Cloud kitchens also called ghost kitchens or virtual kitchens, are getting more and more popular nowadays. These kitchens refer to delivery-only kitchens and F&B brands, and this industry has already crossed a value of $50B globally. But popularity isn’t the only aspect to be focused on. These kitchens are operated through different models, and one needs to carefully choose the model they want to be operating from.
1- Real-Estate Model:
In this model, you lease under-used properties and convert them into multiple shared kitchens, then rent them out to existing F&B brands, close to densely populated areas. This model works in non-retail spaces when real estate is expensive. This requires large investments to lease properties and convert them into usable kitchens and then scale it to a network of usable kitchens. But this model also leads to significant savings for the brand; it’s for you if you can raise large amounts of money and understand real estate as the top 1 percent do.
Travis Kalanick’s cloud kitchens run on this real-estate model. This business model ranges from revenue sharing to fixed monthly rent. The revenue-sharing models require technological interventions to ensure the transactions are being processed and stronger due-diligence of tenant brands.
2- Virtual Restaurant Brands
This model requires you to make some upfront investments through which you can create a large kitchen with multiple stations and create your own F&B brands. The benefit of this model is that you own the brands, making your growth margin higher, and also gives you control over the pace of the brand’s growth. The one thing to focus on is that your brand would need to be among the top 1% of F&B branding.
It’s also critical that you are generating and processing your orders by yourself instead of relying on a third-party app. Because with the third-party app comes the threat of your brand being replicated and directing traffic to their own app or brands instead of bringing traffic to yours. Hence, you need to operate through your own channels and have your own delivery options too.
3- Operations/Kitchen Efficiency Model:
In this model, you create a large kitchen with multiple stations, then partner with existing brands and provide them with not just kitchen space but also take over their entire supply chain and operations. This requires deep knowledge as you won’t only be taking over a dozen brands but also hiring staff to prepare food for other brands. This allows for different brands to launch faster in different locations. Here, the cloud kitchen pays the brand owners about 5-15% royalty and keeps the rest for themselves. Some kitchens also charge brands with a large sum of advance to cover some of their upfront costs.
In other words, these kitchens build delivery-only franchises for different brands through their cloud kitchen network. The Pakistani startup, HotPod, built its business around the same model.
4- Platform Model:
In this model, the cloud kitchen partners with existing brands on their platform to increase their reach through platform-branded kitchens. This allows them to get more orders and bring efficiency to their overall system by reducing the delivery timings. The huge amount of delivery networks and data is the biggest advantage for brands that choose this model e.g. Talabat, Deliveroo, etc.
In all these models, the priority should be given to choosing the right location for the kitchen. Since the third-party apps can cover only a limited radius, if your kitchen isn’t placed in a good location you’ll face a lot of issues in getting orders.
Further, one important thing for F&B brands to own is their own platform. Third-party apps make your model vulnerable and also create a barrier between you and your customer as they keep all the data to themselves.
Cloud kitchens are becoming a trend in today’s food industry, and this trend will only grow to become better. Brands that aren’t focusing on this trend will lose out sooner than they realize.