Cloud Kitchens: How Tech Innovators Are Helping Turn An Interesting Trend Into A Lucrative Norm

Updated: Jan 27

Cloud kitchens, virtual kitchens, even ghost kitchens… The names vary, but the model remains the same ̶ and the pandemic has seen it emerge as one of the fastest-growing game-changers in decades. As we reimagine the supply chain, the sector provides some stand-out examples of how pioneering tech companies are helping to monetize radical shifts in consumer behaviour.

The pandemic’s impact on people’s eating habits has been profound. Thanks to COVID-19, for example, most of us have, by now, experienced the cloud kitchen model first-hand.
A brief summary for the uninitiated: the model involves restaurant operators moving their on-site kitchens into typically non-descript, under-used buildings, or fully equipped mobile containers that can be located anywhere. Instead of waiting staff serving customers at their dining tables, restaurants take ready-cooked meals directly from the cloud kitchen to their customer's delivery address. No shopfront or traditional restaurant trappings required. Just a hungry customer with a food delivery app.

Of course, cloud kitchens were around before the pandemic struck. But according to one estimate, lockdowns and restrictions accelerated the growth of the cloud kitchen industry by a remarkable five years in just three months at the peak of the COVID-19 crisis in 2020. Looking beyond the pandemic, forecasts suggest that there is still plenty more growth in the pipeline. According to a report by research group Euromonitor, the industry could be worth up to $1 trillion by 2023 with an annual growth rate of 12% through to 2028.

Business-Saving Benefits

The most obvious benefits of using the cloud kitchen model come down to cost. Traditionally, the most successful restaurants have been associated with more visible locations that come with a significant price tag. By contrast, cloud kitchens are often located in less visible out-of-town industrial parks that offer more affordable rents, more flexible leases and even tax breaks, releasing operators from heavy real estate overheads. In a business where margins are typically carpaccio-thin, cost benefits like these can make the difference between building a sustainable business and shutting down. Especially in a lockdown.

Spotlighting Asia

The cloud kitchen boom has been particularly conspicuous in Asia Pacific. With a population of 4.3 billion people with a highly developed restaurant culture, the region now accounts for around 60% of the global cloud kitchen market. Key players in the region include FoodPanda, Deliveroo, Gojek, and GrabFood – among others. In 2020, Euromonitor estimated that there were around 1,500 cloud kitchens in the United States and 750 in Britain versus 3,500 in India and 7,500 in China.

Indeed, any analysis of Asia’s current cloud kitchen market would be incomplete without mentioning China, which is becoming a compelling real-time case study into how the model is likely to develop globally while offering some important insights for the rest of the world. As the first country to go into lockdown, China loves eating out yet its food delivery sector is growing faster than anywhere else. Today, it worth around $45 billion – and rising.

Driving Digital Innovation

The global cloud kitchen phenomenon is rich with inspiring examples of how smart digital innovators are helping to unlock opportunities opened up by pandemic-driven shifts in consumer behaviour. An instructive report in QSR Magazine identifies six up-and-coming tech companies that are helping to define the restaurants of the future with their pioneering digital tools.

Rising stars include Chowly, which equips restaurants operators to integrate their POS systems with third-party online ordering platforms, making manual orders a thing of the past. Ovation offers a simple way of assessing customer satisfaction levels and fixing issues in seconds. Minnow’s individually locked, wi-fi enabled cubbies are meeting rising demand for convenient delivery pods that keep cloud kitchen deliveries safe, secure and fresh. Targetable enables its customers to run high-impact online advertisements and marketing content that are the cloud kitchen equivalent of the old-school shopfront. Meanwhile, Spendgo speclializes in creating effective loyalty programmes to attract customers to virtual restaurants and keep them coming back for more.

Challenges Ahead

As pioneers like these and many others continue to evolve and refine the cloud kitchen model, there are likely to be mergers, acquisitions and consolidations down the line as the main players jostle for market share. What’s more, the business will need to address some important challenges along its route to maturity.

For example, consumers are even more concerned than ever about food safety, and those working to lead in the cloud kitchen space need to win their customers’ trust and ensure they guarantee service delivery with safety and quality top of mind.

Consumers are also increasingly conscious of ethical and sustainability issues associated with restaurants, virtual and real. For example: while the cloud kitchen model offers precious employment opportunities to casual delivery drivers, their livelihoods and well-being need to be protected. The shift from dine-in to take out opens up a number of untapped greening opportunities. Among others, they include managing the growth in single-use packaging; and dealing with the environmental impact and noise pollution risks associated with having more delivery vehicles on the road.

Here To Stay

Whatever the challenges ahead, cloud kitchens already seem assured of a place in the next normal as the industry looks towards how it rethinks and adapts while building a safe and sustainable future.

After all, the cloud kitchen model doesn’t only offer established restaurant businesses and their guests protection against a possible resurgence of the virus. It also opens new opportunities for future generations of restauranteurs by cutting costs and lowering obstacles to entry while fattening the ultra-skinny profit margins that have always been an occupational hazard among restaurant operators.

But as we reimagine the supply chain, one principle will stay the same: customers will only remain loyal to restaurant brands they can trust to serve safe, tasty, fresh dishes at an affordable price. Pandemic or no pandemic, some things in this business will never change.
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