End-To-End Guide For The Cloud Kitchen Business – Be 100% Prepared Before You Start.

End-To-End Guide For The Cloud Kitchen Business – Be 100% Prepared Before You Start.

Aug 17

What Is A Cloud Kitchen?

A Cloud Kitchen is a backend operated kitchen that accepts incoming orders only through online ordering systems for home delivery, having single or multiple brands setup in the same kitchen with no dine-in facility.

Starting a cloud kitchen is a great idea even in a low footfall area, since there is no dine-in facility. These are also termed as Virtual Kitchens or Dark Kitchens or Ghost Kitchens or Delivery Kitchens. It can be a multi-cuisine operated restaurant kitchen or a particular speciality cuisine, the major standout feature is its operated with 100% focus online.

Future of Cloud Kitchens!

With an immense increase in use of technology by the end user, there is a swift rise in use of food ordering platforms like Zomato, Uber Eats, Swiggy and more. The shift to delivery-only model has become possible with this substantial growth of use of food technology apps.

Let’s think about a customer for a while now. Dining out Research shows a customer steps out of house 70% of times because he was hungry & 30% of times when he wanted a casual outing experience. When food ordering is available with an ease of 3 clicks on phone, he would skip out dining out 70% of times now. Dining out would be more of an experience than the food.

Millennial’s drive this trend with disposable income demanding digital having phone-friendly solutions. The Next-generation will make it more pronounced, who have grown-up with the internet and smartphones enter the E-Marketplace food-tech. Looking further forward, advances in kitchen automation, drone delivery & the continued growth of the digital economy seem to give cloud kitchens an advantage over age old traditional buying methods.

Rise To Digitization

This gives a rise to cloud kitchen concept in hospitality industry with maximum number of seats reserved by the technology-beings. In 2020, because of the pandemic Novel Corona virus, technology-beings have shifted their businesses online, with work-from-home being the new normal. Online food ordering has further seen a hike not only in corporate areas but now in residential areas as well.

Pros & Cons of Starting A Cloud Kitchen

Pros & cons of cloud kitchens DNY hospitality
Pros and Cons defined

PROS

    1. Technology Driven Business
    2. Scope to multiply revenue by just adding multiple cloud brands in same kitchen.
    3. Operating with a low monthly operating cost, low rent.
    4. Lesser risks of loss, with easy-to-operate SOP’s
    5. Better online visibility
    6. No on table service hassle
    7. Lesser Staff to operate
    8. Lower Capital Investment. No extra investment on interior or look-n-feel
    9. Scope of designing a smart kitchen with custom-made heavy duty and low-cost equipment.
    10. Great online feedback mechanism. 100% focus on food, delivery & packaging for a best customer experience. 
    11. With great branding and concept, quickly noticeable in market.
    12. With great food quality and taste, quickly gaining loyal customers.
    13. Access to user data and real-time adaptability
    14. Digital Awareness without spending very high on online marketing

CONS

    1. Dependency on food ordering online aggregators for sales
    2. No physical customer interaction
    3. (Avoidable) Ignorance in maintaining kitchen hygiene
    4. High dependency on logistics support
    5. (Avoidable) Higher risk on online reputation and sales, with a few negative feedback.

Types of Cloud Kitchen Models

There are very new concepts of cloud kitchen that are emerging day by day in the Indian market. Following are all 7 types of models, you can look for as per your budget and concept that fits best to you.

  1. Standalone Cloud Kitchen
  2. Cloud Kitchen Chains
  3. Shared Cloud Kitchen
  4. Restaurant plus Cloud Kitchen
  5. Home Based Cloud kitchen
  6. Co – Working Facility Management Cloud Kitchen
  7. Super XL Cloud Kitchen
7 types of cloud kitchens - DNY Hospitality
7 types of cloud kitchens – DNY Hospitality

Standalone Cloud Kitchens

Standalone cloud kitchen is nothing but a single location operated business with single/multiple brands running under the same facility. This is the way most of the startups get involved in the cloud kitchen business, with only starting with single location. The Concept of Multi Brand Cloud Kitchen was first established by DNY Hospitality in Year 2013.

You also need to refer to the 5 ultimate hacks to start a cloud kitchen under 5 lacs.

Cloud Kitchen Chains

Investors with high budgets to infuse in the concept of cloud kitchen business, usually start with multiple locations/cities. There are many food brands who have started with standalone model and now have become a big size, multi-location/ multi city organization.

Shared Cloud Kitchen

If you are new to the hospitality industry and don’t want to invest in your own facility and setup of a kitchen, sharing cloud kitchen is the best option for you. This is one of the ultimate hack we suggest, where you don’t invest anything in setting up the place and get a ready cloud kitchen at a fixed Rent + Maintenance. What you invest here is only on creating your brand and marketing it. However, we have also seen cloud kitchen chains being operated in shared cloud kitchen concept and expand quickly.

Restaurant kitchen plus Cloud Kitchen

Many existing restaurants/cafes/ QSR’s in India are working on this concept. This is a concept where you have a physical location where customers walk in, but there are multiple other brands being operated under the same premises kitchen. As per the restaurant interiors and brand language, you can only find the primary brand. A Very famous and legendary brand “Hardeep Punjab” can be a right example of this concept. Hardeep Punjab is a 35 Year + Old North Indian brand which is seen in the front end, but also has two other brands “Flavors of Punjab” and “Red Bell-pepper” running online under the same premises. Which a customer would not find it from the interiors and restaurant setup.

Home Based Cloud Kitchen

Home makers can now operate their brand from home, with a very short and sweet menu, minimal capex & running cost. There are few brands who are working on a similar concept like “Sugarlipss”. Sugarlipss is a unique home-based cloud business for premium cakes & bakes. With having very low capex / Opex cost this concept gives a very High ROI within 6 months. Home based cloud kitchen can also be a one man show.

You may also read, easy process to start a home based kitchen business

home based cloud kitchen or home kitchens by DNY Hospitality
home based cloud kitchen or home kitchens by DNY Hospitality

Co-Working Kitchen Facility

Mostly with growing awareness, now businesses have started to adopt co-working, which is not only a shared cloud kitchen concept but a very unique way of real estate investment.

Co-Working shared Kitchen Spaces are large kitchen infrastructures setup with all Equipment and utilities required to run multiple Cloud kitchen businesses. These are sectioned as per different cuisines, so can be used by multiple restaurant brands. This concept can be setup anywhere from 1000 sq ft – 2500 sq ft space with 5 – 12 restaurant brands running comfortably. In this concept we’d help you setup the facility and lease out to multiple Restaurant Brands. Source of revenue is fixed Rent and revenue sharing.

For Small business owners, it’s a win-win model because they would just plug-N-Play their brand into ready space. Here the commercial investment for them is almost negligible, however they deal in with shared revenue / fixed rent with facility owners.

co-working cloud kitchens or shared cloud kitchens - DNY Hospitality
co-working cloud kitchens or shared cloud kitchens – DNY Hospitality

Super XL Cloud Kitchens

This is again a brand-new concept for cloud kitchens, where you need a minimum of 1000 square feet space with 10 plus brands in different cuisines running under single entity.  In this concept your one-time cost of facility setup and brands is higher, but you have multiple sales-channel for revenue.

big cloud kitchens
big cloud kitchens

What is the Investment Required for a Standalone Cloud Kitchen?

Standalone cloud kitchen can be single brand or multi brand setup. You need a investment of anywhere between 6 lacs to 8 lacs for a 300 square feet space. However, if you plan multiple brands the investment is around 20 – 30 % more per brand and not multiplied into number of brands. There are Ultimate hacks to setup a Cloud Kitchen under 7 lac rupees which DNY Hospitality helps you in.  

Breakup of Investment for a Cloud kitchen (300 Sq ft Approx) :

Approx. Setup Cost for a Cloud Kitchen / Approx. Investment required in Cloud Kitchen setup From (INR) To (INR)
     
Licenses 10000 15000
Civil, MEP Setup, Security Systems 75000 100000
Kitchen Equipment, Exhaust &Fresh Air Systems 350000 400000
Kitchen Utensils/ Accessories 40000 50000
IT setup (Software & hardware) 50000 75000
Branded Food Packaging (Approx. 2 Months Stock) 50000 70000
Raw Material (Approx. 1 Month Stock) 25000 35000
Miscellaneous Expenses 10000 25000
     
  610000 770000
     

So Now you know what it takes to setup a cloud kitchen, it is important to understand your operations “Fixed cost” and “Variable Cost” as well. Before you could invest your hard- earned money into a business, knowing your running cost will help you plan accordingly.

Fixed Cost For a Single Brand  From (INR)  To (INR)
Kitchen Staff Salaries (Approx 3-4 People) 50000 65000
Kitchen Rent 25000 40000
Electricity 8000 14000
Staff Welfare 5000 7000
  88000 126000
Variable Cost    
Raw Material (22% – 26 %) of Sales
Packaging Cost (3% to 5%) of Sales

If you smartly plan to start Multiple brands under the same kitchen, having a single department of cuisine then your operations cost remains the same, and you have multiple sales channels for revenue.

What are the licenses needed for Cloud Kitchen Business In India?

(Requirements of cloud kitchen/ Legalities in Cloud kitchen)

  1. FSSAI License
  2. Fire NOC for the kitchen facility, from fire department
  3. Health License
  4. Local Authority License (Example In Mumbai, Need a BMC license)

What are the Additional Documents required for starting this business?

  1. GST certificate
  2. Company PAN
  3. Company named Bank Account
  4. Owner’s PAN

Step-By-Step Process to Start a Cloud Kitchen & Importance of each step.

1.Market Feasibility Study, Market Research and location finalization

 The reason behind the low investment needed to open a cloud kitchen is the real estate cost. In the cloud kitchen model, the location doesn’t have to do anything with footfall, parking space, and high-end site. However, it does have a lot to do with hygiene, smaller space to operate and proper water supply. There are companies who guide you with proper area analysis with what best cuisine in working in that area, area orders cuisine-wise, footfall type, audience preference, demographics of audience, competition analysis and every small detail about the acceptance of menu in the specified area. One of such company is “DNY hospitality”, with 15 years of experience in setting up kitchens with a correct guidance.

Importance – If you know your market well, age group, dynamics, you are already in a right direction of winning.

market research for cloud kitchen business DNY hospitality
market research for cloud kitchen business DNY hospitality

2. Business Model & Budget Allocation

From the above-mentioned types, you need to choose the best suitable type of business depending on your budget. A proper business plan, running cost evaluation and capital investment is created by DNY hospitality. Thumb rule for a right plan is opt for a model which involves a lower investment and high returns.

Importance- Just to start a business without evaluating your pocket, makes no sense. If you’re applying for loans, you may need to submit a proper business model to be eligible for a business loan. On the other hand, every penny known, is always utilized in a right direction for a right purpose.

3. Most Acceptable Type – Introducing a concept of multi-brand operated kitchen 

The biggest advantage of starting a cloud kitchen is, you can introduce 2, 3 or 4 brands under the same premises, since the kitchen is not present for dine-in seating customers and only available online, adding multiple brands and marketing them individually online is the biggest game changer. You do operate out of a single operational running cost example paying rent, electricity, staff salaries, etc for a single place, however the sale channels to your kitchen being multiple. The idea for running a successful Multi-Brand Cloud kitchen from a single premise is “Multiply the revenue, decrease the cost”.

4. Menu Engineering, Cuisine finalization

As per the survey in a specified location, a successfully dominated cuisine is identified, and Menu is planned in a strategic format. Menu engineering is a process of menu creation with detailed recipe manuals and cost structures. A standardization in recipe and cost structure is as important as the food-tech.

Importance – Menu is the backbone, a well-planned menu ensures a unique value proposition, operational excellence, easy expansion and a great brand recognition

The consistency of your recipes is the priority here for you to have an expandable brand.

Cloud kitchen menu DNY hospitality
Cloud kitchen menu DNY hospitality

5. Kitchen Planning and Design

The kitchen is technically planned to maximize the number of cuisines/dishes you wish to produce in a compact area. The kitchen technical plan is created and executed by experts like “DNY hospitality” below listed detailed technical layouts

  1. Main Kitchen Layout
  2. Civil Layout
  3. Electrical Layout
  4. Plumbing Layout
  5. Exhaust Layout
  6. Draining layout
  7. Equipment placement
  8. Storage Layout
  9. Fresh Air Layouts
  10. Kitchen Internal Nani Trap System Layout.
  11. Electric load calculations
importance of right kitchen planning DNY

Importance – An intelligent kitchen ensures lowest space utilization, customized multi-use of equipment and multi-brand operation from same kitchen, thereby saving monthly running cost of higher rent in larger space. The excellence in setup is achieved by detailed drawings of each segment in a commercial kitchen.

6. Procuring the Right Kitchen Equipment 

The equipment required in a kitchen depends on the type of cuisine you’re planning to start. However, there are some basic equipment that is common for all commercial kitchens, like – 

  • Cooking Equipment – Cooking Essential equipment includes ovens, electric or gas ranges, grills, deep fat fryers, etc. 
  • Refrigeration Equipment – Refrigeration equipment ranges from commercial refrigerators, deep freezers, ice machines, and beverage dispensers.
  • Storage Equipment – Storage equipment includes shelves, food storage containers, drying, and dunnage racks, carts, etc. 
  • Food Preparation Equipment – Food preparation equipment ranges from food processors, mixers & blenders. Small-ware equipment such as knives, veg and non veg cutting boards, mixing bowls, pans, pots, etc., are also required for preparing food in the cloud kitchen. 

In the case of multi-brands, you can utilize the same kitchen equipment to prepare different types of food. One such E-marketplace that helps in procurement for restaurant supplies is TRS The Restaurant Store

Importance – Kitchen equipment have different qualities and specs, usually vendors skip to provide complete information. Before you invest for it, we determine the exactness of specs, customizations, material, to ensure vendors follow the same.

7. Brand Ideation 

The most crucial step is the process of ideation and concept development. Majority of entrepreneurs give this a last priority and end up re-working on later. Remember- the first impression is the last impression. And in a delivery only concept, your brand identity is the first thing that a customer notes. The second call to action is actually ordering from you, first being whether the name of brand has impressed him or not.

Importance – There are single centric brands doing better than random, because their brand identity is aligned in a single direction or cuisine. Customer wanting a biryani will first opt for a “biryani centric” brand rather than a multicuisine one.

8. Logo Designing 

A well-designed logo should be developed that depicts a professional, established, and well-designed restaurant, with a creative mark, meant to be the true representation of your restaurant’s vision. Paired with a color palette and tailored typographic design, your logo will become representative of your restaurant within your online market.

9. Food Packaging Designs 

Being an online kitchen, the only way to gain a customer’s trust is through a perfect food packaging design and type. There must be no spillage of food from the boxes, the stickers should be used perfectly, and boxes should represent a unique design of your brand and logo.

10. Recipe Standardization

It deal to create top-notch recipes considering the target taste palate, acceptability in market and comfortable preparation procedure. In the process it involves constructing a full Recipe Manual for each dish in the menu.

Importance – Standardizing the recipes ensure a consistent taste throughout, consistent cooking style for each chef in the team, reduce the dependability on particular staff member for the expected taste and aim an easy future expansion.

11. Food Costing SOP and MRP Evaluations 

Food costs average in a food industry varies from 21% to 28%. An algorithm that can define the cost of every item in the menu is through which a business knows it’s food cost. Costing SOP is fixed as per the recipe standardization and the MRP of menu items is derived.

Importance – Business is “knowing your cost”. With an exact food cost evaluation, you determine your profit margin, wastage patterns, monthly raw material expense, recipe standards. Production of food is a manual process, errors with quantity is bound to happen, knowing your food cost enable you determine these errors quickly to be addressed. 

12. Tie up with online delivery apps and sale channels

Once the brand is ready, you need to decide on the technology to accept orders. The biggest food-tech delivery platforms such as Swiggy, Zomato, uber-eats, etc. that accept online orders on your behalf and also deliver the food to the customers. These companies usually charge 22-25% of your revenue per order.

Importance – Since a cloud kitchen relies solely on its online presence to draw in customers, it’s important to maintain good ratings on these aggregators which is achieved by marketing strategies and consistently good food quality, packaging, branding etc.

13. Raw Material Ingredient Sourcing

After having a well-planned kitchen design, the next step is getting the supply chain process ready for raw material and ingredients. Local vendors usually tie-up on contract basis and delivery daily required ingredients. Here, its crucial to filter out the retail stores and target only the wholesalers. The food cost depends directly on what price are you sourcing ingredients at.

14. Staff Hiring and Training

The secret behind a successful business is the cloud kitchen staff / team that works for it. It is very important to hire a expert team in the particular cuisine. If it’s a multi-brand, the staff hired should be “multi-cuisine” expertise. The average salary of the Chef at Commi level 1 is Rs 14000- Rs 16000, while that of helpers and other staff salary range between Rs 8000- Rs 9000 based on their work. For a single cuisine, not more than 3 people will be required for a cloud kitchen.

15. Point Of Sale Technology Needed For A Cloud Kitchen 

The entire online food ordering and delivery system are heavily dependent on the proper acceptance of food orders. It is also essential to keep track of the number of orders incoming from the various online ordering platforms. Tracking of orders and detailed reporting is essential for the smooth functioning of restaurants. Select a POS that is customized to suit the requirements of the online ordering website.

how to automate restaurant process

16. Operational SOP’s –

For a successful functioning of a cloud kitchen, these are the important restaurant SOP’s required to be followed by the team

  1. Kitchen Team Daily Checklist
  2. Wastage Control SOP’s
  3. Inventory Management
  4. Storage SOP’s & FIFO (first in first out)
  5. Order taking SOP’s
  6. Delivery SOP’s
  7. Reporting Structures

Importance- Operational excellence, a company structure and success is achieved when your team knows – Who reports to whom, which ingredients should be stored in which temperature, how to avoid wastages, what is the right ordering procedure, kitchen standards etc.

17. Marketing Your Cloud Brand

For a cloud brand, marketing becomes even more necessary as it becomes the single source of revenue through online portals. Since you are not spending on location and other maintenance costs, you can keep a sum aside for marketing. The proven strategies for marketing have been first building a good organic presence on food ordering websites, having your own website created and marketing, Social Media marketing to be strong, menu leaflets to be distributed in residential and corporate areas, planning of good offers, meals, discounts, special dishes has always proven to get good results for a cloud kitchen revenue.

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