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The Rise of the Cloud Kitchen

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The Rise of the Cloud Kitchen

The restaurant industry is a tough nut to crack. Startup costs are high. Margins are thin. And crowds are fickle. Despite their...

7 Minutes Read

The restaurant industry is a tough nut to crack. Startup costs are high. Margins are thin. And crowds are fickle. Despite their consumers’ capricious nature, the industry largely remained stiff and staid in bringing new approaches to market. Then food trucks shook things up. Ten years ago, as the global economy was in shambles and social media began to rise, the food truck movement took shape. Restaurateurs could launch concepts faster, at lower costs, then test new markets, and more readily see what diners had to say about them. A decade later, changes in technology and culture have given rise to the latest innovative approach to the restaurant industry, the cloud kitchen. The way we eat is changing and proactive leaders in food services are riding the wave of change to better services and profitability.

The premise is new enough that the nomenclature still hasn’t quite coalesced around one term. Cloud Kitchens, Ghost Restaurants, Virtual Restaurants, Dark Kitchens, and other similar phrases are all used interchangeably. They all refer to delivery-only restaurants that exist in the digital realm on their own websites or as listings on delivery services like Deliveroo, DoorDash, or Swiggy. Some are completely new endeavors launched in commercial kitchens, while others are the result of established restaurants seeking additional revenue streams by launching virtual brands that optimize the resources of their existing ingredients and processes.

Cloud Kitchens combines the agility of the food truck approach with even greater efficiency and data-driven decision making. In short, its the lean business model applied to restaurants. The Minimum Viable Product (MVP)  in this case is a food concept that intrepid chefs can launch for far cheaper than it costs to open a traditional restaurant. And with help from the insights of data-driven food delivery companies, they are armed with insights on the types of food demanded in certain areas or the likelihood of a particular premise to thrive. For example, the data teams at UberEats pitched a virtual burger joint to a cafe and a virtual wrap restaurant to a Turkish eatery. Both virtual restaurants were so successful that the brick and mortar locations rebranded their entire business operations. The digital and physical infrastructure are in place for this approach to thrive. And it comes along right at a time when cultural norms are also facilitating a change.

Dinner time ain’t quite it what it used to be. In 2016, spend on eating out exceeded spend on groceries for US consumers. This trend is largely attributed to less perceived time to prepare or even consume food. We can barely peel ourselves away from mountains of email to enjoy a salad at lunch and that the same time crunch keeps us from preparing food at home. As we turn to restaurants for dinner more frequently, even that process has grown more time consuming. Waits at fast food drive-through lanes have doubled since the early 2000s, turning off some customers. A culture of convenience encouraged by 2-day (or even 2 hour) ecommerce deliveries and on-demand gig working apps further paved the way for the delivery only restaurants now on the rise. While barriers to entry fall and consumer demand for delivery grows, restaurants face increasing pressure to stand out from the crowd and keep pace with competitors. High profile entrants have already bowed out or pivoted on their approach. Now, gig economy veterans like Travis Kalanick are trying their hand. What will it take for these ventures to follow food trucks as the next food phenomenon?

Food truck popularity exploded for two reasons. The culture around it was loaded with social currency; people always look cool when they discover the hottest new restaurant. And the consumption was public, with diners sharing their latest food finds to social feeds. Both of the aforementioned elements are part of Jonah Berger’s STEPPS framework for why things spread. The trucks tended to gather in hipster havens and other cool parts of town. Everybody wanted to post content of the newest food truck discovery to indicate they were in the know. And those public proclamations served to spread awareness to other potential patrons. Even the trucks themselves served as massive public billboards, whether parked or riding around town. Truck owners adorned their roving restaurants with bright colors and eye catching designs to stand out. Combined with the buzzing crowds mouth-watering scents wafting over visitors, food truck parks were full-on sensory treats before diners ever took their first bites. Unfortunately for Cloud Kitchen proprietors, they don’t have that luxury. One of the greatest challenges they will face is marketing. To create a connection with hungry diners in the absence of a physical location, Cloud kitchens must rely on novel offerings and consistent experiences to encourage word of mouth marketing of their restaurants.

While creativity in marketing will be key, ghost restaurants must also have an eye toward the future in assessing their operations. Artificial Intelligence has already begun impacting the food industry. The lean, iterative nature of virtual restaurants primes them for rapid change when paired with AI capabilities. The Center for the Future of work has come up with a framework of 6 imperatives for how to make the most of AI. Cloud Kitchens are uniquely positioned to use the AHEAD framework to thrive in a notoriously competitive industry:

Automate: A delivery restaurant has a finite list of menu items. That lends itself to a process filled with repetitive tasks. As kitchen bots like Flippy proliferate, ghost restaurants can automate more tasks in the kitchen. Eventually, this automation extends to delivery of the food with the introduction of autonomous vehicles.

Halo: Each food order at a virtual restaurant creates a ton of data. We call that a Code Halo. The time, order size, location, and which appliances are used for a specific order all provide valuable data for how a food business can continue optimizing its operations. Each data point paints a clearer picture for the entire organization to improve decision making.

Enhance: Even before job functions can be turned over completely to bots, they add convenience and productivity by enhancing what human workers can do. From location-based algorithms aiding delivery workers in route selection to food waste sensors calculating the best use of leftovers there’s space for AI to enhance all levels of the restaurant operation.

Abundance: The biggest  hurdle for customers using food delivery service is price. As new technologies allow businesses to reduce delivery fees, new markets open up. Previously underserved areas like food deserts provide an abundance of new opportunities for food delivery.

Discovery: As previously stated, the restaurant business is not known for its innovative approaches. AI and automation provide an opportunity to discover entirely new products and models, just as the lawnmower paved the way for sports industries to thrive by clearing out fields for play.

In a recent study commissioned by Cognizant, 66% of restaurant and hospitality executives say popularity of new models like the cloud kitchen have had a positive impact on business. Its no surprise that this model has grown in popularity given the diminishing amount of time we spend in the kitchen. The way we eat today is already quite different from the dining habits of just a few generations ago. In the future, we won’t even cook our own meals and we’ll seldom sit down at a restaurant, according to one food delivery service executive. Our meals will mostly be delivered to us. Restaurants have significant hurdles to overcome before that prediction can be taken seriously, but with Cloud Kitchens thinking AHEAD, they’re well on their way.


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