COVID-19 has changed the way the UAE restaurant industry works. More and more restaurateurs who never prioritized online deliveries pre-pandemic are now stepping forward to partner with cloud kitchen brands to survive lockdown restrictions. Along with catering to the rising consumer demands for variety and taste, cloud kitchens also serve as an alternative for the restaurant chains to expand their business. This has made cloud kitchens or “dark kitchens” the hottest choice for investment in Dubai as of now.
Post COVID-19 lockdown, cloud kitchens were the fastest recovering segment of the restaurant industry in Dubai as more and more restaurateurs were investing in them. Who wouldn’t want to invest less and profit more from a business?
What Problems Has The Lockdown Brought For Cloud Kitchens In Dubai?
Despite being the hero of the restaurant industry amidst COVID-19, cloud kitchen businesses in Dubai are facing multiple challenges. Let us look at the different challenges they faced during the lockdown and how they combatted those problems.
1. Managing Overheads
Even though the dine-in restaurants and QSRs were hit prominently by the pandemic, cloud kitchens or industrial kitchens were not spared either. Due to the closure of many restaurants in Dubai, cloud kitchens too witnessed the loss of clients all over the city. Many cloud kitchens had their sales reduced to half the number of what they earned pre-pandemic, due to which paying rent became tough. Managing overheads was, thus, one of the significant issues amidst the pandemic for cloud kitchen owners to handle.
As one of the solutions to this problem, cloud kitchen owners have initiated exploring the potential of corporate clients instead of relying on orders from regular consumers. Corporate clients have become a more resilient and reliable option for cloud kitchens to bond amidst the pandemic. They are much more likely to stick with the cloud kitchen brand through the dreary COVID-19 times and keep the business running.
For example, Munchbox, a healthy food delivery service based in Dubai, profited from catering to corporate clients. Another solution that this delivery service came up with was to go local, i.e., focussing just on immediate operational expenses and making all the purchasing locally helps reduce the cost of raw material and provides flexibility in cash flow.
2. Commission Of Food Aggregators
The increased number of cloud kitchens in Dubai has germinated the problem of high commission charged by food aggregators. Post pandemic, there has been an immense increase in incoming online orders. Receiving and keeping track of bulk orders is an arduous task for cloud kitchen operators. There also arises a problem of insufficient delivery boys, especially during lunch hours.
So cloud kitchens rely entirely on delivery services like Deliveroo, Talabat, UberEats, etc. These aggregators provide their delivery couriers to the cloud kitchen and also allow them to reach out to new customer segments. But, all this comfort comes with a price: the commission payable to the middlemen. Food aggregators have high rates of commission which reduces the business’s overall revenue for cloud kitchen owners. For instance, Deliveroo charges 30-35 percent while Talabat charges around 20-25 percent of the total order bill as commission.
As a solution to this, brands have started adopting the “full-stack” model. In it, the cloud kitchen singlehandedly handles all the supply chain operations – from brand creation and cooking to door-step delivery. Owning the entire supply chain and having all the operations in one’s own hands saves commission expenses and also keeps a check on the quality.
3. Increased Competition Among Cloud Kitchens In Dubai
The business has boomed for cloud kitchens post lockdown, and the market has been growing ever since due to new investors. This has increased the risk of self-sabotage if the market falls or ceases to grow at the present rate.
Dubai’s cloud kitchen business is getting too crowded as the number of kitchens has increased in the city. The solution to this problem: consistently maintaining the quality of the service and food that you deliver. Substandard products and service is simply not an option when you are competing with 400 other brands from 80 different locations in the country, most of which are based in Dubai. Sustaining such stiff competition can no doubt be challenging, however, maintaining the quality of product and service is a must.
Furthermore, another solution to this problem is to explore new services. For example, some cloud kitchens are expanding to newer categories like delivering groceries and other products. This can create a whole new market for cloud kitchens and allow them to bypass fierce competition amid the pandemic.
4. Lack Of Technology
The rising number of orders has created a heavy demand for automation in the cloud kitchen industry in Dubai. However, the restaurant sector of Dubai is not quite there yet in terms of technology. People are reluctant to invest in technology and prefer to stick to traditional methods of managing a restaurant unaware of the many perks that it has to offer.
However, the application of technology is gradually expanding across the F&B industry. Cloud kitchen owners have just started embracing technology – a practice triggered due to the pandemic. From small tasks like ordering inventory, managing stock, ingredient tracking, etc., to billing and reconciliation, cloud kitchen businesses in Dubai are slowly becoming more tech-centric. For example, Kitopi, one of the largest cloud kitchens worldwide, based in Dubai, has now started leveraging artificial intelligence to ensure compliance with the new norms by the staff. The road is pretty much uphill from here.
Cloud kitchens are indeed the unicorn of the restaurant industry in Dubai. By adapting to the changing market landscape at an impressive speed, they have led the recovery of the F&B sector in the UAE. In doing so, they have proved that it is possible for the industry to survive and thrive during these challenging times.
Stay tuned to know more about the impact of COVID-19 on the restaurant industry in the UAE.