The rapid growth of the cloud kitchen market during a pandemic
Before the global pandemic hit the world in 2020, at least 70% of the restaurant’s business was attributed to the dine-in segment, while about 30% were deliveries. There were restaurants that relied wholly on the dine-in option, like restaurants in hotels, etc. However, the Coronavirus changed it all. Suddenly, that 70% of the F&B business vanished, and restaurant owners had major business restructuring choices to make, or else close their business. The story was the same throughout the world, and it was no different in the UAE.
Thus, the concept of cloud kitchens, which were doing the rounds for the past few years, got a widespread acceptance. The concept has proved to be a major lifeline for the F&B business worldwide in the last year. As per a report by KPMG in 2018, the cloud kitchen segment was recording year-on-year growth in the UAE.
What is a cloud kitchen?
It is a Kitchen as a Service model and prominently known as the ghost kitchen. Working completely or 100% on the delivery model, these are kitchens where different restaurants share space to make their food and service customers through deliveries. There are no ostentatious or glamorous premises with no foot traffic – a simple hygienic space with multiple preparation counters located in the parking, or any cheaper location that suffice as a kitchen. In most cases, the said space is shared by multiple owners to service their customers who use a food aggregator app to order food. The kitchen space, the infrastructure and equipment like the gas and cooking counters, and utilities for seamless operations are shared.
The concept has been there for quite some time now; however, it got newer wings during the pandemic as there was a shift in demand from the traditional in-dining options to home delivered food. Take the example of GRAB, a food delivery app from Singapore that started serving Indonesia in 2018 and stretched its operations to Thailand and Vietnam by 2019. The app became so popular even before Covid-19 that the app soon covered most south-east Asia countries. Multiple restaurants make their food in one place per the business model with a delivery partner onboard to deliver the orders. Similarly, US cloud kitchen major C3 announced amidst the pandemic that it was ready to recruit at least 1000 new staff members to strengthen its 138-cloud kitchen network. When the company started operations, it intended to start with about 85 kitchens. Organizational and financial restructuring has become the crux of the situation for very many business owners and operators in the F&B business today – and the pandemic has shown the way.
Take the case of the restaurant industry in the UAE. In 2017, UK-based food aggregator Deliveroo opened its first KaaS in Dubai, the first of its kind in this part of the globe. It offered free space for cooking to several restaurants like Clinton, Joga, Burger, and Lobster and St. Baking Company. The result of this venture was that these restaurants could now deliver to a broader and wider marketplace.
5 Reasons behind the rapid growth of cloud kitchens during the pandemic
1.Low operational costs
It is simple to understand this one – with no brick-and-mortar presence; cloud kitchens are a financially viable business model compared to traditional restaurant businesses. Opening up a brick-and-mortar restaurant entails high costs, while the cloud kitchen involves substantially less investment. The typical costs that are minimized in the KaaS model are:
- Higher profits
Restaurant businesses that work in the cloud kitchen are reportedly able to earn better because their costs are low. The risks of this model of business are also considerably lower. The initial investment is comparatively way lower than restaurants in the physical world. With lower upfront costs, business owners have greater flexibility to experiment with their menu and services. No doubt, the cloud kitchen model is one of the fastest growing F&B segment.
- A viable business survival alternative during the pandemic
One of the primary reasons contributing to the growth of cloud kitchens was the pandemic’s health and safety factor. Due to lockdown, most restaurants had to close shops resulting in losses to businesses. With social distancing, most physical restaurants could not take in customers as before. Therefore, organizational restructuring was important for most businesses. One of the smartest option was to switch to a cloud kitchen business model. It involved lesser costs, and with enhanced flexibility, restaurant owners could switch to this model fast and cost-effectively.
- Safety of customers
Covid-19 is contagious; that is the reason why the virus spread exponentially around the world. Under the circumstances, customers had to stay back home with social distancing as one of the most effective tools to fight the virus. Brick-and-mortar restaurants meant higher risks of spreading the virus. On the other hand, Cloud kitchens meant enhanced safety, ensuring that the customer’s health is well-protected. Thus, it meant that restaurant businesses in the UAE can go in for major business restructuring.
5. Enhanced customer services
Cloud kitchens facilitate faster services as there is a well-defined model of work. Customers place orders via food aggregator apps, the respective cloud kitchen prepares the food, and there is a separate delivery network that delivers the food to the customer. It is popularly known as distributed cooking. So, restaurants can focus on their part of preparing food while delivery networks do their job. All this makes the model effective. The prices that customers pay are nominal as cloud kitchens are cost-effective. Overall, the kitchens can make good profits in the UAE while customers also need to pay less for good and guaranteed food quality. Customers can order food fast and seamlessly using third-party apps. Today more and more people use these apps to order food because of the overall benefits.
As per Statista, the cloud kitchen industry is all set to grow at 12% CAGR till 2024. The format is relevant today as most typical restaurants have been pushed to the brink during Covid-19. Those who were smart acted fast, and the others needed to follow suit too. Restaurant owners need to consider major business restructuring to survive and sustain through the pandemic and its aftermath.