The rapidly growing food-delivery ecosystem enabled by F&B’s digital revolution is paving the way for cloud kitchen models to rise above and beyond their commercial scope. Hive Life taps into the emerging market to uncover its potential and impact on the future of food.
While dine-in culture was abruptly halted during the pandemic, cloud kitchens picked up the market gap and were quick to gain momentum. In 2020, the organised foodservice market in Asia alone shrank significantly from 25% to 30%. The adoption of the cloud kitchen concept came naturally, spurred by industry-leading tech innovations, ever-changing consumer eating habits, the rise of online ordering, and a growing number of delivery services available.
The Asia Pacific region’s cloud kitchen market is anticipated to become the largest globally by 2027, forecasting an annual growth rate of 14.4% from 2021 until 2027. Witnessing this substantial shift in the food and beverages (F&B) industry, it became essential for restaurants to pivot in order to meet market demand, while maintaining their profitability. Looking forward, cloud kitchens will continue to pave the way for innovation and development of the digital food revolution.
What is a Cloud Kitchen?
Cloud kitchens, also known as “ghost kitchens,” or “virtual restaurants,” built their foundation on the flourishing food-delivery ecosystem. These networks serve as commercial kitchens for restauranteurs or chefs to rent without dine-in spaces for customers, with the sole purpose of preparing food and drink items meant for delivery only.
The concept first made an appearance in the early 2010s as a solution for increasing rental and operational costs of restaurants residing within city centres. Although the delivery-only restaurant model back then only appealed to a few, it experienced a slow yet steady maturation.
Lockdowns and social distancing regulations propelled the concept out of its early stages, following the rise of ready-to-eat delivery platforms. Online food delivery services alongside other food disruptors underwent remarkable growth in 2020, by up to 30% compared to the year before. Moreover, Asia’s abundance of delivery operators, namely Gojek, GrabFood, LINE MAN, and more, have actively aided the growth of the market.
What made cloud kitchens a lucrative model is that in the midst of the pandemic they presented a profitable solution for many smaller businesses and emerging food brands, enabling existing restaurants to downsize and newcomers to test and trial new products, optimise menus, and refocus on quality and taste.
Advantages of Adopting the Cloud Kitchen Model
Unlike traditional “brick-and-mortar” restaurants, delivery-only concepts operate without the need for frontline services and dining areas, functioning solely out of their dedicated kitchen spaces. Location being a primary distinction from other F&B models, cloud kitchens have the flexibility to shift their operations conveniently and seamlessly, without worrying about staffing, environment, and most importantly, a venue.
Another key factor at play is the market’s exponential growth rates, with a projected market valuation of US$1 billion by 2024. Quick adoption, alongside lower risks with great return on investments, also makes it a significantly cheaper alternative to setting up a restaurant. As currently observed in the F&B industry, businesses are striving to cut down their operational costs, and virtual kitchens require a lower financial investment by alleviating the expensive additional costs that come with operating a restaurant, from interior design and aesthetics, to management and staffing costs.
For many emerging restaurateurs who wish to test their concepts first prior to making large investments, being virtual-based offers the flexibility to introduce fresh ideas to their menus. Moreover, this takes up far less manpower to experiment and test new concepts based on customer responses, taste preferences, and other nutritional and dietary considerations.
Restaurants can also ultimately have more access to customer big data, leveraging third-party delivery apps to receive vital information on consumer behaviour, eating habits, and inclinations. The concept enables companies to draw on these figures to optimise and streamline their operations accordingly, making them more efficient and effective.
Key Factors to Consider
New technology coupled with rapid digitalisation has played a vital role in operating and scaling virtual kitchens since most orders are placed and processed through online channels, either by website, mobile apps, or other delivery providers. It is essential that one ensures seamless integration of such systems, as it directly correlates with day-to-day operations from receiving online orders and processing payments to managing kitchen efficiency.
Companies need to consider a suitable point of sale (POS) system which enables them to receive and accept orders. This could range from a cloud kitchen’s personal website, delivery service, or an external online ordering system. Additionally, a tech-forward POS system provides critical data on consumer behaviours, allowing restaurants to scale operations, develop strategies, and eventually maximise profits.
Another key consideration includes assessing and evaluating listing platforms for your business; while being available on different delivery services and apps is essentially great for exposure, brands need to consider what platforms are helping them bring in more customers, offering visibility, and generating sales. In the initial stages of a company, online food delivery providers may be important for scaling, nevertheless, but it is still worthwhile to adopt an additional sales channel that is your own to generate extra revenue without having to share profits.
Leading by example, Hong Kong-based cloud kitchen operator, Freshlane, has developed in-house software to build smart kitchens and enable smooth operations. The management system designed to facilitate brand performance and growth is a one-stop platform that helps you manage operations, predict demand, and increase returns on sales. Moreover, it allows brands to consolidate their delivery platforms into a single setup where staff are not required to manually operate POS systems, enabling them to make informed decisions, increase reaction time, and further improve customer experience.
Building Sustainable Supply Chains
Amid growing concern for food safety and sustainability, customers are adjusting their attitudes and eating habits with wellness, holistic, and nutritional food concepts taking the lead. It is estimated that yearly, around 1.3 billion tonnes of food waste is produced globally, a major part of which is attributed to the supply chain. Retail and restaurant spaces are deemed the most active contributors to the global food waste crisis and in order to build sustainability within the F&B sector, investing in and creating eco-conscious business models is the first step.
Operating right out of a kitchen offers a key advantage of witnessing firsthand the amount of food waste generated, and being able to tackle it by incorporating smart and effective measures to reduce wastage, making operations more sustainable. Furthermore, a high-functioning POS system is vital to track and keep up-to-date with its supply chain and inventory levels. Integrating important data analytics into operations allows cloud kitchens to identify market demand-supply gaps, enabling them to adjust and optimise production levels, aggregate inventory management, and eventually reduce food waste.
Virtual restaurants’ seamless integration and streamlined kitchen operations allow them to make more calculated and efficient adjustments while still exploring how to become more sustainable, holding great potential to innovate and adopt eco-friendly solutions.