Discover why Cloud Kitchens are the future of food business.
Tags: Food, Business, Startup, Food Delivery

Photo by Cloris Ying on Unsplash

Discover why Cloud Kitchens are the future of food business. | Erudite Santanu Mar 19·4 min read

Without further ado, let’s talk money.

Are Cloud Kitchens profitable?

We need a bit of context first.

Cloud Kitchens are a low-risk, high profit, and low investment business model with a low entry barrier to boot, but more on that later.

Suppose you are starting a cloud kitchen in the US. In that case, a cloud kitchen can cost up to $100K in initial investments, but only if you are going big with constant marketing investments. A typical small-scale startup can be operated at a monthly rate as low as $5K compared to a traditional kitchen setup that can ramp up a bill of a million dollars.

But that’s a little too specific. Suppose you can afford to invest the average annual salary of a working-class professional. You have enough to start a kitchen. In any country in the world.

Cloud kitchens can earn a profit margin of 15–20 % after a few months, with a high possibility of making back your investment within the first year itself. For example, in a high-growth country like India, an investment as low as Five lakhs of Indian Rupees(seven thousand USD) can cover the cost of everything from licensing, hiring to renting out a place.

The country has an average value of Rs 300/order for a single person. The operating cost should be between 1–1.5 lakh rupees, considering you are starting on a small scale. You would need 500 orders to break even with your operating costs, i.e., an average of 20 orders every day to trickle in a little bit of profit.

20 orders/day is doable. In fact, that’s an elementary number to cross.

It would be pretty easy to double your order count every 2–3 months.

But, that’s the ideal scenario in review, and there are many ways in which you can go wrong.

If you are still here, let’s break it down a little bit.

How did the ‘fast’ food industry emerge?

Transformation. Keep the word in mind as we take a walk through the changing landscape of the food industry.

In the late 1950s, the world was evolving. There was a growing demand for easy, convenient, and cheap food, which gave rise to the fast-food revolution.

The idea was simple. Nobody had the time to sit and wait for their food, and the industry delivered. The emergence of fast-food chains like KFC, Burger King,& Wendy’s reconstructed the way humans consumed food.

It’s important to understand that most people prefer to spend the least possible time consuming their food. The more time people spend availing of your services, the less likely they are to return.

How are things changing?

In the 21st century, the world is changing into a digital society. Information, Services, Cabs, and Food are at our fingertips, literally.

Gone are the days when you would find yourself staring into a paper menu in a restaurant.

You are short of time, and you need food? You order it online.

We have seen the emergence of delivery giants like UberEats, Deliveroo in recent years. Delivery is the new way to consume food fast, and it’s here to stay, and that’s where cloud kitchens come in.

While the pandemic helped drive up food deliveries, food delivery works because consumers prefer to consume their food in their home with minimal effort, preferably without having to move from their couch.

In fact, food deliveries didn’t take a hit at all, with videos circulating around the Internet vouching for its safety.

Watch the video below for an example.

What are Cloud Kitchens?

If we look back at history, the fast-food industry didn’t arise due to their posh decor or shining silverware. It served quality food fast at a very competitive price. It’s the same with Ghost kitchens.

If you don’t understand what a cloud kitchen is.

The idea is simple: If people are ordering food online, why rent an expensive and enormous space when you can operate out of an industrial building with minimal staff to boot? You can even refurbish your garage to serve as a makeshift kitchen!

You might scoff at the idea, but ghost kitchens, or if you prefer, cloud kitchens are all the rage at the moment. The Global Cloud Kitchen Market was valued at 43.1 billion USD in 2019 and is estimated to grow up to 71.4 billion USD by 2027. While the idea seems like something that you might unearth from a garage startup, several established brands have already thrown their hats into the ring.

Mcdonald’s with its first cloud kitchen in Hamslow, London. Berco’s plan of launching three cloud kitchen brands. Wendy’s plans to launch 250 kitchens in India. These are just a few examples of the transforming food landscape of the 21st century.

https://www.bloomberg.com/news/articles/2020-12-01/virus-pushes-wendy-s-to-open-hundreds-of-cloud-kitchens-in-india

But.

Cloud Kitchens is not a saturated industry yet. There is no major player that deals in conventional food. There is no market leader in even the cloud kitchen segment yet, not in the US, not in Europe, and especially not in Asia.

You have room to develop your own brand.

Now, we have a saying in the restaurant business.

“60% of restaurants fail in the first year, and 80% of the remaining fail to celebrate their fifth anniversary.

The best thing about the saying is that it doesn’t have to apply to cloud kitchens.