What is a cloud kitchen?

Cloud kitchen business models

There are several types of cloud kitchen business models:

In a shared space cloud kitchen model, restaurant owners use their own staff and produce, but the space and equipment are owned by a third party. The shared kitchen space may be used by several businesses, each looking to prepare dine-at-home food without the overhead of a restaurant.

A dedicated space cloud kitchen model is a space rented (or purchased) by a brand solely for their own use. They may decide to use one or more different concepts in the location, but do not have other brands operating with them.

Cloud kitchens can be used to launch an entirely new business or concept - also known as virtual restaurants or virtual brands. A virtual brand operates out of an established kitchen and allows the business to test new concepts without heavy investment.

Is there a difference between cloud kitchens and ghost kitchens?

Whether you call it a cloud kitchen, virtual kitchen, shadow kitchen, commissary kitchen, dark kitchen, or ghost kitchens, at its core, it’s a restaurant that primarily handles digital orders. They can operate within the kitchen of an established brand or on their own but are typically accessible online. Despite having several names, they have similar characteristics and exist to serve customers delivery-only meals.

Within the ghost kitchen segment, several phrases need to be defined. For example, kitchen-as-a-service, or dark kitchens, are fully built spaces rented out to a concept for their ghost kitchen duties. They provide a full-service kitchen and delivery model making it easy to launch a delivery restaurant with low risk and low capital.

Although some ghost kitchens may include a drive-thru or takeout area, there isn’t a traditional storefront or indoor seating. Regardless of what we decide to call these digital-only brands, they are filling a vital need in the industry.

How does a cloud kitchen operate?

Cloud kitchens are based on a delivery-only business model. These restaurants rely on orders coming via their own website, or via delivery apps like UberEats, Grubhub, DoorDash, and Deliveroo, to deliver food for off-premises dining.

This business model allows restaurants to diversify and expand their customer base, while cutting back the two biggest operational costs—rent and labor. With low overhead and only kitchen staff required, businesses have the opportunity to minimize costs and maximize orders.

Being delivery-only, cloud kitchens don’t need to create an experiential dine-in experience for customers. They don’t have to worry about high rental costs, large capital investments, restaurant interiors, guest facilities, and front of house staff.

Since customer acquisition is achieved through digital platforms, cloud kitchens heavily invest in technology that leverages the entire business operation. Apart from technology, major investments can also include well-equipped kitchen infrastructure and trained manpower, such as chefs and delivery drivers.

Some cloud restaurants rely on their own delivery fleet to personalize their service , while others leverage aggregators for delivery.

What are the advantages of cloud kitchens?

It’s quicker and cheaper to launch a business if the customer interaction is virtual. You cut down on equipment cost, deal with less legal paperwork, and can start selling almost immediately. Entrepreneurs can test their product before fully committing to a food truck or a brick-and-mortar restaurant. Advantages of cloud kitchens include:

• Flexible menu: Being app- or web-based means you can change your menu focus whenever you like, without having to worry about updating signage or printed materials. If an ingredient becomes too expensive or is no longer accessible in your area, you can easily swap out your menu items to suit what is available.
• Lower financial investment: Ghost or cloud kitchens eliminate several expensive elements that don’t apply to virtual restaurants: decor, signage, dinnerware, and additional staff members as servers or hosts.
• Opportunity for experimentation: Cloud kitchens allow restauranteurs to experiment with new concepts, fail fast, and easily scrap ideas that aren’t working with low exposure.
• More efficient: Using custom-built spaces and optimizing processes specifically for delivery, cloud kitchens can run very efficiently. If you are operating several brands from one kitchen, you can batch-prep ingredients for several different menus.
• Access to customer data: Because cloud kitchens are designed to engage seamlessly across the full customer journey—from initial research to placing the order online to fulfillment—cloud kitchens can optimize processes, ordering, and staff scheduling based on consumer behavior.
• Leverage third-party apps for marketing: Virtual restaurant brands can gain quick exposure through delivery apps, rather than having to market themselves.

What are the disadvantages of cloud kitchens?

Competition in cloud kitchens can be fierce. You’re competing in a crowded online marketplace, and customers are able to use a delivery app to scroll through many brands in the convenience of their home.

Running a cloud kitchen means missing out on the walk-in traffic provided by a storefront. The reason you pay more money to rent for a storefront is because people will walk into your restaurant. That’s not the case when you turn on UberEats or DoorDash.

On top of that, you’re constrained by the location of the kitchen you operate from (usually a 3-5 mile delivery radius). While rent may be attractive in low-income areas, you may not be in the right area to find suitable customers.

Something else to consider is that a delivery-only brand's reputation relies on the food arriving at the customer in perfect condition. Factors out of the restaurant's control can impact food quality, such as delivery drivers stopping for a coffee or running late. Maintaining a high standard of food quality is critical to drive repeat orders.

There are significant challenges in keeping the product at proper temperatures so it arrives as intended to the customer, and to ensure it’s safe to eat. This means testing out different types of packaging and potentially investing in containers that are more expensive and harder to source.

Choosing the right technology for your cloud kitchen

Technology plays a crucial role in cloud kitchens, as most orders are made online through a website, app, or delivery aggregators.

A cloud kitchen requires an integrated technology system for accepting online orders, processing payments, and efficient kitchen management.

A key requirement for a cloud kitchen is a point of sale (POS) system that accepts orders from various channels, such as delivery aggregators and online ordering platforms.

Having an integrated restaurant POS system means you can maintain records of orders from each platform and have visibility into which platform is working best for you.

Having access to sales data is critical to developing strategies that maximize your sales.

While partnering with online food aggregators is important, it's worthwhile to consider implementing your own restaurant website or mobile app for accepting orders as an additional sales channel.

In a fast-paced cloud kitchen, order preparation time is usually around is 10-12 minutes, if you want to deliver the order within 30 minutes. An integrated Kitchen Display System (KDS) will optimize order preparation time.

As soon as the order is received, it gets updated in the KDS. Kitchen staff can view the order details and the order pickup time immediately, and can prepare the order accordingly. This streamlines kitchen management, maximizes efficiency, and enables you to identify any lags to further optimize the preparation time.

Effectively managing inventory is essential for any restaurant, and the same stands true for a cloud kitchen. A smart inventory management system enables you to track daily stock consumption and also prompts you to order more stock when needed. It helps you reduce wastage and keep control of your food costs.

Technology plays a critical role in the smooth functioning of a cloud kitchen business and also ensures operational efficiency.

Having a comprehensive technology platform with seamless integration between POS, KDS, and inventory management will ensure operational efficiency and the smooth functioning of your cloud kitchen business.