In the Era of Covid-19, is “Shared Kitchen” the best bet to open your “Cloud Kitchen”?

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With the F&B industry hit hard by the pandemic, the industry is still going through a rough phase. We hope that things should recover faster with the beginning of IPL and Festivals.  Amidst the pandemic, paying hefty rents for a restaurant just isn’t feasible for many budding food brands due to financial constraints.

Venturing into a cloud kitchen business has become the only way out for many brands, with consumer demand for home-delivered meals booming. But it is not that simple. Cloud kitchen itself is witnessing so many brands coming in, so the competition is high. Most of them have no experience in this space. Shared kitchens can be the answer for new players and even the bigger brands who are planning to expand but not in the capital-intensive traditional way.

What is Shared Kitchen?

Shared kitchen is nothing but a co-working space for cooking. These kitchens are equipped with the necessary infrastructure to develop a new concept or scale while driving costs down. Storage and Refrigeration Units are common. An average co-kitchen working space is typically around 1200–1800 Sq Ft large and can accommodate 6–10 different restaurant brands at a time. They are driven by regulations, food safety, and public health concerns. This type of model has been on the rise in the U.S. in recent years, with reports predicting the sector to triple to $972 billion by 2026.

The private kitchens are available round the clock with new, high-grade equipment that has already been licensed, permitted, and inspected for use. There’s even elevated loading docks and conference rooms on-site. The brand can choose to rent a kitchen by the hour, structure a long-term lease, or book month-to-month. For instance, a brand that is operational only during the night for late-night food delivery can rent the space only during the night-time. The same kitchen space can be utilized by a brand that is operational during the day time.

That’s especially important for businesses looking to scale.

How Shared Kitchen Benefits the Cloud Kitchen Business?

Shared Kitchen spaces bring down the initial investment required to set up the cloud kitchen business significantly. Additionally, they are also great for established restaurant brands looking to expand operations in new markets.

Here are the ways Shared Kitchen spaces are beneficial for cloud kitchens.

(i) Reduced Rentals and Equipment Cost

Although cloud kitchen businesses save up a lot on the property cost, this number can be further reduced through Shared Kitchen Spaces. Plus, the initial cost of setting up a cloud kitchen also requires one to invest in the equipment. In Shared Kitchen spaces, there is no initial investment required such as brokerage, or for purchasing the kitchen equipment.

(ii) Ease In Obtaining Licenses

For opening a food business, a number of licenses and permits are required. Since these spaces are fully compliant, obtaining licenses and permits for opening a food business becomes a lot easier.

(iii) Better Location and Reduced Risks

The Shared Kitchen Spaces are typically located in areas that are considered inaccessible or that do not have high footfall, but where the demand for food delivery is high. These can be residential areas or even unused parking lots. The Kitchen Operators choose the location based on the demand for food delivery, especially for certain cuisines. They typically have tie-ups with the online food aggregators that have the customer demand data. Based on this data, these paces allocate the space for new or upcoming cloud kitchen brands.

(iv) Reduced Food Delivery Costs

One of the biggest challenges that standalone cloud kitchens face is the high commissions charged by the online food aggregator. In the case of Shared Kitchen Space, the overall order volume is high. Considering that these spaces generate more orders from the same location, a delivery executive can pick up and deliver more orders in the same time frame.

This reduces the unit cost of delivery and gives the cloud kitchen brands the opportunity to negotiate better deals with online food aggregators.

The COVID Impact

With covid impact, most businesses were struggling to keep up with brick and mortar operations. That’s when brands realized that they don’t necessarily need a retail space — they just need a kitchen. That mindset has become even more apparent with the onset of COVID-19.

The reality is that everyone’s going to eat. But not everyone’s going to go to a grocery store or order groceries and start cooking. Most of people eat three times a day. And it is tough for most of working people to cook three meals a day, every day.

While restaurants, catering businesses, and food trucks have struggled, delivery services like DoorDash, Uber Eats, Zomato and Swiggy are doing really well. The same goes for wholesale, transportation, and food processing. The pandemic has brought a rise in what’s convenient and cost-effective. COVID-19 may alter our behavior in terms of where we work, how we work, where we eat, and how we eat. But it’s not going to be like this forever. Maybe delivery and takeout will taper, despite exploding right now. But a lot of cloud kitchen, right now, are trying to capitalize on this.

How’s it so far for Shared Kitchen?

If you feel hungry, the chances are you can browse a selection of your favorite restaurants on your cell phone and, before long, someone will be at your door delivering freshly made food.

But the meal may not have been made where you think. A growing number of home-delivery dishes aren’t cooked at the restaurant customers order from; instead they’re prepared in a “cloud kitchen.”

Some cloud kitchens are shared facilities — large spaces that are leased to several restaurants — while others are owned by companies contracted to cook for restaurants or takeaway services.

Dubai-based, Kitopi operates in this space. It claims to be Middle East’s biggest cloud kitchen company, and has also made moves to expand into the US and United Kingdom markets.

The startup prepares food for some 100 eateries across the Middle East, including international chains like Pizza Express. With more than 1,000 employees it produces over 200,000 meals a week and has raised more than $80 million in funding since launching in 2018.

Shared Kitchen is like ‘franchising’

Players like Kitopi enables restaurants to scale and open up a delivery presence within 14 days. When a brand joins, they provide their recipes, train on how to cook their food and subsequently, the shared kitchen takes care of end-to-end operations. So, it’s like franchising. By partnering with shared kitchen, restaurants save the cost of setting up their own infrastructure. Some of the brands also add kitchen automation to the kitchen in order to bring in efficiency and reduced opex. Case in point, Rebel foods.

Restaurants pay an onboarding fee to join the platform; after that shared kitchen receives part of their revenues and pays them a royalty fee in return.

US-based The Cloud Kitchens has received more than $400 million in funding, according to Crunchbase, and is backed by Uber cofounder Travis Kalanick, among others. Another US company, Reef, produces food from thousands of parking lots, and India’s Rebel Foods operates cloud kitchens for over 3,000 virtual restaurants in 35 cities.

Shared Kitchen is the way forward

Delivery was already on the growth trajectory, then Covid-19 happened and it saw a blip. However, it is still in touch phase when it comes to managing daily operating cost. So, the shared kitchen is a way forward and attracting new customers who are choosing home deliveries to avoid the possible risks of dining out.

While dine-in dominated restaurant sales pre-pandemic, it’s uncertain how much of that will return. We will see more experimentation like shared kitchen that allows you to serve more delivery demand food.

It’s still an open question of whether any of the big dine in players will look to build their own shared kitchens, However, we will see more third-party players getting into shared kitchen space and may become permanent members of the industry just like third party delivery partner.