Cloud

Kitchen 101

The ultimate guide to opening your delivery outlet

Food: History, the culture of eating out and online delivery

Enjoying a meal with our family and friends brings us joy in many ways. Food is an emotion, a feeling that touches humans across ethnicity, gender, religion, and region. Coming together and sharing a meal is the most binding thing almost everywhere in the world.  

Talking about meals and families, the warmth of learning a recipe from our mothers is one of the oldest traditions of mankind. As individuals, we grow up eating the different cuisines of our cultures, so much so that food starts becoming a part of who we are, the way we socialize, our conversations, our happiness, and even our sadness. 

The feeling of making food for our family and friends is an expression of love and care that has brought people together for ages. There was a time when people would mostly eat home-cooked food and eating out was considered a luxury reserved for the elite. But then, there is always someone who challenges the status quo. 

Beginning of The Restaurant

The French were the first to introduce the concept of eating out. The public dining room that ultimately came to be known as ‘the restaurant’ originated in France, and the French have continued to make major contributions to the growth and development of the restaurant industry since then. 

The Emergence of Food Delivery

Restaurants have been around in some form or the other for most of human civilization. But they usually catered to travelers and more of the elite section of society. Digging deeper in the culinary history also reveals that food delivery isn’t a new concept either.

In the 14th century Paris, chefs would frequently send their food directly from the butcher’s kitchen to the homes of the city’s well-to-do families, while in markets like India, dabbawalas in Mumbai still deliver home-cooked lunches to the hungry workers across the city, a business that has been thriving since the 19th century.

The Evolution of Food Delivery Business

Phase 1: Phone ordering (90s onwards )

The first phase of food delivery is one that has been there the longest – using phones/landline to place orders at your favorite restaurant near your home. Restaurants used to hire delivery staff who would send out orders on two-wheelers at your doorstep. In this system, the restaurants had to make a significant investment in hiring the staff, purchasing vehicles for delivery, and maintenance of delivery equipment. 

Phase 2: Mobile ordering (2010 onwards)

Since 2010, the rise of the second phase began. With the increased usage of smartphones and the new economy of startups, there was a sudden change in the way people collaborated with the online marketplace model. In the marketplace model, restaurants still took care of their own deliveries, but customers ordered via apps such as Zomato, GrubHub, Just Eat, etc. These services came in the form of mobile apps, where customers only needed a smartphone to place an order without any human interaction with the restaurant.

Phase 3: Integrated platform ordering (2014 onwards)

As restaurants started seeing the positive impact of marketplace apps on delivery business, startups came up with more sophisticated solutions. These were in the form of an integrated platform that offered better logistical support and quality assurance of food delivery to match the hygiene and quality standards the customers now expected.. Under the integrated platform, companies took care of end-to-end delivery and logistics, thereby, making the restaurants free from the hassle of managing delivery or packaging of food. Uber Eats, Swiggy, and Rappido are some examples of such integrated platforms.

Phase 4: Cloud kitchens – The new normal of the restaurant business

As technology advanced,  with high-speed data, increasing smartphone adoption, and mobile app-based services beginning to change consumer habits, the food industry also started to witness a technology revolution in the form of cloud kitchens.

Cloud kitchen or the digital restaurant is the latest trend that has quickly established itself in the restaurant industry as a formidable model. With extreme competition in the restaurant space, high rentals, and rising costs, Cloud Kitchens seem like a smarter way to run the business. With the wave of technology hitting the restaurant industry, we can assure you that the cloud kitchen trend is here to stay and would only evolve multiple folds from here. 

What is a Cloud Kitchen & How Does it Function?

A cloud kitchen is primarily a restaurant kitchen that accepts incoming orders only through online ordering systems and offers no dine-in facility.

They have a base kitchen that delivers food to the customers’ doorsteps.

Why is starting a cloud kitchen a wise choice?

Cloud kitchen has been doing the rounds recently. Startups and people looking for options to expand their business have opted for cloud kitchens. Here are a few reasons that led to the cloud kitchen model become their preferred option.

More brands in the same kitchen

Yes, you heard it right! Cloud kitchen allows you to have more than one brand under the same roof.  The cloud kitchen business model provides restaurateurs with the flexibility to launch multiple brands and provides easy avenues for business expansion. This can even be achieved by employing the same chef in the same kitchen space, catering to multiple brands. This way, it reduces the investment tremendously. For newbies, this is the best way to test their brand.

Lower risks, owing to lower upfront expenses required, is good for startups. Cloud kitchens are especially worth exploring for smaller enterprises like food trucks, sweetshops, home chefs, and even those who’re interested in trying this business without any prior experience in running a full-time restaurant.

Competitive pricing is another direct advantage of having lower operating costs. Since the investment is fairly low as compared to traditional restaurants, virtual kitchens can price their menus more reasonably.

Different models of Cloud Kitchen

The food delivery business presents a plethora of opportunities, and the cloud kitchen business capitalizes on them extremely well. The cloud kitchen business model has undergone multiple variations already, with each business model tapping in to the opportunity in a unique way. 

Types of Cloud Kitchen Business Models

Standalone/Single Brand Cloud Kitchens

A standalone cloud kitchen is a kitchen that accepts orders online and operates under a single theme and concept. Standalone cloud kitchens typically offer 1-2 cuisines and have a small menu with 10-15 items.

An average standalone cloud kitchen is around 300 sq ft and can process more orders as compared to a dine-in outlet. Standalone cloud kitchens usually accept orders from multiple online food aggregators, which help them reach out to a broader audience base. 

Multi-brand Cloud Kitchens

The cloud kitchen business model allows restaurant businesses to launch multi-brand kitchens offering specialization in each cuisine, catering to unique customer demands, and also to reach out to a wider audience base.

Virtual Restaurants

A virtual restaurant, as the name suggests, is a virtual brand(s) inside an existing restaurant that utilizes the kitchen infrastructure and resources of the current restaurant, just under a different brand name. 

The virtual brand offers a different menu from the main restaurant and can be a great way to experiment with a new cuisine, which may be very different from what the established restaurant is known for.

Co-working Kitchen Spaces

A co-working cloud kitchen space is a large kitchen infrastructure, which individual restaurant brands can occupy and run operations from. These spaces have different kitchen units for each brand, fitted with the necessary equipment and utilities. These kitchens are again located at strategic locations with high customer demand, especially for specific cuisines.

Aggregator Managed Cloud Kitchens

Aggregator cloud kitchens are large co-working kitchen spaces managed by the online food aggregators. The aggregators invite their top restaurant partners to prepare food for delivery-only from these kitchen spaces. 

Operator Managed Cloud Kitchens

In an operator managed cloud kitchen, the kitchen operator runs the operations of existing or upcoming restaurant brands on their behalf. The brands are listed separately on online food aggregators and can also receive orders from the cloud kitchen operator’s central food ordering website/mobile app or call center. In a nutshell, it is like a virtual franchising model that houses multiple brands.

How Technology Fuels The Cloud Kitchen Engine

Cloud Kitchens accept orders primarily from online sources, which means they need to be listed on all the online food aggregators for maximum reach and visibility. They can also receive orders via phone calls and from their own online-ordering website, if they have one. 

Managing orders from different sources becomes extremely tedious in this case if done manually.

How Technology Simplifies Cloud Kitchen Operations

A smart cloud kitchen management system becomes integral in this case. Integrated with the online food aggregators and call center panel (for accepting telephonic orders), the cloud kitchen management software acts as a single point for order acceptance and management. 

Online orders from various online food aggregators and the Call Center are received centrally into the Cloud Kitchen’s dashboard. 

How does it work?

STEP 1

MAKE A BUSINESS PLAN FOR YOUR CLOUD KITCHEN

Conceptualizing  your cloud kitchen

The first thing you need to open a cloud kitchen is to have a proper cloud kitchen business plan.
The business plan should include the following aspects –

MAKE A BUSINESS PLAN FOR YOUR CLOUD KITCHEN

Business Overview

What is the purpose of your brand? Writing your business overview should ideally explain the concept of your cloud kitchen in brief. It should include things like a mission statement, the idea behind the business, and the vision and future plans of the business.

Here you should explain in detail the USP of your cloud kitchen. Elaborate why you think the cloud kitchen would be successful. 

You should be able to answer the following –

  • What makes your cloud kitchen concept different or unique?
  • What are you aiming for?
  • Who is your target audience?
  • How are you going to cater to your target market?

It is suggested that you cover specifics of the following in the plan:

  • The layout of the cloud kitchen 
  • The sample menu 
  • The Management Team 

Industry Analysis

Doing the Industry Analysis is one of the most critical aspects of your cloud kitchen business plan. Industry Analysis helps you prepare better for starting and operating the cloud kitchen business successfully. You need to do proper Market Research and can also seek help from online food aggregators or similar third-party services to provide you with the data and market trends. 

There are several aspects that need to be considered while doing Industry analysis. Go deep in studying the location, and the target audience, along with competition mapping and in-depth SWOT analysis of your plan. 

A. Location Analysis

The location of the cloud kitchen can be relatively inaccessible, but still, should be suited as per the market demand of that region. For instance, the backside of a market, unused parking lots, and garages make for an excellent location for a cloud kitchen. This way, you won’t end up spending a ton on rents but will still be able to tap the market.

B. Target Audience Analysis

While doing the Target Audience Analysis, figure out the demographics of the region. Does your audience comprise of working professionals or students? Do they have a preference for global cuisine or Indian? The 5km delivery radius within which you’d be offering your food is a micro-market, and each micro-market can have varying behavior patterns. 

Thus, you need to properly analyze the preferences of your target audience and then come up with the product that caters to the demand. 

You can also conduct your own primary research and conduct surveys to understand customer preferences. 

C. Competition Analysis

Conduct a thorough analysis of the competitors in the area you are looking to open your cloud kitchen. Your competition is anyone who is fulfilling a specific need of your target audience and that doesn’t always have to be a cloud kitchen. Thus, even a dine-in/takeaway restaurant offering similar cuisine is a competitor. 

Check for restaurants offering similar cuisine as you on the online food marketplace and review sites. The reviews and ratings would give you a fair idea of the competitors who are already doing well and preferred by customers.

D. SWOT Analysis

Basis the Industry Analysis and your Business Overview, you can easily do the SWOT Analysis for your cloud kitchen. 

Identify the Strengths, Weaknesses, Opportunities, and Threats that are associated with your cloud kitchen venture. 

For instance, the Strength of your Cloud Kitchen could be that you have superior packaging that makes the food you’re offering as good as having it in the restaurant. Similarly, a potential Weakness could be a shortage of skilled staff. The Opportunity could be the high demand for the specific menu item that you will be offering in that location. The existing restaurants or cloud kitchens could potentially be a Threat to your cloud kitchen business if you are not able to sustain the competition. 

You need to analyze your business and perform the SWOT analysis to prepare yourself better. Figure out how you can leverage your strengths, work on your weaknesses, capitalize on the opportunities, and minimize the threats associated with your cloud kitchen business. 

Operations Plan

The operations plan is one of the most critical aspects of the business plan and must be crafted carefully. 

The operations plan must include precisely how the cloud kitchen business would function. Right from accepting the orders, to the number of people required in the kitchen, to the recipes, everything must be explained in detail. 

Under the operational plan, think through the menu, how will you procure raw materials, identify your vendor partners, and finding the right technology solution to back up your operations.

A. Menu Planning

The menu is perhaps the most critical aspect of a cloud kitchen. The most important thing to note here is that the menu should only consist of the items that can be packaged easily and that travel well. 

The menu for a single brand should ideally not exceed more than 10-12 items. You can also include certain menu items in multiple brands. For instance, if you are offering two categories of burger, gourmet and regular, you can have the same French Fries for both the brands.

Having multiple brands allows you to have multiple listings on online food aggregators. More listings provide you with better reach and audience penetration. 

The next thing to consider while deciding your menu is to understand what consumers are looking for. Figure out if there’s customer demand for what you’re about to offer. 

If you are an existing restaurateur or looking to open a cloud kitchen solely to cater to the increasing delivery orders, you can refer to the Menu Performance Reports in your POS system to understand which menu items and cuisines are selling well. 

Based on these reports, you can come up with a delivery-only menu with items that are already doing well or their variations that can be delivered easily.

Anatomy of a great cloud kitchen menu

B. Procuring Raw Materials

Procuring raw materials and stock management is an integral part of the cloud kitchen business. List out the raw ingredients required and the vendors from whom you’d be purchasing them. While shortlisting the vendors, choose the ones near the location of the kitchen. If you plan on using exotic ingredients, figure out the suppliers beforehand.

C. Staffing

Create an estimate on the size of the staff that would be required in the cloud kitchen. For a standalone cloud kitchen, you can quickly start the operations with two cooks and three or four helpers. Based on the number of online orders, you can hire more staff to cater to the demand. For a multi-brand cloud kitchen, the same staff can prepare the food for different brands as well.

On average, you’ll need five staff per brand to accept, prepare, and package the food.

D. Technology

Technology plays an integral part in the smooth functioning of a cloud kitchen business. You must choose the technology that will help you accept and manage orders from multiple online aggregators. 

Choose a technology partner for your cloud kitchen that will help you accept orders from multiple sources, enable you to optimize the order-preparation process, and also manage the operations efficiently. 

E. Financial Analysis

The CAPEX and OPEX required to start and run a cloud kitchen business are significantly less as compared to a traditional restaurant. However, you still need to plan well and do a proper financial analysis of your cloud kitchen venture. 

Analyze the capital that you will require to open a cloud kitchen first. This will include the cost of rent, utilities, equipment, technology, and the initial raw materials. Next, you need to figure out the weekly and monthly cost of stock requirements, and the salaries that you will pay to your staff. 

It is a good idea to have at least six months’ operating expenses as reserves before you start the cloud kitchen business.

The Financial Analysis should include the following metrics – 

  • Profit & Loss 
  • Cost of Sales
  • Cost of Labor

Marketing Plan

Since there is less space for great upfront customer service as in the case of a traditional restaurant, and no display boards or signages creating a brand recall, cloud kitchens need to spend more on marketing, at least in the initial days. 

The Marketing Plan for a cloud kitchen should include the following aspects –

Naming and logo building

The name of your cloud kitchen should reflect the concept of your brands, and also instill a sense of confidence in your customers. 

Cloud kitchens are a relatively new concept, with customers unaware that the food is coming from a cloud kitchen instead of a traditional restaurant. Having a name that focuses on the specialization of the brand and a great logo design will help generate trust among your customers. 

For a cloud kitchen operating multiple brands, it is essential to have a separate name and identity for each brand. 

This is because customers typically prefer to order from a brand that specializes in a specific cuisine, instead of a restaurant that offers everything. Instead of having a generic name, choose a name that showcases your expertise in a particular cuisine. 

Along with the food, each brand tells its own story, and in its wake, the customers follow.

Mobile-friendly and SEO optimized website

Cloud kitchens need to have a strong online presence to generate orders organically. Having a mobile-friendly website that is also Search Engine Optimized, becomes critical in this case. Ensure that the description of the website and the page content has relevant keywords and phrases. For example, if you offer authentic Italian food, make sure the menu descriptions include the most searched keywords around Italian food, that is, best pizza, authentic pasta, etc. 

The website should also be integrated with an online ordering system and have a clear Call-to-action that would lead the website visitors to the online ordering landing page.

Social media marketing

Social media is also a great way to reach out to potential customers. Create a business page for all your cloud kitchen brands on the different social media platforms. The most popular social media platforms for promoting a cloud kitchen brand are Facebook, Instagram, and Twitter. 

The most important thing to remember here is to maintain consistency. Post delectable pictures of your food and add the link to your online ordering page. Also, encourage customers to tag your business page and repost their pictures and stories on your page.

SMS & Email Marketing

SMS and email marketing are great ways of engaging with your customers. You will be able to capture the customer details such as name, email, phone number for the orders placed through your restaurant’s online ordering system. Further, the integrated CRM in your cloud kitchen management system will record the customer details and allow you to segment the database basis their ordering-history and preferences.  

This will help you run highly personalized SMS and email marketing campaigns that are more targeted and result in high engagement and conversion rates. 

Marketing on online food aggregators 

Online food aggregators are great for increasing your brand reach and recognition. Since the promotions are hyper-local and specific only to the areas where you’d be offering food delivery, they act as a great medium to reach out to potential customers. Online aggregators typically charge on a per-click basis for your restaurant’s listing. 

Predicting break-even point

Reaching the break-even point is one of the best moments for any restaurant. For cloud kitchens, the coveted break-even point can be achieved as quickly as within three months. 

Since the operating expenses are considerably less for a cloud kitchen as compared to a traditional restaurant, you can achieve break-even quite early if the number of order volume is high. For a cloud kitchen, the profit-margin is approximately 3-4% per order. While that’s not very encouraging, the number of orders make-up for the low-profit margin.

The biggest challenge for a new cloud kitchen is generating orders. The only visibility for a new cloud kitchen is through online food aggregators. And even there, you need to spend on marketing for gaining visibility. 

Cloud kitchens need to spend heavily on marketing and branding, at least in the initial phase, to generate orders, and to reach break-even.

Doing Deliveries too?

Most cloud kitchen operators rely on third-party providers for fulfilling the last-mile delivery. The online food aggregators provide order acceptance as well as delivery. However, the margins charged by the aggregators when they offer delivery as well is pretty high. 

The cost can be anywhere between 23-30% of the order value if you get the food delivered by the online food aggregators.

Thus, it’s a good idea to partner with a third-party logistics provider or have your own delivery fleet for delivering the orders. 

Choose a 5 km delivery radius for the delivery of the food in your location. You can either hire new staff members specifically for fulfilling deliveries or train your existing staff to get the food delivered, depending on the order volume. 

You can take the help of technology to ensure smooth delivery operations as well. POSist’s Delivery App Allows you to assign the online orders to the delivery executives based on their location and availability. The delivery executive can accept the order, collect it from the restaurant, and then deliver it to the customer. 

The customers are also notified about the status of the order in real-time through instant SMS updates. 

The Delivery App helps you monitor the geographical location of the delivery executive and also track the time taken to fulfill each delivery.

STEP 2

SETTING UP YOUR CLOUD KITCHEN

The location and setup required

Location and property are the biggest differentiators between a traditional dine-in/takeaway restaurant and a cloud kitchen. A cloud kitchen does not require a location with high footfall and a premium property. Rather, it can very easily be set up in a 250-300 sq ft space since there is no Front of the House. This brings down the cost of opening a cloud kitchen significantly.

The cloud kitchen can be located even in a relatively inaccessible area but with high customer demand, especially for a specific cuisine. Residential areas, market backsides, unused parking lots make for great locations for a cloud kitchen. Alternatively, you can go for a shared kitchen space as that helps in cutting down the initial investment. This article will tell you how to decide the best location for opening your cloud kitchen business.

Hiring the right team

The secret sauce behind a successful restaurant is the team that works for it, with the Chefs being the most critical part of the team, as they not only prepare the food but also help in designing the menu. In an online kitchen, a minimum of nine employees is required. You’ll need at least two chefs, two helpers, and one housekeeper.

Listing on Online Food Aggregators

Since online food aggregators and marketplace already have your target audience, listing your cloud kitchen on the platforms becomes critical. You’ll have to go to these aggregators’ websites and submit an inquiry for registration. Once you have submitted your restaurant details, a representative from these platforms will reach out to you for the verification.

Here’s a detailed guide on how you can partner with popular online food aggregators such as Swiggy and Zomato.

Using the right technology to support operations

The entire online food ordering and delivery system is heavily dependent on the proper acceptance of food orders. It is also essential to keep track of the number of orders coming in from the various online ordering platforms. Tracking of orders and detailed reporting is essential for the smooth functioning of restaurants. Select a POS that is customized to suit the requirements of the online ordering website. Read more about how technology helps in cloud kitchen business operations.

STEP 3

DELIVERING CUSTOMER HAPPINESS

The food delivery and restaurant industry today is in a While COVID world, where everyone is finding ways to live with this reality and taking precautionary steps to minimize any risk. Our understanding of the restaurant industry in that world is not contactless but of less contact. A world where we may not know how not to touch things that we serve our customers but we will definitely avoid unnecessary contact with anything in between us and the table service.

Providing customers with a high-quality and safe product is easier to accomplish when the meal is consumed inside the premises. But when delivery enters the equation, several steps can help ensure the same level of quality and safety.

Train Staff About Personal Hygiene

Having strong food safety ethics and ensuring that your restaurant staff understands the risks involved in food delivery is crucial. There is a need to spread awareness about the dos and don’ts of social distancing to prevent community spread of the virus. Training of the basic principles of food safety must be prioritized in each part of the food delivery process. Conduct special training programs on how to practice personal hygiene. Educate them about the risks of tampering or not following the proper safety standards while delivering.

Choose purpose-designed containers

For years, french fries were considered a bad candidate for delivery, but in recent years, vented packaging has reduced the buildup of moisture—and thus any resulting sogginess and a perceived lack of quality. Similarly, it is important to find the packaging that best suits your food type and keeps it safe.

Keep food safe before pickup

Since it’s difficult to time the pickups, leaving food on a counter to wait for the delivery drivers is asking for trouble. Better to keep cold foods in cooler and hot foods in a warming cabinet, then transfer these to the driver at the last possible minute.

Consider Contactless Delivery 

During this time of crisis or even otherwise, encourage more and more contactless delivery. Leaving the bags of food on the customer’s doorstep and texting the delivery personnel a picture of where the meal should be dropped off have been some methods adopted in the USA.

Delivery platforms like Zomato and Swiggy are also taking all possible precautionary measures to ensure that the food is delivered with absolutely zero contact. They have introduced contactless delivery and enabled features where customers can leave drop-off instructions for delivery staff.

Partner with digital wallets such as PayPal, Paytm, Google Pay, PhonePe, etc. and roll out exclusive offers on your restaurant’s website/mobile app and online food aggregators to entice customers to opt for a cashless delivery. Provide the delivery personnel with masks and gloves at all times during their shifts. Remember to spread the word about contactless delivery among your customers as well.

STEP 4

TIME TO SCALE! 3X GROWTH IN 6 MONTHS

The low CAPEX and OPEX required for Cloud Kitchens makes it extremely easy to scale the business. However, there are certain things you must consider before you start thinking about opening a second cloud kitchen.

Deciding The Right Time

Opening a cloud kitchen is one of the easiest ways of entering a new market with minimal risks. Since you already have the concept and the menu, and the SOPs in place, you can open a new cloud kitchen outlet in less than a month. All you need is a new space, equipment, and staff. 

But before you decide to open a second cloud kitchen, you must first consider if you are well equipped to manage the operations of another outlet. 

You must also analyze if your cloud kitchen concept is scalable enough. For instance, if you offer a niche cuisine that is as popular in another region, it is not a good idea to scale the business.

Maintaining Consistency

Maintaining consistency is exceptionally important if you’re trying to build a brand. For cloud kitchens, it becomes tougher, since you can only rely on the food and packaging for delivering customer experience. Therefore, maintaining consistency is critical. 

Having a set of Standard Operating Procedures, standardized recipes, and trained staff can go a long way in ensuring consistency. 

As the number of cloud kitchen outlets increase, it is advisable to have a Base Kitchen or a Central Warehouse for procuring and storing the stock items. This way, you will be able to ensure that the same raw materials are supplied to all the outlets, and this will help you in maintaining consistency in the quality of the food items. 

A smart Base Kitchen Management software would help you manage the supply chain of your cloud kitchen outlets with ease.

Individual cloud kitchens can raise Indents and Purchase Orders which can be approved centrally from the Base Kitchen Management Software.