Back in 2011, a food technology company called Faasos began a new endeavor. To compete in the small format restaurant and delivery space, Faasos opened 75 QSRs by 2013, only to realize that small capital expenditures and low breakeven points were still not enough to scale its operations and serve its customers effectively.
After getting a larger investment from Sequoia Capital in 2014, the company realized that 70% of its customers had never entered its restaurants, and so it adopted a plan that has often been repeated in the fast food industry ever since: Building what today are called cloud kitchens, or shared spaces that multiple restaurant concepts can rent to prepare and distribute food to fulfill delivery orders.
You may have wondered what the difference is between cloud and ghost kitchens, or what distinguishes virtual, stealth or hidden kitchens from delivery and smart kitchens. The answer is nothing; they describe the same new format disrupting almost every restaurant brand today, from quick service and fast casual restaurants to full service and casual dining concepts. Look out for other interchangeable variations of these names too, like virtual restaurants and dark kitchens, as more competitors strive to sound unique as they join this space.
Here are a few reasons why diverting off-premises orders from dine-in restaurants to cloud kitchens, or whatever you call them, should be on your to-do list in 2020:
Cloud Kitchens Improve Your Bottom Line
Two years after Faasos shifted its focus from QSRs to stealth kitchens, its rent-to-sales ratio decreased from 15% to 4%. According to CloudKitchens, Uber founder Travis Kalanick’s startup that received $400 million from Saudi Arabia’s sovereign wealth fund in January 2019, virtual restaurants save on time, cost and risk. While traditional restaurant locations average 2,500 square feet with $500,000 in starting costs, many cloud kitchens are 230 square feet and cost only $30,000 to start. This means less space to heat and cool, as brands that rent kitchen spaces share fixed costs with each other, leading to less up-front risk and a lower breakeven point.
It’s Easier to Test New Concepts
Even owners of stealth kitchen spaces are getting into the game, with CloudKitchens testing out relatively edgy concepts like F#ck Gluten to appeal to the 30% of US consumers who say they want to limit or eliminate gluten from their diets. Considering celiac disease only affects 0.71% of the population, offering solely gluten free choices would have been too risky a decade ago. Before cloud kitchens, brands trying to launch gluten free offerings were a lot less nimble; either they had to set up second makelines to avoid cross-contamination with their existing foods, or they were forced to invest in building new locations. If a concept didn’t work out, companies would have to close restaurants, lay off staff, and sell equipment at a fraction of the cost they paid for it. Today, however, failure is less punishing, since companies can reuse the same space in a cloud kitchen for a new concept without needing to spend additional funds on completely new equipment, locations or staff.
Virtual Restaurants Centralize Your Data
As we talked about in our previous post on ghost kitchens, third party delivery services can charge high commission fees that make it difficult for restaurants with numerous fixed costs to improve their margins. They may have locations with different lease terms, or own certain stores while franchising the rest, further complicating their data collection methods. Stealth kitchens, on the other hand, standardize the process of making food, allowing restaurant operators to consistently track everything from ticket times to ingredient costs without needing to rely on individual store managers or franchisees.
By renting kitchen space instead of owning it, restaurants are able to scale more efficiently to try out new markets without making a large up-front commitment. Solutions like Brink POS for Ghost Kitchens integrate with It’s A Checkmate and other third-party delivery aggregators so all orders feed into the same POS system instead of ending up on multiple tablets – making it easier to capture sales data in real time.