These kitchens are also known as shared, ghost, or virtual kitchens and the delivery-only food brands who use them are called virtual restaurants. Depending on their size, they can be used by just one or two firms, or by many different companies.
The restaurants have an online presence and their meals can be ordered through their own individual app, or through a food aggregator app. The one thing the restaurants all have in common is that customers can't dine-in. As well as home delivery services, a few of the restaurants may offer take-away services.
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When did cloud kitchens begin?
While pizza delivery restaurants have been around for years, with takeaway pizza being popular since the 1950s, it took another five decades for the restaurant industry as a whole to catch up.
However, the global economic crisis of 2008 is generally regarded as the start of the concept of cloud kitchens. In the years following the recession, high-end restaurants weren't doing well and many of them had to shut down. The concept of food trucks emerged as an alternative.
Entrepreneurs set up "mobile canteens", where they could prepare food and serve it to the areas where it was required, making the concept of food delivery on-demand popular. The food was close to the customers' local area and it saved money on renting premises. Customers ordered meals over the phone and it was prepared using contracted cheap labour, reducing costs to a minimum. The concept also enabled chefs who didn't have their own restaurant to try out and perfect new recipes. They could determine what was popular, before investing in a formal restaurant.
Subsequent advances in technology led to an era of prepared food being ordered online. Initially, restaurants took orders mainly through social media platforms such as Twitter and Facebook. One of the pioneers of this era was Rebel Foods, which founded Faaso's food on-demand online service in India in 2011.
Latest tech trends
Today's cloud kitchens are equipped with the latest catering equipment to ensure their menus and services are on a par with those offered by the leading restaurants. They will always try to keep up with the most recent technology trends to provide delicious food and a fast and reliable service. The kitchen will resemble a large room, sometimes the size of a warehouse, with numerous "mini-restaurants" inside. Workstations will be equipped with rows of stainless steel preparation tables, stoves, ovens, hood vents, fridges, freezers, sinks and food storage containers.
Each business will have its own orders to fulfil, coming in direct from customers. Cloud kitchens are tech-enabled, so they can take full advantage of the latest food delivery apps on customers' smartphones such as Just Eat, Uber Eats, Doordash and Grubhub.
A lot of data is used to run these services, determining when the demand for food is expected to be highest and what type of food goes down best in the various neighbourhoods in their area. For example, fast food, such as hot wings, is popular late at night between 11pm and 2am, near college campuses. Having this data at their fingertips enables cloud kitchens to adapt rapidly to the latest trends and organise their services in real-time.
Various delivery apps can be aggregated into one portal, making the production of multiple orders and deliveries easier. The apps also enable smart food purchasing, with software to decrease food waste and increase profits per meal.
What are the benefits of running a cloud kitchen?
One of the main benefits is the low operational cost of running a cloud kitchen. Among the greatest expenses for traditional restaurants is the cost of the premises, which need to be in a city centre or a corporate hub, where footfall can be assured.
By comparison, cloud kitchens can operate successfully from non-prime locations, saving on the rental expenses of being based in a popular location which attracts dining-in traffic. Staffing requirements are also reduced significantly.
Setting up cloud kitchens costs less than setting up a new bricks-and-mortar restaurant. New products can be introduced more easily, and the menu changed at a lower cost. This means they can experiment with new menu items. If a product isn't as popular as expected, it can simply be pulled off the menu in an instant.
Product manufacturing can be standardised in cloud kitchens because they focus on limited items and menus, leading to increased automation, which is more cost-effective. Cloud kitchens are able to experiment with machines and robots to further automate the food preparation processes.
What are the main business models?
There are three main business models in today's cloud kitchens. The first is adding a delivery brand to an existing bricks-and-mortar restaurant. Today more than ever, with the impact of the COVID-19 crisis, restaurants have seen more of their business go online. The boom in delivery apps enables them to take advantage of this by adding a delivery-only brand to their in-house menu, earning extra income at a relatively small cost.
Secondly, running a virtual or "ghost" restaurant is a popular choice. It doesn't have a physical store-front or pick-up location and is a true cloud kitchen. A dedicated cloud kitchen can prepare a number of different brands and target each according to customer demand.
Thirdly, running a shared cloud kitchen is a way to operate a business in itself, profiting from the boom in food delivery. The owner of the premises becomes more of a landlord than a food-producer. Increasingly, entrepreneurs are renting kitchen space to several third-party brands, running it like a co-working space for food production.
How common are cloud kitchens?
Cloud kitchens are enjoying a steady increase in popularity in the UK, where the food service industry grew by 18% between 2018 and 2019. It's currently valued at £8.4 billion, according to figures from the UK Food Service Delivery Market Report.
A study by Deloitte and Uber Eats revealed the food delivery market in Europe is set to grow by 10% year-on-year to a value of £19 billion by 2023. The research pinpoints food delivery apps as helping restaurants to grow their total sales by 20% in this period.
The beauty of cloud kitchens is that there is no need to have them in city locations. They can be located in out-of-town business parks, off the beaten track, so this is a major plus point that has boosted their growing popularity.
What does a food business need to take part in a cloud kitchen?
You're entirely reliant on your online presence to generate orders, so make sure it's up to scratch to attract customers. All of your customers need to be within a delivery area of around three miles from your kitchen to ensure the food arrives promptly and in tip-top condition, so make sure you do your research beforehand.
Check out the competition, the area's demographics and the types of cuisine that are likely to be popular. Don't rely on one source of customers - there are obvious benefits to using delivery apps, but the fees can eat into your margins.
Counter any potential issues by offering your own delivery service too, but make sure you look into the marketing costs and logistical demands first. This is why it makes sense for large, shared kitchens that enable multiple brands to share the financial burden.
When you're operating a delivery-only brand, your reputation is reliant on your food getting to customers in excellent condition. The only way to ensure repeat orders is to make sure you get this right. Before you do anything, make sure you can fulfil this basic requirement, which is the most important thing you will do.