Impact of Cloud Kitchens on the F&B Industry

Cloud Kitchen Cooking

The pandemic changed every industry for good. As the Food and Beverage industry scrambled to find a way out of possible ruin, and thousands of eateries started shutting shop in a blitzkrieg, Cloud Kitchens started popping up and proved to be a game-changer forever.

Take-outs became the key to survival for families and working professionals and this demand was targeted by the ghost kitchens in the city. Cloud kitchens were projected to double over the next fiscal year and so they did – as most traditional restaurants closed.

What is it?

Cloud kitchens are app-based delivery of food that the new generation of diners resorts to at odd hours of the day. The tradition of going out to a restaurant to be served a hot meal has all but died in a post-pandemic world.

Cloud kitchens have a lot of monikers – dark kitchens, ghost kitchens, virtual restaurants. But all of them run on the same premise – a delivery-only concept where there is no place to dine in, and the food gets delivered to your doorstep. All orders are to be made online via dedicated food-delivery apps or websites or third-party platforms.

How does it work?

Cloud kitchens were never a new concept, to begin with, but one that skyrocketed as online deliveries saw a surge like never before. Just a set-up space with minimal staff, signage, and promotion helped cloud kitchens make great use of the country’s 0% tax rate on corporate and personal income, the very few barriers to entry, and an industry that is supportive of new brands and listings.
All you need is a space for the kitchen, and with the help of a third-party platform to order from, one could easily make this low-risk, low-investment yet high-profit model work.

Competent and Fiscally Safe

Restaurants are fast choosing to go online with the cloud kitchen format and trading their brick-and-mortar sites for a business more attuned to the future trends of the F&B industry. Brands can experiment more with cloud kitchens as a variety of concepts can be put to action, such as aggregator-managed cloud kitchens, multi-brand kitchen spaces, co-working spaces, and many more.

The ease of setting up a business has led to increased market penetration by cloud kitchens, forecasting a two-times increase of virtual brands by 2023. These kitchens offer a win-win situation to restaurants as they chart higher sales while putting innovation at the core. The risks are few, yet brands can grow customer offerings.

What made the industry switch to Cloud Kitchens?

UAE’s booming food culture came armed with the cloud kitchen set-up as other industries started folding under pressure. It then went on to witness an astronomical growth as almost 70% of UAE restaurants switched to cloud kitchen models instead of dine-in if we are to believe the POSist Restaurant Industry and Market Evolution Report.

A major reason to pivot to this model was the prevalence of lower setup costs and improved margins at the end of the day.

Efficiency is the byword in the cloud kitchen system – thus making it a go-to solution for both the industry and the clientele. Many top players are known to set up their facilities in cost-effective locations such as empty parking lots, industrial backyards, etc. An abundance of space was an advantage and one could easily cover rent expenses.

The pioneers

Kitopi and Deliveroo are amongst some of the early advantage brands that recognized the shift of consumers from considering online ordering of food as a once-a-month treat to a means of survival, as lockdown restrictions got imposed. Delivery was no longer an
afterthought for the consumer, and virtual brands were on the rise.

Aggregators quickly rose to the top of the chain by leveraging technology, as more and more businesses started choosing cloud kitchens to keep sales running. Kitopi, for example, even as of 2021, could set up a brand from scratch in just about 21 days and have them ready to serve customers. They helped various names to establish their presence – even international ones – without a prerequisite of brand recognition in the region. Homegrown virtual brands such as the British-inspired Dan’s Home Food were given a lease of fresh life thanks to cloud kitchens.

Long-term growths with the Cloud Kitchen Model

Even though the industry stays hopeful about a resurgence of the culture of eating out, partners of most franchises are reworking their long-term plans with cloud kitchens at the core of the operations. It is the norm of the future as market projections suggest the industry to reach $2.63 billion by 2026.

There do exist a few creases and folds here and there. The issue with transparency of where your food is being sourced from is a major concern that brick-and-mortar traditionists are fighting virtual brand enthusiasts with. The lack of a need to build relationships with the community it caters to, listings copying concepts of restaurants only to accelerate growth through delivery, or the trend of aggregators pushing brands to offer more and more discounts in a saturated marketplace – are all worth looking into by the industry as a whole.

Dine-in, delivery, and takeaway are possibly going to combine in the hybrid models that QSRs are presently experimenting with. Cloud kitchens help add more customer touchpoints. The food and beverage industry will veritably look forward to fine-tuning the delivery set up, to witness unit growth of each outlet whilst building a sustainable model for days to come.

In an era of industries where failure to adapt can lead to the demise of a brand, the food and beverage industry of UAE must make the most of the Cloud Kitchen format as it is going to prove to be the backbone of the industry that helps sustain other stakeholders.

Cloud kitchens are here to stay. So, if you are a key industry player, you better jump on the bandwagon fast.