Cloud Kitchens Are Now Serving

 Cloud kitchens are restaurants built around food delivery, not sitting-down service. They are gaining popularity as COVID-19 shakes up the market, say Lena Ye and Geoffrey Jones.

3Restaurants are among the industries that have suffered the most from COVID-19. The social distancing will make some small eateries unprofitable. Revenue streams that are less than optimal will never suffice to cover the cost of rent.

But there is hope. Our research shows that one restaurant industry sector provides the possibility of growth and hope. When restaurants closed during social lockdowns that took place in February and March, delivery of food increased. The majority of these deliveries were made by recently-established “cloud kitchens.” More astonishingly, many of the remaining restaurants were transformed into virtual cloud kitchens almost overnight.

How do you define a cloud-based kitchen?

Cloud kitchens are business establishments designed to create food to be delivered. They do not have brick-and-mortar eating areas. They are communal kitchens that includes a culinary team who prepare meals that are then served to clients at their workplace or home, generally through online delivery firms like Uber Eats, Postmates, Grubhub, and DoorDash. (Delivery services aren’t new, however. In 2018, American consumers used third-party delivery services to complete $10.2 billion worth of food orders.)

It’s an exciting twist. Delivery companies initially offered services to restaurants. Cloud kitchens now provide the delivery industry with a service.

Cloud kitchens’ appearance as providers of delivery services has been abrupt and dramatic in the sense that they’re still a new category with various names, such as the ghost kitchen, virtual kitchens, dark kitchens, shared kitchens, or shadow kitchens.

“A BRICK-AND-MORTAR RESTAURANT IN NEW YORK CITY COSTS $1 MILLION TO $1.5 MILLION TO SET UP, WHILE A CLOUD KITCHEN CAN GET UP AND RUNNING FOR $100,000.”

Whatever their name is, it’s been widely viewed as a fascinating phenomenon that could yield an enormous amount of money that could be made if the concept can be made work. Nothing could have made the case more compelling than the former Uber Chief Executive Travis Kalanick’s creation of the start-up CloudKitchens.

The economics are encouraging.

Cloud kitchens are much less costly to install than brick-and-mortar establishments; there’s no need to put them in high-traffic areas, and there’s no requirement for fancy design or a requirement for seating spaces. Several estimates suggested that a brick-and-mortar establishment within New York City costs $1 million to $1.5 million to establish; however, cloud kitchens can be operational for just $100,000.

There are additional cost savings too, like there is no need for front-of-house employees like cashiers, servers hosts, bartenders, and servers. Restaurant owners simply employ their own chefs, and the cloud kitchen service generally provides shared labor assistance like security and cleaning.

Cloud kitchens are a great way to test new concepts for restaurants menu items, menu items and seasonal brands (for instance the brand of salad during summer) much more quickly and without expensive expenditures.

It’s still an emerging business model that has many variations. Cloud kitchen operators like NYC’s Zuul Kitchens and Pasadena’s Kitchen United operate as landlords by renting kitchens to a variety of third-party restaurant brands. Some pure play virtual eateries in this category function exclusively as cloud kitchens that provide food via online delivery platforms. Certain virtual restaurants operate multiple brands entirely virtual. Rebel Foods in India runs distinct brands that are solely virtual from the same location, each focusing on specific cuisines like North Indian, Chinese biryani, and hamburgers. Certain national chains, like Sweetgreen, operate both cloud kitchens and bricks-and-mortar.

Although the idea has generated much awe and substantial funds, establishing an adequate cloud kitchen has been more challenging than expected. Through various interviews, we discovered that some of the more advanced data users, such as Uber Eats, have needed help to determine, using algorithms, which virtual brands would be best-performing on the platform.

Chief Executive Officer Atul Sood at Kitchen United said that companies like Kitchen United work hard to assist cloud kitchens in getting the delivery process perfect. There could be wide variability in the delivery drivers take to get to the kitchen and how long it will take delivery workers to transfer the food items to the consumers. As with many other diseases, it is increasing already-established trends. Online delivery sales have skyrocketed, and even though they were previously strongly geared toward younger people, an overwhelming number of people are aware of the convenience of online delivery by using advanced apps. A large percentage of people are also becoming conscious of the health hazards of eating at restaurants that are packed.