Are you ready for the time when even more than half of the restaurant consumption happens outside the restaurant? It’s certainly around the corner. If you have more questions about setting up your cloud kitchen. Ask in the comments and we’ll get back to you.

1. December 31,
2018
The 6 Cloud Kitchen Business Models and How They Work
limetray.com/blog/cloud-kitchen-business-model
The revenue in the online food delivery market is expected to reach $137,596 million
worldwide, by 2023.
Now think of a restaurant model that exists purely to capture this market.
As consumers shift their dining behaviour increasingly to delivery, it’s impossible for
restaurants to ignore the large appetite for this new model. Even industry trends have
started showing up in favour.
How?
According to a recent survey conducted by us, 67% of the restaurant owners would want
to open a cloud kitchen as their next outlet.
Why opening a cloud kitchen is a good idea?
Here’s what happens exactly in a cloud kitchen model:
Orders come in, meals are cooked, packed and then whisked immediately to their
delivery locations by the assigned fleet.
Why does this work? Because you’re cutting costs on front-of-house activities and
concentrating on your food. With the availability of third-party services and the
growing comfort of mobile ordering, this model seems just right to experiment with.
There are more benefits involved like:
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2. Lower real estate costs
Since you’re removing table servicing out of the equation and offering a delivery-only
service, you’ll save a huge amount on real estate costs.
Cloud kitchens release you from the obligation of having space in a high-visibility area.
Rather than paying for accessibility, better-developed complexes, or even a large parking
space, you can concentrate on having enough kitchen space in a decent area near to
your target market.
Better expansion opportunities
The best thing about cloud kitchens is that you don’t need heavy investments to begin.
You can start small but expand fast. Once you build a brand and get loyal customers,
expanding to new localities and even new menu variety gets easier. Let’s take the
example of Faasos, today it runs 160+ kitchens and 4 brands including Faasos, Behrouz
Biryani, Oven Story and Firangi Bake.
Saving on overhead costs
With a cloud kitchen, you save so much on overhead costs. You don’t need client-facing
staff, decoration or space entrance, parking area etc. Even if you have lower-priced
menu items, your profit margins are likely to be better.
The 6 Cloud Kitchen Business Models
The independent cloud kitchen model – Single brand, single kitchen, no
storefront.
This is the original cloud kitchen model. A restaurant with no seating space and no
physical store. Restaurant owners or food business entrants sidestepping high rents and
real estate costs by shedding the front-of-house. This concept gained popularity with the
growth of online ordering and growing consumer demand for deliveries.
Typical kitchen size – 500 – 600 sq ft.
How it works
Orders come from online sources
Kitchen only
Specialized in a cuisine
Delivery only
A mix of aggregator dependency and self-reliance for orders and deliveries
The Rebel foods (Faasos) business model – Multi-brand (cuisine), single kitchen,
multiple outlets, no storefront.
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3. The more elaborate cloud kitchens are based on data intelligence such as area wise
demographics of residents, popular cuisines and hyperlocal demand-supply. The idea
here is to address the demand for the most ordered cuisine (Biriyani, North-Indian,
Chinese, Burgers, Pizza & Pasta – that’s really it in India) in a neighbourhood (a 5-6 km
radius) with relatively lesser restaurant options that serve these dishes. This model is
clever because it positions the separate brands as their own individual establishments.
And having a single shared kitchen keeps operational costs low. This model closely
resembles the original cloud kitchen model with no physical storefront. You could think
of it as specialized cuisine based cloud restaurants, owned by the same mother brand,
sharing the same kitchen.
How it works
Orders come from online sources
Single kitchen, multiple brands
Each brand specialized in a cuisine
Delivery only
A mix of aggregator dependency and self-reliance for orders and deliveries
The Freshmenu business model – Single brand, single kitchen, multiple outlets,
with a storefront.
This is kind of a mashup between a takeaway restaurant and a cloud kitchen. It
resembles a cloud kitchen business model for the most part, but also has a storefront.
The storefront exists to allow customers to walk in and see how their food is prepared,
should they ever want to. In essence, this model utilizes all the operational efficiencies of
the cloud kitchen business model but also has a “real” window with customers.
Typical kitchen size – 1200 – 2000 ft
How it works
Orders come from online sources
Single kitchen, single brand
Changing menu that has a mix of seasonal dishes and bestsellers
Delivery and take away
A mix of aggregator dependency and self-reliance for orders and deliveries
The Swiggy Access business model – Aggregator owned, multi (restaurant) brand,
rented co-working kitchens, no storefront.
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4. This cloud kitchen model often called the “shell” in the food business circles, is basically
an optimally located empty kitchen space with the bare minimum infrastructure – gas
pipelines, drainage and ventilation systems. Established (or new) restaurant businesses
rent that kitchen space, make use of Swiggy’s online ordering, delivery fleet and menu
intelligence to set-up a restaurant. The restaurant brings the equipment, staff, raw
materials and recipes. In simple, the restaurant does the cooking and Swiggy does the
rest.
Typical kitchen size – Each kitchen is 100-500 sq ft within a larger kitchen.
How it works
Orders come from Swiggy
Single kitchen, multiple restaurant “partner” brand
The Restaurant takes care of the menu, kitchen equipment, and staff
Delivery and fulfillment, by Swiggy
The Zomato Infrastructure Services business model – Aggregator owned, multi-
restaurant brand, rented kitchens, with a storefront.
One-up from the bare bones Swiggy access model, the Zomato model is based on the
idea of rented kitchens but with built-in kitchen equipment and comprehensive
processes. In this model, Zomato also shares its know-how on order demand
management. Like the Freshmenu model, these cloud kitchens also have a storefront
where customers can walk in. A mash-up between a cloud kitchen and takeaway
restaurant, similar to the Freshmenu example. Powered by Zomato’s insights.
Typical kitchen size – 250-500 sq ft
How it works
Orders come from Zomato
Single kitchen, multiple restaurant “partner” brand
The Restaurant takes care of the menu
Zomato does everything else
Customers have the option of walking into physical storefronts
The Kitopi business model – Cooking and delivery fully outsourced
This is a relatively newer concept in the cloud kitchen business model mix. In this model,
you can outsource everything from your call centre operations, your kitchen and
delivery. Imagine a restaurant where a large majority of the kitchen prep is outsourced
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5. and gets delivered to your kitchen. Your chefs can then do the final touches and Kitopi
picks it up for delivery again.
How it works
Orders come in via Kitopi owned call centre, through your own online platforms and
third parties
Kitopi buys and stores your raw materials
Then “pre-prepares” the food in its centralized kitchen
Kitopi then sends over the food to your kitchen for final touches
Picks it up and delivers it to your customer
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8. Who should think of opening a cloud kitchen?
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9. Cloud Kitchen is a fit for everyone – from innovative food entrepreneurs to establishes
QSRs
Food entrepreneurs
If you have got a unique idea and are looking for a lesser expensive way to enter the
market, cloud kitchens serve the exact purpose. They require less investment as
compared to a full-fledged restaurant but give you full opportunity to reach a large pool
of customers.
Home-cooked food brands
Is your home-grown brand expanding super fast? Opening a cloud kitchen can help you
set up shop with little investment and around the delivery areas you want to target the
best.
Food truck operators
If you are looking to expand to newer delivery areas and try a model that is fast-paced
just like a food truck – cloud kitchen might be the answer.
Established QSRs
Even quick-service-restaurants that want to expand their delivery capacity, can look at a
delivery-only kitchen model to invest money efficiently.
Dine-in restaurants
Let’s face it, people now want the food to reach them. Dine-in restaurants who’re slowly
adapting to the delivery trend can look at setting up a dark kitchen and experimenting
with newer menu ideas.
The costs of a cloud kitchen business
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10. Let’s look at the (approximate) costs of setting up a cloud kitchen concept in New Delhi,
India:
Building a cloud kitchen for the Millennials & Gen Z
Cloud Kitchens and online food delivery are essentially meeting the needs of the
younger generations which we call – millennials and Gen Z. They value diversity, more
choices, and urban living.
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11. Here are some things you should keep in mind while wanting to fill their appetite:
Convenience
The idea of going out or cooking is becoming less appealing to millennials. Convenience
is an important factor in driving their decisions. Food delivery brings with itself
convenience, more options and even the growing number of healthy choices.
Awareness
The younger generation is more curious and aware of things around. They look for
answers – where is their food coming from, how many calories it has, is it organic or not?
Brands have to build and align their marketing for this scale of awareness.
Demand for international cuisines
They want to explore new things. Whether it’s in the form of international cuisines or
fusions of different dishes. Korean Tacos, Ramen Burgers, Butter Chicken
Dosa..millenials are all here for it.
Experience matters
Experience still holds utmost importance for these generations. But it becomes a
challenge for restaurants to control it while doing delivery. So, focus more on your
delivery experience, packaging, and feedback conversations to improve that.
All you need to start a cloud kitchen business
Starting a cloud kitchen involves various decisions. From the delivery areas and
restaurant name to equipments, licensing and so much more. Don’t worry we have a
step by step list to help you in planning your next action.
And if you’re still struggling to find a restaurant name, we analysed 3500+ of them to
help you out.
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12. Location
Keep these elements in mind while choosing your cloud kitchen’s location:
Accessible for target delivery areas – As all your orders will be delivery-only, it’s
important to ensure that the location of your kitchen is near the locations you want
to deliver for.
Affordable – That’s the main point of opening a cloud kitchen – saving on rent and
other real estate costs. Make sure you have a cost-effective space and you make
the most of it.
Windows and space to breathe – Cloud kitchens are usually built in closed
spaces, garages, and small complexes. With hectic cooking happening all day – it
becomes even more important to make sure that the space has windows and
enough space to breathe for your cooks and staff.
Safety-checked – Safety should always be your priority, make sure all the health,
electric and other concerns are double checked before signing up for the place.
Technology
Let’s talk about 2 pillars of restaurant technology that are essential for setting up a cloud
kitchen:
Online Ordering Platform
In a delivery-only model, your online ordering platform or app is the front-of-house place
where your customers interact with the brand. From a profitability point of view too, it’s
always prefered to get orders on your own platform so that you do away from the third-
party commissions.
Branded restaurant app to take orders
Find out how to make your restaurant online ordering food system stand out.
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13. POS & Order Management
When running a cloud-kitchen, having a restaurant POS that helps you integrate with
different tools and runs on cloud-tech will make your life much easier. Another must-
have technology is an order management system that can bring orders from different
third-parties into one place, as fast as possible.
Equipment
From racks to oven and other electrical items, equipment forms a major part of setting
up your kitchen.
In fact, Shourrya Gupta, Founder of Crepe-Fe that runs on a cloud kitchen model
explained how he took time out to select the best machines before starting out and even
built their own equipment for certain dishes to perfect their recipes.
So research wisely and consult other owners before investing in your equipment.
Licenses
Licensing is a really important step whenever starting a new restaurant. From your FSSAI
license to GST registration and various municipal clearings for trade and safety, it is
advisable to consult fellow restaurant owners or an agent that can help you in making a
list and acquiring them all before starting out full-fledged operations.
Click here for a step-by-step procedure for getting an FSSAI License
People
Running a faced-paced delivery kitchen can get very hectic. You need people that can
handle that level of pressure and still churn great orders.
Here are a few roles that are necessary to be present and filled for a cloud kitchen:
Chefs
Operation Handlers
Cleaning/Housekeeping Staff
Your own Delivery Fleet or Delivery Partners
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14. Packaging
When your business depends entirely on delivery, packaging can make or break it.
Your packaging should be eye-pleasing and clean, giving your customer the
confidence that the meal is handled with care.
If you’re serving dressings or sauces, there should be separate containers for
them.
The package should travel well, and keep the food warm or cold (as required) for
long distance.
Another important factor is that the boxes should be able to breathe and let
steam out so as to avoid sogginess.
Marketing
When it comes to restaurant marketing, no one size that fits all. You’ll have to keep
experimenting to find the mix that gets the best results for your restaurant. Here are a
few ways to start:
Social Media Marketing – From Facebook to Instagram, social media platforms
are essential to connect with your customers and build a brand. You can either hire
an in-house representative for it or outsource your digital marketing with an
experienced agency.
SMS and Email Marketing – This is where you will entice your customers with
great offers. SMS and email marketing work great for getting repeat orders and
increasing customer retention. Here are a few ideas you can use to send effective
campaigns.
Loyalty Programs – Loyalty programs are made to reward your repeat customers
and encourage more orders from them. They get points for each order they place
which are redeemable in different forms at your brand. Use these strategies to get
started with your loyalty program.
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15. Berco’s Loyalty Program (shared on their website)
Online Listings – To be found online your cloud kitchen needs to be listed at
Google and other online listings like Yelp, TripAdvisor etc. The traffic that you can
derive from here is huge and it has high chances of converting into hot orders.
Social Listening – This helps in catching public sentiment about your brand. You
can notice both positive and negative reviews about your restaurant and be quick
in responding to them.
Get the full guide to restaurant marketing here.
Things to look out for as you plan your cloud kitchen business model
The wrong side of third-party discounts – Orders spiked by third-party
discounts leads to buying more equipment and hiring more people. When the
discount stops, the orders stop and you’re left with higher costs.
Food cost management – Not keeping an eye on inventory management i.e the
actual cost of the ingredients that go into a dish can prove insurmountable. While
the rent, cost of overheads and peak order periods are not in your control, food
cost is. As a standard, your food costs should range between 30-33%. But food cost
is tough to control. More often than not, the kitchen staff is relaxed about exact
measurements. Using an inventory management tool integrated with your
restaurant POS can certainly help.
Food Safety – The Food Safety and Standards Association on India (FSSAI) has
been quite visible in the news ordering aggregators to de-list restaurants and
taking other measures to ensure a high standard of food safety. And cloud kitchens
also have to play by the same rules. Whilst older restaurant businesses have some
experience in training staff, Cloud Kitchens have to ramp up.
Over to you
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16. Are you ready for the time when even more than half of the restaurant consumption
happens outside the restaurant? It’s certainly around the corner.
If you have more questions about setting up your cloud kitchen. Ask in the comments
and we’ll get back to you.
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