Inspired by late night talks with Travis and Justin, I totally understand why Austin, TX could be the hotbed for cloud kitchens.
The combination of exponential city growth, rising property value, evergrowing young population of professionals is a great combination for this concept.
A cloud kitchen is a restaurant with no physical storefront.
And what does that mean?
That means that food is prepared and packaged in a commercial, centralized kitchen and delivered to your door through delivery platforms such as Favor UberEats, Grubhub, Postmates.
The principle is that you can’t walk-in a cloud kitchen. There’s no customer support, service at the table, no storefront.
The emphasis is quickly mass producing food of high quality is the aim of a cloud kitchen.
Do you want to own a restaurant with low-risks?
It’s a $70 billion dollar business by 2020. If you operate a restaurant or manage a cloud kitchens in your city, you will be able to control a percentage of this multibillion dollar market.
Travis Kalanick, the ex CEO of Uber, has raised more than $400 million to build his own network.
Travis is a very smart man, he helped review the series A papers for one of the companies that I used to work for in 2014. Everyone who met him told me personally how intense and smart he is. Word of advice, if the future of food delivery is in Travis’ hands you either want to be on his good side or be prepared to be rolled over!
Lower cost, means lower economic investment.
Without the need for a physical location in a popular area, cloud kitchens can operate in the dark, only relying on the need for licenses for health and safety and super cheap rent.
As most of us know, dealing with landlords, rent and bills can make-it-or-break it for food business operators.
In the food kitchen industry you pay a fee, like in a software as a service company to use the service.
Just like Amazon Web Services, you pay to use their infrastructure. Once you stop paying, they just sell the server-space to someone else.
In cloud kitchens as your staff arrives, they will be provided with all the tools to prepare food - from the appliances, the tools to execute the craft and possibly, also the ingredients. This is a huge advantage for you, as a restaurant operator, do not have to own anything but staff, recipes and an initial capital.
It is possible that one day you might just start a kitchen with only capital. The cloud kitchen might even offer you staff! Imagine owning a restaurant business with no skills required other than marketing and people ops. One day your local insta-famous celebrities could be the owners of delivery-only restaurants that serve their own pizza, burgers and more! Imagine a world where the top personal-fitness gurus in your area are selling you healthy meals delivered to your door as an additional service 20$ * 30days (only $600 a month).
Going back to the example of web infrastructure you can quickly scale up or down your restaurant geographically or locally.
As a restaurant operator, if you need more chefs because you see an uprise in orders you can quickly purchase one more cloud kitchen.
This is a huge benefit for people who are in the food and beverage game.
This is an extension of the advantage number 1. Because you’re not relying on physical locations to sell your food - it doesn’t matter if the weather is stormy or if there is a pandemic. Technically cloud kitchens can be operated similarly to a cleanroom, that means being operated in a controlled environment where pollutants and interactions with the outside world can be easily controlled and kept to a minimum.
When the weather sucks and no one wants to go out, you can deliver food to people’s homes.
When there’s a zombie apocalypse and you need to enforce strict curfews, essential workers are protected in cloud kitchens and food delivery can still happen safely.
No customer parking needed, no valet system, no 10s of cars waiting in a queue for their delivery to be dropped into their vehicle’s window.
Training service is minimal because you’re only giving chefs and cooks an overview of the kitchen - and if they know their craft you’re probably better being off their backs and let them cook!
Just focus on creating amazing food and delivery drivers will pick up food en-masse to deliver to the multitude of customers across the city.
Cloud kitchens could hypothetically also own their own delivery system.
Probably not going to happen early on, but one can still hope!
Specifically, here in Austin, a company called Tso Chinese has owned this space by creating personal cloud kitchens where they cook chinese food but also a distribution network of drivers.
There’re clearly are a lot of advantages but now let’s look at some of the negative aspects that can make or break cloud kitchens
Because of the nature of cloud kitchens, you can’t just walk in and have a meal. You rely on the delivery network to bring the food to someone’s door.
If the delivery company decides that they don’t like you ( for whatever reason ). They can press 1 button and all cloud kitchens could potentially disappear from the system.
You’re saving money on storefront, customer service and various bills but you’re also lacking a marketing venue. As you’re offering a different experience, marketing your brand must be done in novel ways. Whether it’s short-term pop-ups to generate word of mouth and traffic, samples and giveaways, huge online promotional deals or clever marketing strategies - you have to pump your money in directions which you didn’t have to do before.
Nothing beats driving past a diner when you’re hungry for a nice sit-down meal. Perhaps, when it’s delivered to your door and it costs much less you could still make it.
Whether you’re operating a cloud kitchen, or renting space in one, your customers have to use 3rd party apps to order food from you. That means that you’re SHARING the customer with the app-platform.
Some platforms like UberEats have safe-guards in place where you can contact the restaurant who is preparing your food in case of emergencies or if you need to speak with a manager. It adds a layer of complexity as you have to go through the hurdle of the middle-man (the delivery app company) to deal with your customers.
In the world of delivery food, there’s not a lot of emotion. People will purchase, a lot of the times, what’s cheaper from whoever is running the better deal. You’re not sitting down and therefore you might be creating less of an emotional attachment to a certain brand or food. There are multiple pizza shops out there, what makes you go to your favorite one? Humans have a funny way to select their “favorite spot”. Through delivery, this emotional attachment is not as easy to achieve.
Your TAM (Total Addressable Market) is smaller when you’re a delivery company. As time changes (but not yet!) more and more people will rely on delivery food, delivery groceries, delivered everything! Right now we’re in a weird period where delivery has taken us by surprise because of the convenience, but it also comes at a cost.
Typical restaurants with physical store-fronts can simply offer both delivery and sit-down experiences, that means their TAM is larger than if they were only living off delivery food.
If you’ve got a recipe that is killer, or if you simply want to make money without a huge up-front cost which can scale up and down at any moment, cloud kitchens are the way to go.
As mentioned above, the flexibility of home-delivery through 3rd party apps and the flexibility of having a kitchen located in an area where land doesn’t come at a premium is key. It is a great combination to get customers quickly.
Marketing your restaurant becomes a game: You can do online advertising, focus on word of mouth through more traditional methods (BuyOneGetOneForAFriend, Referral codes, coupons etc) or simply leverage local influencers to spread the word for you.
In terms of business plans and how to make money, you can decide whether to produce a high quantity of food to sell fast, OR focus on higher quality because you can purchase more expensive ingredients OR sell your food at a lower cost than everyone else OR sell your food at virtually the same cost of your competitors but with higher margins for you. All of this simply leveraging the marketplace provided by these evergrowing 3rd party apps.
One day, more and more people could just put down a deposit on a cloud kitchen, recruit some staff and open their own pizza joint.
Eventually owning a business inside a cloud kitchen park, could become as easy as opening a bank account with a managed service offering, then anyone with capital can start a restaurant for delivery without worrying about the management part!