you open your cloud kitchen in still has high customer demand. For example, if most of your customers live in the suburbs, but you’re opening up your kitchen in a downtown area, you may not be able to execute on the fresh, quick meals your customers expect.
Cloud kitchens can offer significant financial advantages over brick and mortar locations.
Cloud kitchens operate solely with kitchen staff and delivery personnel. Without the need for hosts or servers, you can significantly decrease your labor costs.
Cloud kitchens also eliminate some of the expensive elements of developing and opening a physical restaurant like dinnerware, decorations, and branded signage. If you have a pre-established brand, you can tap into your social media networks to brand your kitchen and promote your offerings.
**PRO TIP** Don’t forget that unique, eye-catching packaging for your products is paramount. Though this may require a larger upfront investment, it can pay off quickly when customers take photos of their take-out and share via social channels.
5. Flexible Menu
Cloud kitchens allow restaurateurs to change menu items and product mix quicker than can be done in a physical location – and gone are the days of updating and reprinting physical menus. For example, if you run out of an important ingredient, or find that the margin on a certain item isn’t high enough, it is easy to swap out the menu item online for another option. Most technology platforms enable you to 86 an item with a simple click of a button, making it easy to do whether you’re in the middle of a busy dinner rush or have a lull between meal periods.
Technology considerations for cloud kitchens
The most important technology decision to make when opening a cloud kitchen is how to manage the food delivery process. For operational efficiency and the best experience for staff and customers, an online ordering system will be best for a cloud kitchen concept. In fact, effective utilization of digital technology can help improve profit margins and increase consumer confidence. Though phone calls and emails can still be used, priority should be placed on online ordering — after all, 70% of Americans prefer to order digitally for off-premise delivery.
Just getting started with online ordering? Check out our resource – “How to Get Started with Delivery and Takeout”. And remember that not all online ordering solutions are created equal. Third-party online ordering marketplaces are great tools for visibility, but can cost you a 30% fee on every order, and control the guest data from your customers. Direct online ordering solutions charge no commission fees, and let you own your guest data, which is key for driving repeat orders. It is a best practice to make sure any CTAs on your owned channels drive customers to your direct online ordering solution, not a third-party solution.
Cloud kitchens make it easy for customers to search for an item and place an order online. But do you know who those customers are, and whether any of them have also visited your physical restaurant? Guest engagement platforms make it easy to collect on- and off-premise guest data for a 360-degree view of your guests. Plus, you can leverage that data to drive repeat business and loyalty via targeted marketing campaigns — like offering a free appetizer for a repeat order, or encouraging a delivery-only guest to dine in-person with you next time.
Without the benefits of a physical location and signage, online promotion of a cloud kitchen is crucial. Restaurant operators should promote their cloud kitchens across Google, Facebook, Instagram, and third-party delivery marketplaces to generate buzz, as well as utilize SMS and email marketing whenever possible.
**PRO TIP** If you’re using a direct solution to offer online ordering, don’t forget to promote your direct order links across your channels. There is no reason to pay a third party for a diner that finds you on your owned channel.
Overall, cloud kitchens can provide a number of benefits for restaurant operators, from testing to new ideas to cost savings, to increased flexibility and efficiency. Will you be making the move to open a cloud kitchen? Make sure you have the right technology partner to help you maximize your profit on every order, connect directly with your customers, and drive repeat business. Schedule a demo of SevenRooms today to learn more.