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Cloud Kitchens: Hype vs. Reality

Apr 9, 2024
Core Spirit member since Aug 24, 2023
Reading time 8 min.

Today, Cloud Kitchen is a well-known off-premises brand that focuses on takeaway and delivery of food. These restaurants are like gastronomic apparitions, bringing delectable food from distant lands, driven by technology and a bit of enchantment. In the world of culinary, cloud kitchens, also known as ghost kitchens or virtual kitchens, are all the rage.

Undoubtedly, shifts in consumer behavior and technology developments are driving the ongoing, rapid growth of cloud kitchens, as their creative approach to food preparation and presentation has long piqued curiosity. As the global market for cloud kitchens grows, it is clear that restaurants are installing more of these kitchens these days.

Over the next five years, it is anticipated that the worldwide cloud kitchen market will continue to rise at a significant rate. The market for cloud kitchens was estimated to be worth USD 51.96 billion globally in 2020. Its income by 2022 was already USD 58.61 billion. According to projections, the market is expected to expand at a compound annual growth rate (CAGR) of 11.74% between 2023 and 2032, with a final value of USD 177.85 billion by that year. In the upcoming years, the industry is anticipated to increase significantly. At a compound annual growth rate of 10.3%, the cloud kitchen market is expected to reach USD 92.52 billion by 2027.

On the other hand, according to a TechSci report, the Indian cloud kitchen market is expected to expand at a CAGR of between 15.5% and 17.5% between 2024 and 2028, and it may reach a market size of $2.5 billion by 2028.The target audience's shifting choices are one of the primary causes of this ongoing expansion. Nowadays, people prefer ordering food online over going out to eat.

Biryani By Kilo, Masalabox, Kitchen United, Kitopi (a global cloud kitchen network present in India as well), KEATZ, Rebel Foods, Zuul Kitchens, CloudKitchens, DoorDash Inc., Kitopi Catering Services LLC, Lightspeed Commerce Inc., PAR Technology Corporation, POSist Technologies Private Limited, Rebel Foods, Starbucks Coffee Company, and Swiggy PlatformToast Inc. are currently the leading players in the dynamic and competitive cloud kitchen industry in India and around the world that cater to changing consumer preferences and the demand for convenient dining experiences.
Cloud kitchens became popular during India's series of lockdowns starting in March 2020. Numerous home businesses and cloud kitchens were established and listed on food aggregators. Despite its potential to upend industry patterns and challenge conventional kitchens, cloud kitchens continue to cause both enthusiasm and fear in the food sector.
While cloud kitchens offer convenience and cost savings, they also face operational complexities, fierce competition, and uncertainties. As the industry evolves, striking a balance between innovation and sustainability is indeed becoming difficult.

Let's talk about the benefits, drawbacks, and disputes around these kitchens...

Cloud kitchens primarily use their own platforms, including websites and mobile apps, or internet aggregators to communicate with their clients. Furthermore, they primarily facilitate distribution through employees, third-party service providers, or aggregators.Individuals can start a cloud kitchen from their own home kitchen or a modestly leased space. These kitchens provide several advantages, such as lower operating costs, higher profit margins, competitive pricing, flexibility and agility, decreased food waste, technological integration, and positive environmental consequences. Moreover, technology is being used by ghost cooks more and more to increase output, enhance client pleasure, and simplify operations. Automation in order processing and packaging innovations are just two instances of how technology is changing the ghost kitchen industry and assisting.
But there are drawbacks as well, such less engagement with customers, increased competition, and reliance on food aggregators. Customers have complained about dishonest business methods, dirty surroundings, malfunctioning equipment, and a dearth of assistance. When insiders analyzed CloudKitchen sites, they found that the percentage of restaurant closures was higher than usual. They still have a lot of room to grow and innovate in order to generate income, but first they must solve the concerns that have been brought up.

Moreover, ghost kitchens often struggle to maintain uniformity in their menus and standards of quality. When there isn't a physical dining area, it becomes challenging to supervise the preparation and serving of food, which could leave customers dissatisfied and damage the ghost kitchen's reputation.

The fact that cloud kitchens depend on outside delivery services is another drawback. Delivery platforms charge high commissions, which lowers the profits for the businesses. Inadequate management over the delivery process might lead to delayed orders or inappropriate food handling, which can further lower customer satisfaction.

Controversies around cloud kitchens,

The food industry was beginning to adopt cloud kitchens because of their potential efficiency and cost-effectiveness. It's possible that since then, disputes about cloud kitchens have surfaced. Being a major force in the food industry, Cloud Kitchens have seen their fair share of scandals in recent years. The company has been embroiled in a number of controversial situations, ranging from litigation and complaints to a high number of restaurant closures. It is important to note that the particular disputes may change based on the region and specific circumstances.

  1. Lawsuits and Complaints Against Cloud Kitchen - A big disagreement about cloud kitchens is based on lawsuits and several complaints made against the company. Marina Restaurant is one business that has partnered with Cloud Kitchen to introduce its delivery-only concept. At first, everything appeared to be going well since Cloud Kitchen assisted Marina in growing her company and increasing her visibility. Unfortunately, the marketing campaign was abruptly discontinued, which caused the marina's earnings to plummet. The owners of the restaurant were furious since they had to file a lawsuit as a result. They claimed that using the cloud kitchen came with a lot of difficulties.

Marina's experience is not unique. Reports of a similar nature have surfaced from other Cloud Kitchen locations around the nation; some of them accuse the company of deceptive advertising and providing little assistance to struggling eateries. Concerns over the company's business methods and their effect on the prosperity of their restaurant partners have been brought up by these lawsuits and complaints.

  1. Excessive Number of Restaurant Closures - It's true that there is controversy about the high number of restaurant closures in Cloud Kitchen locations. An analysis of 20 Cloud Kitchen sites revealed that, in the previous year alone, the average turnover rate was 65%. This shocking figure raises questions about how long the ghost kitchen model can last and how much support Cloud Kitchen can provide to its restaurant partners.

The difficulties faced by first-time restaurant owners venturing into the delivery-only industry are highlighted by the rising number of establishment closures. Although the idea of "ghost kitchens" has certain potential benefits, like lower beginning costs and more operational flexibility, many novice operators struggle to stay in business in this cutthroat market. For these would-be restaurateurs, the absence of foot traffic, dependence on delivery apps, and heightened rivalry present formidable obstacles.

Some contend that in these circumstances, the company's selection procedure might not be able to sufficiently weed out operators who lack the necessary skills to manage profitable businesses. Some argue that Cloud Kitchen's marketing and support might not be enough to guarantee their restaurant partners' long-term success.

  1. Lack of openness - A few disputes stem from a lack of consumer information and clarity about how cloud kitchens are run. Customers might not realize that the food they purchase is made in a common kitchen area rather than a separate restaurant because these kitchens don't have a physical storefront.

  2. Quality control - Several brands or restaurants that operate out of the same space are frequently housed in cloud kitchens. Concerns concerning food safety procedures and quality management are brought up by this shared area. Inconsistencies in food quality and hygiene standards may result from inadequate measures.

  3. Customer experience- The eating experience may suffer as a result of cloud kitchens' primary emphasis on delivery and takeaway. Consumers could lose out on the atmosphere, service, and whole dining experience that comes with going to a typical restaurant.

  4. Effect on conventional restaurants - Traditional brick-and-mortar restaurants are becoming concerned about the proliferation of cloud kitchens. They contend that cloud kitchens can undercut them and provide them an unfair competitive edge because of their decreased overhead costs.

  5. Dependency on delivery applications - The operations of cloud kitchens significantly depend on outside food delivery apps. Cloud kitchen enterprises' profitability and sustainability may be impacted by disputes with delivery platforms over fees, commissions, and data sharing resulting from this dependence.

  6. Infrastructure Difficulties - Cloud kitchens have encountered many difficulties despite being once heralded as a ground-breaking and affordable method of launching internet restaurant enterprises. Prominent companies such as Zomato, Swiggy, Kitchen Plus, and Kitchen Center have either terminated or are in the midst of terminating their infrastructure-as-a-service business. Due to the aftermath of these closures, developers and restaurateurs are in a terrible situation, having to deal with shut kitchens and unpaid bills. Cloud kitchens, once a promising field, are now seen as fraught with danger and the potential for disaster.

  7. Vigorous Competition - There is now intense competition among cloud kitchens in India because of the ease of entry into the market. They compete not just with bigger brands but also with each other. Because there was no opportunity for in-person engagement and no dine-in options, customers were first reluctant to trust new cloud kitchens. Gaining credibility has proven difficult.

  8. Exclusively Online Model - Cloud kitchens don't offer dine-in service; all orders are placed online. Online platforms are used by customers to place orders, which means that websites, mobile apps, and third-party aggregators must be heavily invested in.

The ghost kitchen or dark kitchen concept is still gaining traction despite these problems, difficulties, and controversies. It will be interesting to watch how Cloud Kitchen and other industry participants resolve these problems and adjust to the always shifting needs of the restaurant business.

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