Online food ordering and delivery service is one of the most popular services in the world. The service is becoming increasingly more popular, as it allows you to enjoy the food you love right from your couch. According to a projection of global business data platform Statista, the market size of the global online food delivery industry will be more than $182 billion in 2024. Cloud Kitchen currently has the most traction in the food delivery industry among the rising trend of online food delivery. Apart from Cloud Kitchen, this model is gaining popularity day by day under the names of Ghost Kitchen, Dark Kitchen, Virtual Restaurant, Satellite Restaurant and several others. Business experts say Cloud Kitchen is the future of restaurant business. Thus new business models are emerging around this market and foreign investment is being brought into the entire food-tech ecosystem in Bangladesh. The cloud kitchen business is on its way to make a major contribution to the country’s GDP growth.
What is Cloud Kitchen?
Unlike traditional restaurants, Cloud Kitchen offers delivery-based meals without a physical storefront from which customers can dine in. Customers can place orders through mobile apps, websites or phone calls. That means Cloud Kitchen is basically a virtual kitchen.
The cloud kitchen format has the flexibility to serve several types of cuisine using the same kitchen facility. Multi-brand cloud kitchens can also operate different brands through the same kitchen facility. Cloud Kitchens can be built anywhere since they don’t require extensive space. There is a mobile app, website or phone call facility for food ordering and delivery of food to customers within the stipulated time through own or third party food delivery service providers.
History of Cloud Kitchen
Although it sounds new, the Cloud Kitchen concept is quite old. Pizza delivery restaurants have been doing business following similar models for decades. More specifically, the pizza takeout system has been around since the 1950s. The practice of the current cloud kitchen model began at the beginning of the last decade. It started in the subcontinent in India, through Rebel Foods, the country’s largest cloud kitchen chain.
The idea for Cloud Kitchen originated in the aftermath of the 2008 financial crisis. High-end expensive restaurants could not continue their regular operation after the recession. Meanwhile space rent has increased several fold in cities like New York. On top of the space rent and the cost of managing a restaurant, owners are also required to maintain a variety of safety regulation certificates. Which can be quite expensive to maintain, resulting in an increased overhead cost for the restaurant. However, the number of customers of the high-end expensive restaurants were also decreasing with the economic turmoil.
As a result, many restaurants were forced to suspend their operations. At that time food delivery trucks were becoming quite popular as they were quite inexpensive to set-up. It was also quite easy and economical to rent a food truck. Besides being inexpensive, these food trucks are able to serve in multiple locations. These food trucks also popularized the on-demand food delivery concept, where orders received by phone call or message were fulfilled through gig economy. Meanwhile, as the golden age of the smartphone app started in 2010, the concept of food truck was modified and gradually took the form of cloud kitchen. The restaurants rented large spaces and instead of arranging kitchens and dining-rooms, they only rented the space needed for the kitchen. Then they took orders through social media like Facebook and Twitter. In 2011, Rebel Foods launched Fassos in India, which began taking orders using Twitter through innovative marketing tactics. Then, following Rebel Foods, online or app-based cloud kitchens began to be established in many countries of the world.
How Cloud Kitchen Works
Cloud kitchens mostly take food orders online, so almost all kitchens have Cloud Kitchen POS. Orders from various food aggregators, online ordering enabled websites, or phone calls are aggregated with these POSs. Orders received through phone calls are also routed to the right brand through the call center panel.
Cloud Kitchen differs from other restaurant order processors in that the orders are often of different brands, with different flavors and packaging. In this case there is a dedicated chef and kitchen area for each brand. Some cloud kitchens also provide Kitchen Display Systems. As soon as the order is received, all the information of that order can be seen in that display system. Chefs and other staff engaged in preparing different brands of food can easily see this information. After the preparation of the food, packaging related to the relevant food brands are completed at the delivery station.
Cloud kitchen’s supplier management is not much different from commercial restaurants. Most brands have some basic ingredients in their food preparation and some of the ingredients are specified by that brand. In most cases cloud restaurants are seen to follow the multi-supplier model. In this case the basic ingredients are taken from one vendor and the rest of the ingredients are taken from different vendors according to the preference of the brands.
Although, Inventory management is a bit complicated in the case of cloud kitchens. It can be quite an issue to manage the inventory of several brands, however, tech-enabled cloud kitchen startups can benefit from tech-based inventory management.
It goes without saying that there is no cloud kitchen without a website or social media page. On their respective webpages and social media, kitchens and accompanying food aggregators announce various updates and offers on their food.
The restaurant then takes orders from the customer and can also give feedback about these updates and offers. Also many cloud restaurants enter into strategic partnerships with restaurants that are not direct competitors making branding easier. Although SMS marketing and email marketing are quite old, these two methods are still prevalent for quick notification of any offer.
The biggest advantage of a cloud kitchen is that in most cases there is no storefront, which saves a large overhead cost. In addition, in the case of such kitchens, the menu can be changed very easily and as it is a web-based platform, there is no hassle of menu printing. In addition, having a partnership with more than one food delivery service makes it possible to receive many orders, allowing for faster business expansion. Cloud Kitchens can also be set up anywhere in the city, with no need to take up space in prime locations like reputable restaurants. These types of restaurants can easily serve a large customer base by placing it in any convenient and cost effective location. In addition to serving food in storefront restaurants, chefs as well as more employees are needed which is not required for cloud kitchens. This saves the cloud kitchens from the cost of employee salary. As the popularity of online food ordering services continues to grow, physical restaurants have to focus on their dine-in as well as delivery services. As a result, the dining experience of restaurants is being interrupted in many cases. But since the cloud kitchen is completely delivery based, such a kitchen does not have to worry about the dine-in experience. In addition, Cloud Kitchen is online based and can easily take feedback from customers, which is not possible for physical restaurants.
There are a number of caveats that need to be taken care of when managing a cloud kitchen. First, different brands have to be packaged separately for order delivery so that the food arrives properly. If not packaged properly, the reputation of themselves as well as partner brands is likely to be damaged. Also, in many cases you have to depend on third parties for food delivery. As a result, the reputation of the Kitchen owner may be damaged even if there is a conflict with third party providers during delivery. Being a virtual kitchen, cloud kitchens also have to be quite proactive towards online reputation.
Cloud Kitchen Models
To better understand how Cloud Kitchen works, you need to know about its models. Among the cloud kitchen companies, there are about 6 types of business models.
- Independent: The Independent Kitchen model, known as the original model of Cloud Kitchen, basically operates a single brand in a single kitchen and has no storefront. Kitchen space is used only for Back of the House (BOH) activities, so that the kitchen size does not exceed 500-600 square feet. Since the single kitchen is operated by the single cuisine brand, such kitchens can be operated in any area, even from home. The model of Independent Cloud Kitchen has gained a lot of popularity with the increasing demand of customers towards online ordering and delivery. Such cloud kitchens have a social media-based or simple website-based online ordering system or hotline number for ordering, through which consumers can place orders. Most of the Facebook pages or group-based kitchens in Bangladesh operate mainly as Independent Cloud Kitchens.
- Multi-brand: The multi-brand cloud kitchen operates several cuisines or brands from a single kitchen under the model. Such kitchen models do not have a storefront but have multiple outlets. According to this model, Faaso started operating their on-demand food service company under Rebel Foods in 2011.
The multi-brand kitchen model is basically data-driven where it is operated through analysis of customer demographics, area-based food supply, and demand scenario, popular cuisine, etc. As a result, such kitchen models have the potential to gain traction very quickly as well as the strategic positioning is strong.
- Hybrid: Hybrid Cloud Kitchen operates from a single kitchen to a single cuisine brand through multiple outlets and a storefront. The kitchens of this model enjoy all the benefits of a cloud kitchen, as well as the convenience of having a storefront and visiting restaurants to takeaway. However, in this case, the size of the hybrid cloud kitchen is slightly larger than the typical cloud kitchen. India’s app-based food-tech start-up ‘FreshMenu’ follows the hybrid kitchen model.
Shell: The shell model of the Cloud Kitchen is basically a kitchen space made up of minimal infrastructure such as fuel line, drainage, and ventilation. Established food-brands or food-aggregators rent this type of kitchen space. India’s largest online food ordering and delivery platform ‘Swiggy’, follows this model.
Fully Stacked: Fully Stacked Cloud Kitchens operate in the same way as the Shell Cloud Kitchen model, but the only difference between this type of kitchen and the Shell model is that the kitchens have a storefront. Like the Shell model, there is a large kitchen with a small space for rent and a partnership with multiple brands. Indian food delivery startup Zomato follows this model.
Fully Outsourced: In a fully outsourced model, a third party provider handles both the cooking and delivery. In this case order management is done through a call center. Cooked food from different places is brought to the central kitchen for the final touch then delivered to the customer. The Dubai-based Kitopi follows a cloud kitchen model of this type where inventory and storage are taken care of by them; after preparing the food, it is sent to Central Kitchen. Delivery is then made from Central Kitchen to the customer.
Cloud Kitchen Business in Bangladesh
The inception of the cloud kitchen business in Bangladesh was rather interesting. Home made food producers were the early players in the industry. They were particularly interested to start off such ventures because of the growing popularity of online food review groups in social media groups. With the help of these review groups the independent cloud kitchens got the initial traction. A number of other homemade food delivery services, including Cookups, have been launched to promote such homemade food, and several online food delivery services, including Foodpanda, have launched home-made food delivery options on their own. At one stage, besides home-made food, these kitchens also offer catering services. In fact, independent cloud kitchens are the most popular for food catering services in offices in Bangladesh.
The country’s formal app-based cloud kitchen, started in 2019 by food-tech startup Kludio. Kludio is the first Full-stacked Cloud Kitchen in the country and so far they have launched 4 different brands. The brands are – Dough on the Go, Hero Burger, Frybox, and Deshio. In addition to maintaining food quality, the startup is focusing on superior storage systems, use of artificial intelligence technology in temperature regulation, as well as faster delivery. Indian cloud kitchen company Ghost Kitchens has also entered into a joint venture partnership with Kludio to reduce various operational costs through knowledge and infrastructure sharing. According to an e27.com article, Kludio has so far raised five hundred thousand dollars from various international investors.
Kludio inspired other food providers to launch Cloud Kitchen businesses. Foodpanda launched a service a few months ago where anyone can sell their own food through registration. Live Green BD is one of the only platforms that provides cloud kitchen service. They started operations in September last year. So far they have launched five brands. Brands are TenR, SMARTMEAL, House of Shen, Lean On, and Wrapper. However, Live Green BD’s activities have not been seen since July this year.
Fresh, and safe home made food is the most popular in the Bangladeshi cloud kitchen landscape. Baking items are also very popular with consumers. Mahjabeen’s Bakery, Sweet Daisy, Swapno Ferry, Prothoma Kitchen, Joya’s bake n joy, Punniz kitchen – etc. brands are already well known.
However, in the landscape of Bangladesh, there are few doubts about the future of start-ups that follow other models except the Independent Cloud Kitchen model. Although space rent varies from region to region in Bangladesh, it has yet to become as expensive as in New York or Mumbai. On the other hand, the trend of going to restaurants is still very popular in the megacities and metropolitan areas of the country as there are no opportunities for leisure entertainment. As a result, establishing a restaurant with a storefront is still very profitable in Bangladesh. Therefore, a number of international brands are opening their franchises in the country, while local restaurant chains are also expanding their business by opening outlets in different areas. Besides, there are not many rules and regulations to establish a restaurant in Bangladesh. Although the Safe Food Authority in the country has recently introduced grading certification, there is no cost for this certification. As a result, there are very few barriers in launching storefront restaurants in Bangladesh and there is no need for such a large initial investment in setting up restaurants.
On the other hand, in Bangladesh where most of the independent cloud kitchens are being operated from home, running a business with kitchen rent will not be ideal for many. In India, Swiggy Lunchbox catches a large market by providing catering services to employees, but in the case of Bangladesh, such catering services are mainly based on Facebook-based Independent Cloud Kitchens. In order to be successful in any business landscape other than the independent model of Cloud Kitchen, you need to increase your customer base through rapid expansion. Although such start-ups receive foreign funding due to investor interest in food-tech, there is disagreement among market analysts about the long-term business growth and sustainability of these start-ups.