Whether we wanted it or not, the recent pandemic situation spanning over the last few years or so has given rise to a lot of business opportunities.
While many thriving businesses in the food industry took a nose dive into dirt, a lot of startups and name-brand restaurants managed to take the hit.
To this effect, we would also like to mention that the majority of food businesses that failed to sustain their operations during the COVID-19 frenzy are alluded to the operators’ inefficiency to adopt new changes.
A recent example of such businesses headed towards an early and unexpected closure would be the lack of an online food ordering app integration, refusal to take food orders coming in from remote customers, substandard delivery policies, and vice versa.
This leaves us with only a specific percentage of food industry businesses that not only thrived during COVID-19, but despite taking a hit, or laying off their employees, the company operations expanded by tenfold.
The interesting news is that eMarketer experts reported steady growth in the food business industry starting from 2019 and going all the way to the year 2020. Likewise, in the year 2019, according to eMarketer experts, the number of online food order app users was 36.4 million.
As we move on to 2020, the same number of users grew to be at a whopping 45.6 million.
Meanwhile, revenue for such food businesses, regardless of whether they were startup or old-school restaurant operators, continued to grow by 26%.
What’s the point that we’re trying to make here?
If you’re looking to make a safe bet and invest in a sound business, go for something along the lines of cloud kitchens.
Cloud kitchens are not only today’s growing fad; they’re safe, economical, and promise a huge ROI factor to investors from different aspects.
In this post, we’ll talk about the rise of cloud kitchens, some interesting stats, and how to invest in cloud kitchens from a safe point of view.
So, let’s get to it.
ELI5 (*Explain to Me Like I’m 5) – What Are Cloud Kitchens?
People also call them ghost kitchens and virtual kitchens, but we’ll stick with the ‘cloud kitchen analogy’ for the sake of helping you to understand the concept.
Cloud kitchens are shared commercial spaces where either one restaurant prepares food or works in coherence with other restaurants. The main thing is that these restaurants follow an online food delivery format through some kind of food aggregator merchant app.
Each restaurant may, or may not have an online partnership with the food services merchant. If it does have a contract, then the said restaurant is maintaining a name-brand identity on popular online food ordering platforms.
These cloud kitchens are utilitarian, which means that there is no dine-in facility in these cloud kitchens. Staff-wise, we are looking at only a handful of manpower consisting of a manager, a supervisor, chefs, and people with key roles adjacent to fulfilling the operations easily.
So, the next time you hear the term “What are cloud kitchens”, you can think of warehouse space with kitchen equipment, pre areas, lots of yelling chefs, and the whole shebang!
Are There Any Different Types of Cloud Kitchens?
As a matter of fact, yes, there are different types of cloud kitchens working in different shapes and forms. Let’s take a look at some of them right now:
1. Standalone Cloud Kitchen:
This type of cloud kitchen resonates with a small-scale food business operation where a single or multiple brands work under the same facility.
For most of the food industry startups that do not wish to spend too much on infrastructure costs, standalone cloud kitchens are the best choice. They start with a single location but may expand as businesses grow with the passage of time.
Initially, before 2013, standalone cloud kitchens were operated by single name-brand businesses. By 2013, experts suggest that the standalone cloud kitchens model evolved to encourage multiple brands under the same roof.
2. Chain Based Cloud Kitchen Model:
Otherwise known as cloud kitchen chains, they are best suited to meet multiple food businesses’ requirements. From an investment point of view, several parties may shake hands on opening cloud kitchens in chains, while each brand catering to different food brands at the same time.
Think big; think multi-location, multi-city operations.
Online Food Business Prospects in MENA/ MENAP Regional Belt
Shared Cloud Kitchen(s):
If you are a startup food business owner, you may have heard of shared cloud kitchens.
These kitchens are ideally meant for food businesses that are just about getting started. Under such circumstances, multiple food brands may work together, while being able to keep the cost focus on food production, maintenance, and rentals.
Most of the time, startup food brands that work in a shared cloud kitchen, only spend most of their money on creating their own brand and marketing.
Cloud Kitchen with a Restaurant Kitchen:
This one’s a combination of a shared space rented out by a restaurant with a physical location.
You may see customers going in for a dine-in experience, but what they don’t know is that other name-brand food businesses may be working in the kitchen to fulfill remote food orders for their respective clients.
The most relevant example of restaurant kitchen + cloud kitchen would be “Hardeep Punjab”. It is a very old Indian restaurant that caters to its fair share of customers via a traditional business model.
However, ‘Hardeep Punjab’ also has ‘Red Bell Pepper’ and ‘Flavors of Punjab’ name restaurants working in the same kitchen. However, the latter two brands cater to their customers through the food aggregator’s online ordering portal.
Home-based Cloud Kitchen:
These cloud kitchens are operating from a home.
This type of business model is an ideal choice for family businesses, solopreneurs, and housewives who work in a kitchen in the same house. As usual, the only difference is that each of these operators has its brand name, and they are working through an online food services provider under unique brand names.
The best thing about home-based cloud kitchens is a small menu that promises home-cooked food. These businesses share their expenses and have a very low ‘Opex/Capex’ cost factor to account for.
How Does a Typical Cloud Kitchen Function?
If we were to talk about a traditional hub & spoke business model, cloud kitchens in this configuration, work under the same roof to accept online orders and have them delivered to their respective customers.
A ‘Hub’ is where food is cooked, and a ‘Spoke’ is the main forward base where restaurants send their orders for pickup and further delivery.
How To Invest In Cloud Kitchens?
Cloud kitchens are an appetizing opportunity for investors due to several reasons.
If we were to talk about the investment opportunities that came up during the Pandemic situation, the swelling trend of the food industry attracted a lot of potential investors from all over the world.
These people are smart, and they know how to stack their cards when it comes to making substantial investments in cloud kitchens.
Former Uber CEO: Travis Kalanick
For instance, ‘Travis Kalanick’, the former CEO of Uber invested millions in raising a startup, simply called: ‘CloudKitchens’.
Back in January 2019, Travis was angling for investing in a cloud kitchen business model that would only fulfill ‘For Delivery Online Food Orders’. Did the system work for Travis and his partners? It did! Insiders report that Travis Kalanick invested approx. $130 million into purchasing additional properties in different cities based around the same business model.
Thanks to an “uber” alpha male mentality, ‘CloudKitchens’ fell from grace, despite having a lot of business potential. However, from an investment point of view, it was a good example of calling the shots at the right time, given how healthcare organizations motioned a swift lockdown that ultimately affected many businesses.
Start With Low-Cap Initial Investment:
Given your industry’s niche and the nature of business, if you’re looking for a side hustle, or simply trying to figure out how to invest in cloud kitchens, start small.
A low cap investment, especially, if you’re going in solo, aggravates low risk and lesser accountability. Because there might be unforeseen circumstances that could affect the cloud kitchen’s potential to generate ROI, you won’t have to answer your investor partners.
Plus, small investments, even if they are coming in through micro-loans lead to saving time and hassle on your part. Think of parting ways with a substantial amount of money that you can easily function without.
Partnering Up with Other Investors in Cloud Kitchens:
On the flip side, if you are looking for big game prospects, feel free to shake hands with like-minded business associates who are willing to pitch in.
The plus side of investing in cloud kitchens through mutual investors is that you will have low-cost risk, in case the business goes south. Since everyone’s involved with their fair share of the money, if your contribution is small, you’d have to lose less. This is a better investment opportunity if you think that you do not have a lot of money, to begin with.
Draw Up a Fail-Safe Contract on How to Invest In Cloud Kitchens:
This part is important for people who are looking to invest in cloud kitchens via a mutual investment pool with other parties.
By all means, if it is possible, do not claim responsibility if the cloud kitchen business model doesn’t work out long term. Just to be on the safe side, all investing parties need to be accountable for sharing loss percentages, as much as they are excited to take a fair chunk of profits when the ROI starts rolling in.
Oftentimes, when happens is that naïve investors are made to believe that their investment in cloud kitchens is a safe bet – and that too, without any risks. Since businesses are volatile, and anything can happen out of the blue, such investors end up losing money when things go south.
To make matters worse, if you have taken a loan from someone to invest in cloud kitchens, your contract can save you plenty of headaches because the primary investor will be liable to sustain financial injury. This way, you won’t be legally bothered to pay back the principal amount out of your own small pocket!
Real Estate Agencies are Hustling through Cloud Kitchen Investments:
The people at the top of the food chain in the real estate industry are well-connected.
They prefer investing in cloud kitchens, over dine-in restaurants because of the overall efficiency, low-cost factor, and other variables associated with the platform itself. Therefore, if you are part of the real-estate niche, it’s the right time for you to ring a few former associates, or go in solo.
If you have your own piece of land, you can rent it out to other businesses that are looking to start as cloud kitchens. This is a fantastic opportunity because McDonald’s actually did that when the business was just about getting started.
Since the COVID-19 outbreak, a lot of chaos has subsided, with people getting vaccinated and businesses returning to the “old” normal.
Therefore, many barriers have come crashing down. Already, millions of people are ordering food by dozes through online food apps. It’s the perfect opportunity for you to get started on how to invest in cloud kitchens right away.
If you have any questions, feel free to post them in the comments section below. We would love to hear about your thoughts on the cloud kitchen investment model, and whether it’s a good move for investors or not.