1. Hello, Online Ordering!

Online food delivery is set to be the largest segment in the food industry—expanding from a market worth USD 60 billion in 2018 to USD 365 billion by 2030, according to a UBS forecast. Emerging markets, improving logistics, and a structural shift from offline to online food delivery are some of the many factors propelling this growth.

As online food delivery captures the center stage in the food industry, more and more restaurant owners and food entrepreneurs are turning to cloud kitchens (also known as ghost or dark kitchens) as an ideal business solution to capture this increase in food delivery demand. 

In this guide, we’re going to break down everything there is to know about cloud kitchens. Specifically, you can expect to learn:

• What cloud kitchens are and how you can set up one
• The pros and cons of a cloud kitchen business model
• The types of cloud kitchen models you can follow
• The cost of starting a cloud kitchen business in India
• The suitability of a cloud kitchen model for your business

Let’s dive in!

2. What Is A Cloud Kitchen?

A cloud kitchen is a restaurant that doesn't have a physical location. Instead, the food is cooked in a central kitchen and then delivered to customers via delivery apps such as Zomato or Swiggy.

Why are they becoming popular? There are a few reasons. Firstly, they're a great option for restaurateurs who want to start a food business without having to invest in a physical location. Additionally, cloud kitchens allow restaurateurs to serve food in new and innovative ways, and they're perfect for busy cities where space is at a premium.

3. What Are the Benefits Of A Cloud Kitchen?

The cloud kitchen business model, albeit different from the traditional restaurant business model, offers multiple benefits that traditional restaurants don’t. Let’s take a look at them.

•  Low Operating Costs
  ‍
  ‍It’s no surprise that the costs of running a full-fledged restaurant are sky high. A significant portion of these is the real estate costs for these locations. It is much more economical to build kitchen-only units when it comes to infrastructure. Kallol Banerjee, founder of Rebel Foods says, “Cloud kitchens are a low rental business model and work well with multiple brands across several cities.” The cloud kitchens model can lead to significant cost savings, especially if you're just starting out and lack the resources to invest in a full-fledged restaurant set-up.

• Higher Margins And Competitive Pricing
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  Delivery costs have to be accounted for when running a cloud kitchen but even if they are factored in, cloud kitchens are much more affordable than running a brick-and-mortar restaurant, where infrastructure and operational costs quickly eat into your margin. With higher margins from a cloud kitchen, you have the ability to offer competitive prices and test them to see the market’s response.

• Laser-Focus On Food
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  Table management, restaurant set-up and decoration, and other issues that are crucial parts of a typical restaurant setting are entirely absent in a cloud kitchen. In addition to managing meal preparation, a dine-in restaurant manager would be compelled to spend considerable time and resources in organizing and maintaining their dining area, recruiting staff to serve dine-in restaurants, and building the ambiance to create an experience that guests find worthy of returning to. A cloud kitchen manager on the other hand is free of all the above commitments and channelizes all their resources and investment into cooking delicious food for customers. It allows a razor-sharp focus on food preparation, something that is very difficult to carry out in the typical restaurant business.  

• Easy Expansion 
  
  ‍One of the major benefits a cloud kitchen can bring to a restaurant is the added ability to reach a whole new customer base speedily. In the age of 10-minute deliveries, time is of the essence. To be able to deliver food to your customers in a matter of about 30 minutes, you would need to set up outlets at strategic locations across a city. With a cloud kitchen model, you can make this happen quickly and affordably because of the limited set-up requirements and logistics cloud kitchens demand. They are easier, economical, and quicker to set up. And once up and running, they will allow you to deliver food hot and fast to all your customers. 

• Opportunity To Build Multiple Brands 
  
  ‍Running multiple brands under one roof is one of the primary benefits of the cloud kitchen model. They are a great way to reduce the investment needed to operate multiple brands. By having different brands under the same roof, you can keep the authenticity of each cuisine while only using one chef. This way, you can serve a variety of cuisines without sacrificing quality or flavor.

• Economies Of Scale
  
  ‍Economies of scale refers to cost advantage gained by scaling up production. When a business scales up, the cost of production gets spread over a greater number of units. As a result, the cost per unit decreases.
  
  For cloud kitchens operating multiple brands, in particular, economics of scale is a remarkable benefit. Since they have to buy way more ingredients than a single restaurant, they can get lower prices from suppliers on bulk orders. They can save transportation costs, rental costs, staffing costs, and more. In turn, margins are improved. As such, it is much easier for restaurants to increase their margins as the business grows, compared to what they would experience as a standalone unit.

• Flexibility
  
  ‍The cloud kitchen model provides a lot of benefits, one of which is the flexibility to keep experimenting with the menu. This means that you can easily respond to new food trends and fads and offer more versatile food options without having to bear the burden of printing new menus repeatedly.
  
  Another big benefit is that you can scale your business up or down as needed. If you're having a slow day, you can easily dial back production without having to worry about unused space in your kitchen.

• Lower Investment Risk For New Entrants
  
  ‍Setting up a restaurant is no small feat, especially in big cities where real estate is expensive. This can make it difficult for new restaurateurs to get their footing. However, familiarizing people with your brand through a cloud kitchen can help you test how the brand does in the market before investing in a physical location. It requires low investment risk and can act as a precursor to your dine-in restaurant if need be.

4. What Are the Disadvantages Of A Cloud Kitchen?

While the absence of a physical location for a cloud kitchen offers its fair share of advantages, it also comes with disadvantages. 

• High Competition
  
  ‍According to a report by RedSeer Management Consulting, cloud kitchens in India are on track to becoming a $2 billion industry by 2024 up from $400 million in 2019. Many new players are emerging in this space since entry barriers are low. If you proceed to open a cloud kitchen, you would be competing with the established restaurant chains in your area, QSR chains, and upcoming cloud kitchens as well. 

• You Don’t Own Your Customers’ Data
  
  ‍The reality is that most cloud kitchens are entirely dependent on food apps like Swiggy and Zomato to get orders. These apps have a policy of masking customer data, which means that restaurants do not know anything about the customers they serve. In the absence of crucial customer data, restaurants lack the ability to form meaningful relationships with their customers. The option to remarket or share promotional offers with customers is entirely absent. Unless cloud kitchens build their individual online ordering website and app, they would miss out entirely on customer data. We know it sounds like a task but building a website and app is easier than you think. UrbanPiper can help you do just that.

• Dependency On Food Apps & Absence Of Leverage
  
  ‍The greatest challenge in operating a cloud kitchen is the dependency on food apps for delivery. For most people, food apps will be the major source of customers. They will become the lifeline of your restaurant. You would very likely work in accordance with any and all policies set by food apps.  So, if they do decide to favor certain restaurants, you’re going to be in trouble. If they do decide to charge you a premium, say 5% more, you wouldn’t have any leverage or bargaining power if you only own a cloud kitchen that relies solely on these food apps. 

• Cloud Kitchens Have Reduced Visibility
  
  ‍Cloud kitchens are usually in buildings that are just commercial kitchens, which means you can't attract customers with walk-in or drive-by traffic. This means your customers can only find you online. Some people are okay with this, but it's dangerous for others—especially if you're not good with technology and digital marketing.

5. How Much Does It Cost to Set Up a Cloud Kitchen In India In 2023?

Cloud kitchens are becoming increasingly popular in India, as they offer a number of advantages over traditional restaurants. Not only are they cheaper to set up, but they also require significantly less space, making them a good choice for city slickers.

According to YourStory, the average cost of setting up a cloud kitchen in India is can be anywhere between INR 5 to 30 lakhs depending on the size and complexity of the kitchen. For an existing cloud kitchen franchise, the setup cost would vary between INR 25 - 30 lakhs.

6. How to Set Up a Cloud Kitchen?

Now that you understand what a cloud kitchen is, let's take a look at how you can set one up. It's actually a lot easier than you might think!

First, you'll need to find a suitable space. This can be an existing restaurant, kitchen or catering space, or even an unused warehouse or office space. Once you've found a location, you'll need to equip it with the necessary cooking and refrigeration equipment.

Next, you'll need to obtain a bunch of necessary permits such as the FSSAI license, health license etc. 

Finally, you'll need to set up your cloud kitchen software and connect to your POS system. UrbanPiper's Prime software can help with all of this, so be sure to check it out!

While it may seem simple at first, there are a few things you need to do to make your cloud kitchen successful. Firstly, you need to set up a strong delivery network. This means partnering with the right delivery apps and ensuring that your food is delivered quickly and fresh. Secondly, you need to make sure your kitchen is well-equipped and staffed with skilled chefs. And finally, you need to create an effective marketing strategy that will attract customers to your food.

7. What Are Some Cloud Kitchen Models To Follow?

There are numerous models of cloud kitchens that have worked incredibly well for some restaurants. These models range from the fully managed and staffed model, where the service provider takes care of everything including menu design, staff training, and even customer relationship management, to the more DIY model where the owners take care of all the cooking and food preparation themselves. 

Let’s take a look at the three different types of cloud kitchens available for you to take inspiration from.

1. Independent Cloud Kitchens
   
   ‍Behind an independent cloud kitchen is a single brand that works via an online ordering system. With a team of chefs, specific operative hours, and a brand name that entices customers, independent cloud kitchens are self-reliant and work through their own ordering apps and websites. However, they are present on different food apps as a means to acquire new customers and shift them to their individual app. 

2. Hybrid Cloud Kitchens 
   
   ‍A mixture of takeaway and cloud kitchens, hybrid cloud kitchens have a storefront that allows customers to receive their takeaway parcels in addition to having a central kitchen. The delivery is done through either the in-house staff or through food apps. 

3. Multi-brand Cloud Kitchen 
   
   ‍This cloud kitchen is a combination of different brands under the same kitchen, much like what Jubilant FoodWorks does with Faasos, Behrouz Biryani, and their many other brands. This form of cloud kitchen utilizes resources very effectively and keeps operational costs in check. Flexibility plays an important role in such multi-brand cloud kitchens as they cater to the local food demand in any area and use data to include the types of cuisines their customers want.  

4. Mobile Cloud Kitchens
   
   ‍With mobile cloud kitchens, we’re talking about these big food trucks that stand at the busiest food areas in your locality. They serve customers in person and usually have a small sitting area with movable chairs as well as deliver online orders with food apps. Some of them even rent out kitchen spaces close to customer neighborhoods to cater to online orders entirely. With a truck and a kitchen, serving customers on the spot as well through food delivery apps becomes viable. 
   
   The common food truck model though, the one without an additional kitchen, has a few disadvantages. For example, you're not able to serve as many people because you're limited by the size of the truck. And, since you're cooking in a smaller space, it's not as clean as a commercial kitchen. However, the cost of renting a food truck is lower than renting a commercial kitchen and that might be an important deciding factor if you’re just starting out.

8. Who Is The Cloud Kitchen Business Model For?

The cloud kitchen model is perfect for people who want to bring their grandma's recipe to the world, but don't have the funding to do so. Without the money to spend on equipment or sign a long-term lease, this model allows people with delicious recipes to get their start without all the hassle. If you fall into this demographic, the cloud kitchen model is a great fit for you.

Additionally, if you’re toying with the idea of opening a restaurant and want to conduct a low-cost experiment before taking the plunge, a cloud kitchen would be your best bet.

A final category of people who may fit it befitting to go for a cloud kitchen business is those looking to rapidly scale across cities and states. You would need a low-cost business model to grow at a fast pace and cloud kitchens would just do the trick.

9. What's The Future Of Cloud Kitchens?

‍As more and more people are jumping on the trend, it's safe to say that they'll continue to grow in popularity. Cloud kitchens are the perfect solution for entrepreneurs who want to start their own restaurant without having to lease or purchase a physical space. And as technology advances, we can expect to see even more innovative features and functionality from these kitchens of the future.

10. What’s The Verdict?

Cloud kitchens are on the rise, as entrepreneurs and restaurateurs discover the benefits of this setup. If you're looking to open up a restaurant, it's worth going for a cloud kitchen model, at least for the first few years of your establishment. Keep in mind, though, that there are crucial factors to think about before making the leap, most of which you would have found in this guide. Personally, we’re excited about the possibilities of cloud kitchens and the impact they're creating in the restaurant industry. And if you're up for it, do consider checking out our POS software at urbanpiper.com/prime-pos

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