The 6 Cloud Kitchen Business Models and How They Work

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.

cloud-kitchen

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:

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.

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.

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 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

 

The 6 cloud kitchen business models

Who should think of opening a cloud kitchen?

cloud kitchen operations and management
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

Let’s look at the (approximate) costs of setting up a cloud kitchen concept in New Delhi, India:

Costs of setting up a cloud kitchen in 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.

millennials eating at home

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.

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.

online food ordering app
Branded restaurant app to take orders

Find out how to make your restaurant online ordering food system stand out.

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.

chefs cooking

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
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.
  • Berco's Loyalty Program
    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

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.

The 6 Cloud Kitchen Business Models and How They Work
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Niharika Maggo

Niharika Maggo

Niharika is a Content Marketer at LimeTray. When she’s not busy wearing down the keys on her keyboard, she's found listening to podcasts, reading or drinking tea.