Cloud kitchen - the new model of operations in the hospitality business

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“Virtual kitchen” sounds intriguing at best and silly to most people unfamiliar with the concept. Is it even possible to make a virtual oven? However, this new concept comes with multiple advantages and makes it possible to gain a significant slice of the post-COVID restaurant market.

The concept itself is a response to the popularity of food delivery and the great decline of traditional restaurants, hampered by restrictions that have affected business during the ongoing COVID-19 pandemic. On the other hand, it was common for restaurant chains to open locations with a limited capacity for customers so as to increase the number of kitchens, which in turn boosts the speed of delivery to remote locations.

However the concept and the business model is far more than the ephemeral pop-up restaurant or a short-lived response to temporary conditions that will sooner or later fade away.

This text will cover:

  • What is a virtual kitchen
  • How does the virtual kitchen work?
  • Examples of up and running virtual kitchens
  • How to make your kitchen virtual

What is a virtual kitchen

The business has got used to the idea that software is a service where the client pays for IT systems and infrastructure with a monthly fee. Yet the mental shift took a significant amount of time and the cloud transformation is only a recent matter.

Causing further disruption, the model of the virtual kitchen emerged. Put simply, it is a fully professional restaurant kitchen with pro equipment and workflow, yet without the dining space of a restaurant. Orders are placed online, either by restaurants, catering services, or individuals, to be delivered.

So in fact, the concept of virtual kitchen can be seen as being similar to a data center or any other cloud-based software, but instead of an email service or storage that is used by companies, there are ovens, fryers and cookers ready to prepare meals at your command.

But wait, running a data center or any other tech-based venture is incomparable to running a pure-offline service preparing meals. It even sounds silly - service as a service.

Or is that so?

How does this business work?

To understand the concept behind the virtual kitchen and the business model powering it, it is crucial to understand the new realities of the restaurant industry, especially after COVID.

First of all - the food delivery market is estimated to grow by a CAGR of 15% - something very uncommon to any other industry. Also, with the economic lockdown, delivering food ordered online or by phone was the only way to operate for multiple companies. Although that’s only the tip of the iceberg when it comes to changes.

With the COVID-induced lockdown users experienced new ways of operating in various activities - from the forced skyrocketing in the popularity of remote work, to ordering new categories of goods online, but that’s only one side of the coin.

The other is social distancing policy and the fact that post-COVID society is not comfortable with attending crowded places like shopping malls, restaurants, theaters or concerts. According to McKinsey data, the restaurant sector globally will be severely hit by the effects COVID as the consumers spend significantly less.

Last but not least, consumers appear to show increasing fragmentation when it comes to preferences. This accounts for the popularity of vegan or vegetarian diets as well as allergies. The Vegan Society claims that the number of vegans grew by 600% between 2014 and 2017 (no later data available on the matter). Also, up to 10% of the global population suffers from some form of food allergy.

With that in mind, the probability that an individual finds a particular restautant’s offer totally unsatisfactory rises significantly.

And that’s where the virtual kitchen comes into play.

How the virtual kitchen delivers

Every business benefits from a growing scale, with an increasing return on investment put into the heavy duty, expensive cooking equipment. Considering that, a single dining room can barely justify the expenses on a high-end cooking devices, while serving several dining rooms at the same time forces the process of automation and applying the latest tech to manage the workflow.

So in fact, a virtual kitchen is highly efficient, delivering more meals on a large scale than any single kitchen in a restaurant could ever do. Leveraging the effects of scale , the price of a single meal is lower when compared to the one prepared using traditional model of serving meals.

One could say that when there is a whole internet of customers, a local serving space can be considered a limitation. When compared to a traditional restaurant, virtual kitchen has multiple advantages:

Lower capital expenditure

First and foremost, a virtual kitchen takes advantage of placement - or lack of thereof. There is no need to rent a premium location near the classiest street in town. The key is in choosing the area, that makes the access to the target audience most convenient.

It can be a warehouse on the city outskirts, assuming there are decent transport links to the area, so the delivery service won’t struggle to get there and transport the meal to its destination. When cutting the enormous rental costs, the overall capital expenditure is significantly lower.

Increased flexibility

A location can become iconic - yet only for a particular target group, be that vegans, burger-lovers or fusion-foodies. Thus, the chance to attract another target group to a particular location is significantly reduced. The same goes with any other type of restaurant - the kitchen is limited by the brand.

When it comes to the virtual kitchen, the brand is as virtual as the kitchen itself. In fact it requires establishing a digital presence, yet the physical infrastructure can be the same for every type of meal. Apart from sticking to standards (for example avoiding using dairy milk in vegan-aimed products), there is no obstacle to preparing multiple types of meals in the same kitchen.

Also, the virtual kitchen’s flexibility is emphasised by the ability to modify the menu and experiment with it in a far more agile way than in the case of a traditional restaurant. The user group is larger and any information will be collected faster and deliver more significant data. In fact, adapting to the market preferences is much easier when it comes to a virtual kitchen than in the case of a traditional restaurant.

Simplified operations

When operating in the virtual kitchen model, the company doesn’t need to hire staff that interact with customers or maintain the service space in any way - no sheet laundering or polishing silver spoons.

Hiring only kitchen staff and a back office crew delivers a well-oiled and much more predictable business than a traditional restaurant, where apart from natural market fluctuations, there are multiple challenges stemming from interpersonal relations - the customer can be rude, so can the waiter, and the business owner has little to no impact on the situation.

Wider market

Last but not least, a virtual kitchen has more ways to earn money. Although at the core of the business there is meal preparation, there are new customer and client groups to reach, including:

  • Other restaurants - when there are multiple restaurants in the same area, there is harsh competition between them. For the virtual kitchen, every restaurant in the area is a potential customer - no one knows if they will need their service or not during peak times. So when the restaurant orders a certain amount of food to serve it to its customers, it is a “white label” kind of product.

  • Companies and organizations - offering an office catering or lunchs is much easier when preparing meals for delivery is the core business, not the side-gig for the company. Also, considering the high flexibility and the possibility to run a multi-brand virtual kitchen, there is a higher chance of appealing to various preferences, be that vegans or burger-lovers.

  • Individuals - traditional restaurants consider delivering meals as a side-gig rather than the core of operations, yet the COVID has changed the game. Therefore, the idea of delivering meals to a large group of individuals can be an interesting option.

Already running virtual kitchens

The concept described above is undoubtedly attractive in these post-COVID times. Thus, it is no surprise that there are already multiple companies operating using this model and making significant profits as a result. To name just a few:

  • Virtual Kitchen Co - an interesting yet unintuitive approach to the virtual kitchen concept, the Virtual Kitchen Co is a restaurant-aimed B2B service that aims to support restaurants in entering the delivery market. The key challenge is building a large enough chain of restaurants to make delivery time feasible - there are a limited group of customers willing to wait longer for their meal to be delivered from a distant restaurant and that’s why chain restaurants excel in delivering food, as they already have a large network of kitchens in multiple locations. With the service of Virtual Kitchen Co, the restaurant sends the recipe and the target location for the delivery. From now on, there is no barrier to having one iconic location and being able to deliver a meal to nearly any given location with a Virtual Kitchen nearby.

  • Cloud Kitchens - the company takes the direct opposite approach to the one mentioned above. The company can be compared to the coworking concept, only in kitchen form, where the entrepreneur has the infrastructure required to work and the only thing he or she has to worry about is earning money. Cloud Kitchens deliver first-class kitchens with all the sanitary and legal compliance, fulfilment and other services required to launch ones own delivery-based restaurant. Ultimately, one only has to come in and cook.

  • Kitchen United - with the all too common experience of arguing about which restaurant to choose, Kitchen United offers a surprising solution. The company runs a warehouse with separate kitchens preparing multiple types of food, be that Italian, Asian or fast-food - you name it. So it is easy and convenient to order each dish from another type of a kitchen, add a dessert from yet another one and get it in a single order.

So the concept is fresh, flexible and the market is still hungry for new visions, right?

What do you need to start a virtual kitchen

First of all, there is a need to have a kitchen - an obvious one. The facility needs to be compliant with all regulations and be both staffed and equipped properly to deliver a particular type of food.

Yet it is even better to have a chain of kitchens that make the delivery time to a particular point in the city shorter. The customer has no incentive in waiting for his food when there many alternatives.

A second crucial element is the know-how of running a restaurant that supports deliveries. It is not required to have your own delivery men and a fleet of scooters, as is popular when it comes to pizza restaurants. There are already companies focused on food delivery as a unique part of the whole sector of restaurant logistics. It can be collected also in cooperation with integrators and marketplaces like Glovo or Uber Eats.

food packages

The third aspect is technology. Although the kitchen itself is offline, the cookers are offline and the food is an offline type of service, the virtual kitchen cannot operate without the proper tools and IT support. There are several functions that need to be included in this type of software, like: - Kitchen workflow management - Order management - Multiple delivery options - Website and app ordering support - Online-offline coordination if necessary

Depending on the type of business one runs, there are other factors to include, such as integration with existing software or more sophisticated invoicing (important, when the virtual kitchen aims to deliver both for individual and institutional clients).

Last but not least, the virtual kitchen requires a great switch inthinking when it comes to building a food-based business. The owner has access to a tremendous amount of data, something unseen when it comes to a traditional restaurant. Also, the virtual kitchen model results in greater agility and encourages experimenting with offers and the menu - another thing that is uncommon in a traditional HoReCa business.

So in fact, one has to have a bold startup vibe.

Summary

The post-COVID world will be much different than the one we are used to. Sticking to the “old ways” of doing business can be the fastest road to a catastrophe and ideas that seemed like madness can be more appealing than at first glance.

At Ordering Stack we combine a unique knowledge of the restaurant business with our tech-focus and the agility of an IT company. So if you would like to know more about virtual kitchens, just drop us a line - we will be more than happy to talk about it!