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Wednesday 19th January, 2022

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Cloud kitchens: the future of restaurant franchising?

Insight

Cloud kitchens: the future of restaurant franchising?

This model of QSR growth has been accelerated by the pandemic, and it shows no signs of slowing

This model of QSR growth has been accelerated by the pandemic, and it shows no signs of slowing.

Since the start of the pandemic in March 2020, the restaurant industry has been severely affected by COVID-19. While some restaurants truly felt the effects and shut down completely, others were able to pivot and begin offering takeaway and delivery services.

For many of these restaurants, it was the first time offering a dine-at-home alternative menu. There was also a significant uptake in digital ordering; a niche that many restaurants realized they could take advantage of to help grow their business throughout the pandemic.

During COVID, turnover was no longer decided by the size of the restaurant dining room, only by the size of the kitchen.

“Using the services of a cloud kitchen to expand to a new territory can reduce set-up and operating costs considerably”

The virtual future of dining

Accelerated by the pandemic, cloud or dark kitchens have been shaking up the entire restaurant industry.

It’s a restaurant model with no storefront, no tables and chairs – no internal seating at all.

This kind of restaurant model lowers many overheads and aims to deliver a service that is high profit and comparatively low risk. More and more existing restaurants and QSR chains are now venturing into cloud kitchens, due to the model’s operational efficiency and low start-up costs.

The model is highly flexible. Cloud kitchens don’t need to be in town centers or shopping centers where space can be tight but rents high. They can operate from anywhere and are often located on industrial estates. The approach can also suit businesses when they are starting out, testing a new market, or expanding a more established offering.

Challenging tradition

Generally speaking, the upfront operational investment to open a restaurant or pub is high because of various factors such as start-up costs, real estate or rental fees, interior design, IT, inventory, building a team, salaries, or material cost.

In a dark or cloud kitchen, many of these expenses are eliminated or reduced to a large extent. Despite delivery costs, a dark or cloud kitchen is a more flexible and affordable model than a brick-and-mortar restaurant, as infrastructural and operational costs eat into margins very quickly. Lower costs not only reduce risk, but provide cash-flow for expansion.

A further advantage of operating a dark or cloud kitchen is the simplified menu. This allows the focus to be on automation and providing a great service to clientele. Everything can be automated, from pre-preparation activities to packaging. These kitchens continue to explore more technologies to allow automation of the entire operation.

When entering a new market, an additional benefit of using a ghost kitchen model is the ability to learn about the consumer base with less financial risk. One can discover what works best in each territory, as well as trial new menu items or discover product winners and the most popular dishes.

While a successful operation may also lead to the subsequent commitment to the traditional brick-and-mortar storefront, the ghost or cloud kitchen model allows for a clearer understanding prior to this commitment.

Restricted brand awareness

While the numerous advantages of implementing a cloud kitchen model when expanding globally are visible, the use of dark or cloud kitchens also comes with its challenges. While overheads are lower when working with this model, they still exist, and for a brand like Camile Thai, with the concept’s latest launch in the U.S., it’s a relatively unknown market.

A brand opening in a cloud kitchen has limited channels to build brand awareness and presence. Marketing might be more time and cost-effective, because the lack of physical visibility can sometimes prove more difficult when establishing a business in the cloud and making an early-stage impact, especially in a new market.

However, using the services of a cloud kitchen to expand to a new territory can reduce set-up and operating costs considerably. With the speed of technological advancements in the modern business environment, digital ordering of food for home delivery will continue to play a pivotal role in the future of the restaurant industry’s success.

While the trend of cloud kitchens has been accelerated due to the events of the past year, changes in consumer behavior mean that impact on the restaurant industry will very likely last long-term.

Main challenges of cloud kitchens

Visibility levels: When expanding into a new market as a cloud kitchen, the majority of the restaurant’s visibility is online. This makes for more cost-effective marketing, utilizing social media channels; however, it makes it harder for a new restaurant to make an early-stage impact

Trends: While at present the take-away and delivery service is benefitting from lockdowns and restrictions being implemented from country to country, during the periods where sit down dining is available, this is more popular following periods of customers being stuck inside. When expanding internationally, this may pose an issue for businesses entering new markets where they are unknown

Benefits of cloud kitchens

Lower CAPEX: Can be less than one-tenth the cost of opening a new conventional restaurant

Lower operational costs: Switching from the conventional restaurant model to a cloud kitchen approach allows for lower operational costs across the business. Areas where restaurants can cut down on spending range from rent, as the space they would need requires no seating for clientele, to decor and renovation costs, as well as labour and building a team

Allows for competitive pricing: As restaurants can make these savings on overheads, this allows them to engage in more competitive pricing. Reduced costs in the areas outlined above means that the restaurant can afford to offer their prospective customers a preferably priced menu against competitors

Delivery market growth: Due to the impact of the COVID-19 pandemic on the kitchen and restaurant industry, which has caused businesses to close down or adapt a new strategy, the delivery market is a safe place in the current environment. Using a cloud kitchen model allows businesses to effectively benefit from the present macro-environment

The author

Serial entrepreneur Brody Sweeney founded Camile Thai Kitchen, an international multiplatform Asian food chain, in 2010, with 40 locations now franchised or operating across Ireland, the UK and the U.S.A.

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