Licenses For Home-Based Cloud Kitchen

The government of India has come out with a license policy for any home-based food business operator with a turnover of over 12 lakhs. I think this recognition by the Food safety authority of India will help to guarantee the product quality and will serve you well. If you just starting out exploring the FSSAI website. Some of the licenses are issued by the local municipal corporation.

Who is Food Safety And Standards Authority of India

Food Safety and Standards Authority of India (FSSAI) is a statutory body established under the Ministry of Health & Family Welfare, Government of India.

FSSAI is a food safety regulatory body and issues food safety licenses.

How can I get an FSSAI license for cloud kitchen from home?

“While people with an annual turnover of less than Rs 12 lakh can apply to register
themselves by paying Rs 100 online, people with a turnover of Rs 12 lakh or more need to
pay Rs 2,000 per year online and apply for a license,” said designated food safety officer, Dr K Tamilselvan.
To apply online people can log onto foscos.fssai.gov.in, choose home-made food option and
fill the forms. A food safety officer will visit the kitchen within 30 to 60 days of the
application being submitted.
“We will inspect their personal hygiene including clean and cut nails, a hand wash and vessel washing facility in the kitchen, wearing of gloves, masks, aprons and hair nets even without covid-19 in the equation, use of safe raw materials like oil, butter and ghee only from labelled containers, ensure they don’t reuse oil, check refrigeration and freezer
temperatures and instruct them on colour usage guidelines,” said Tamilselvan. “If there are
issues, we will give them time to rectify it,” he said.
To ensure quick compliance, food safety officers will start listing all home-based operators
in their area and issue notices to those who are yet to apply for regularization. If it is not
done even after a notice has been issued, legal action will be taken against the operator

end of quote.

So what is needed to succeed what is the criteria for success,

Some food concept which are successful as home-based chefs.

Bakery

Bakery is one idea that is very powerful for home-based chefs. As a food entrepreneur, it gives you a high margin low-volume business and food preparation depends on advance orders. There are many bakers who start from home and then transition to retail outlets.

Regional food.

Regional food is making a big comeback and I see it as a niche product that can command high value. Regional food is unique and people have started of different cuisine like Assamese or Odia and this can work very well.

Here is a small interview by Eat Treat of Marwadi Khana. Note her comments to advance orders, min order, and tapping catering business opportunities.

Biryani

Biryani, this again depends in advance orders and is possibly the most favoured menu category in Indian food. And biryani also works very well for catering. It also requires less production space.

Essentially, you must do food which you love and understand and keep building systems to succeed.

Summary

They key takeaway that even if your first venture is small, by systematically planning you will set a strong foundation for your business.

A False Start To A Dark Kitchen Business Venture

It is easy to start a cloud kitchen business. 

Compared to a restaurant, these are less expensive food businesses with relatively lower upfront costs.

This low initial investment assumed lower operating costs and imagined high profits fuel the demand for cloud kitchens.
There is a certain euphoria around cloud kitchen business which combined with the entrepreneur's enthusiasm, one may put their guard down.
An entrepreneur's bias for success may result in a lack of preparation.
Furthermore, cloud kitchen entrepreneur is quite often not from the food industry and they do not invest in mitigating their shortcomings.

Inadequate Funding  By Business Owners - Starting A Cloud Kitchen Business Which Is Undercapitalised 

Not creating a business plan for your virtual restaurant project may result in undercapitalisation. A cloud kitchen business plan attempts to harness the opportunity in the cloud kitchen space.

By undercapitalisation, I mean falling short of cash to start your business i.e. underestimation of initial investment.

The number-one reason why a business fails is because of undercapitalisation.

To survive such a project the business owner will always be borrowing.

Kitchen design is not geared towards increasing productivity

Quite often for the first-time operator kitchen design is an afterthought. A kitchen is a kitchen, however, nothing can be further from the truth. The kitchen design can impact both speed and kitchen staff productivity.

A poor-quality kitchen design will need more staff which means higher overhead costs and higher operating costs.

Unreliable Cloud Kitchen Business Model

What will it take to earn a hundred bucks? What sale do you need to have to make sure that you have a desirable net home income?

An ill-thought cloud kitchen business model means that everything is left to the imagination and to hope and prayer.

It is quite likely that the imagined revenue goals or profitability targets are not achieved by the ghost kitchen business.

Then what must one do?

The next step must be to examine the cloud kitchen business model. However, if you have not planned a cloud kitchen model, then you will not know where you're going wrong. This means you would not have the necessary data for a benchmark performance to take course correction. This is a huge missed opportunity.

Unclear Brand Identity & Focus

The cloud kitchen concept needs to be defined not by just the food  & the cuisine it serves. It also must be mentioned in terms of the brand experience it creates. In my view, this will be of vital importance as it allows you to understand clearly how you differentiate yourself in the market.

As a brand experience, I'm not referring to the logo or brand colours. They have their place.

But in my view are of limited importance. Articulating the customer experience in my view is of vital importance.

Cloud kitchen operators also need an operating philosophy

The way we work. The absence of this will not allow you to develop a culture which is your secret of getting things done and a vital tool for competitive advantage.

Inconsistency in Food Leads to Reduction in Profit and Poor Customer Experience

Once upon a time the cloud kitchen operators of great food. Then some reason staff left and the meal experience came crashing down.

Reliability is a cornerstone of service business.

Reliability of meal experience is critical to success for a cloud kitchen operator. The cloud kitchen operator who wavers in offering a consistent meal experience will suffer.

Unhappy customers don't come back.

Inconsistent food also means that you are using more or less resources for the same job. Ensure spending work in creating a meal and up spending double.

A little extra here and there adds up to a lot.

The cloud kitchen operator will see a rise in dissatisfied customers and also a decline in profits on account of poor portion controls.

The inconsistencies are on account of a poor operating system

Maybe recipe documentation which is quite likely left to the imagination of the kitchen team of the day.

Furthermore, a lack of a culinary system to ensure consistency of meal experience.

Raging Food Cost 

Inconsistency in food and high food costs quite often go hand-in-hand.

A cloud kitchen may suffer from high food costs which eat into your profit margin and results in business failure. There can be several reasons as to why the cost of food is high. Lack of standardisation of food is 1 of them. The menu planning with too many menu items and preparation time is another.

Cloud kitchen operators will also suffer high food costs on account of menu, staff neglect and a lack of management oversight.

Under Estimated Cost of Customer Acquisition AKA Marketing

Cloud kitchen operators fall for build and they will come syndrome. There is an implicit assumption of ease of customer acquisition.  Cloud kitchens are an invisible business and to get customer attention need to spend a lot of money on marketing.

This is not a problem but if you have not factored this into your business plan then this will come as a shock to you.

The plight of the cloud kitchen operator is further aggravated by the commodification of cloud kitchen meal experience by aggregators.

As a consumer, I'm sure you always get a discount. This is great for you but not so great for the operator whose cost of doing business goes up.

The operator may overspend or shy away and suffer on account of lack of visibility and promotion.

The video below is a clip of an interview by Nikhil Kamath with Pooja Dhingra, Zorawar Kalra & Riyaaz Amlani.

Ineffective Use of Point of Sale System

A point-of-sale system is a mini ERP for a cloud kitchen. A decent point-of-sale system will offer solutions to integrate material management, billing and recipe costing. A POS ties in both internal operations with food aggregator platforms. 

A POS system is a must-have in the restaurant industry for both physical restaurants and delivery-only restaurants. 

For an operator, POS is the best employee.

The point-of-sale system platforms is generally underutilized even though one can argue that cloud kitchen ecosystem are more technology-driven delivery platforms. 

The staff may not be trained and the owner may not be trained. In my opinion, the owner irrespective of his experience needs to have mastery over the point-of-sale system.

The kitchen staff may not have the training or the perspective to look at the business as a whole. The owner being dependent on staff to give necessary information or at least expecting them to do the job may be like a case of the blind leading the blind.

Sometimes point-of-sale systems are poorly selected where only the billing system is being used and inventory management and other material management modules are ignored

The absence of a point-of-sale system or its effective use creates a big dent in the capability of the cloud kitchen operator. The absence makes your kitchen into a black hole money goes in and losses come out. 

Overdependence on Employees and No System to Harness Their Strengths

When it comes to employees hire them, look after them and respect them but don't depend on them.

In fact, as a cloud kitchen operator, you should not be dependent on any one employee, vendor or even customer.

Cloud kitchen operators may have limited experience and we depend on the employee to pull their weight. This may not necessarily happen because of varying levels of capabilities and commitment.

There may be scenarios when employees leave, a new employee enters and brings with them their own chaos.

Customer Feedback Not Acted Upon

Customer feedback needs to be sought, acted upon and responded to. Cloud kitchen operators have limited access to customer feedback but comments raised on food aggregator platforms need to be responded to.

Customer feedback needs to be formally studied to correct individual operational issues and systemic issues within the organisation. A lipservice response results in the loss of an opportunity and puts the cloud kitchen on a perilous path.

Who's Got Your Money

Cloud kitchen operators have a lot on their plate. Being thinly staffed and with limited resources, the small operations have a rudimentary system for the assessment of revenue expenses.
Not having formal assessments, cloud kitchen operators lose the opportunity to save money and close gaps.
Cloud kitchen operators failed to identify and address potential problems of risk with declining sales rising expenses or negative cash flows.

If you don't know what is happening with the money then you have no chance to take course correction. 

Here is a brief video by the biggest Restaurateur - Tilman Fertitta 

Lack of System Documentation AKA SOPs Results in Poor Quality Control Standards

No systems essentially mean the cloud kitchen operators do not know what the hell is going on in their business.
Documentation of well-defined SOPs brings about transparency in the organisation and the absence of results in the loss of opportunity to improve.

Edward Deming, a management consultant, had some strong words for people who ignore processes-

"if you can't describe what you're doing in the process, you don't know what you're doing."

When you leave your processes to chance then your tasks will be arbitrarily filled up by someone else's actions or thoughts.

These ill-thought actions quite likely will not be efficient, consistent or cheap.

As a cloud kitchen operator, you will own this complication in the delivery process and be dependent on others.
Worse you may be constantly reinventing the wheel. 

Cloud Kitchen Operators Have Just One Job

As a cloud kitchen operator management review of business is your primary and only job.
Ineffective operators do not review the business. This results in weak management and leadership issues.

What is working and what isn't? What needs to be improved? No matter the level of business sophistication, reviewing your business is a critical skill for operators.
In the absence of a formal review of operations, operators wonder what is happening till it's too late.

In my opinion, there needs to be a formality in the management review exercise to get the best results.

Summary

Planning for the success of your cloud kitchen operation requires you to sow the seeds of success right at the stage of planning. In the fast-evolving landscape of cloud kitchens, failure can often be attributed to avoidable missteps. There is a lot within the 4 walls of a cloud kitchen operation that an operator can do to turn around a cloud kitchen operation or increase the profitability of the cloud kitchen operation.

This article has explored key factors that contribute to cloud kitchen failures, emphasizing the importance of thorough preparation and ongoing management. From undercapitalization and inadequate funding to suboptimal kitchen design and unclear brand identity, we've outlined pitfalls that cloud kitchen operators should be aware of.

As cloud kitchen consultants, we can help you plan your business so that you have a strong foundation for your business. Furthermore, as cloud kitchen consultant we can also help a cloud kitchen operator to increase their cloud kitchen profitability. 

Cloud Kitchen Infrastructure Service

City Storage Systems will provide cloud kitchen infrastructure services.

Kitchen infrastructure services are supply-side endeavour in which provides ready to use kitchens for cloud kitchen owners.

This aggregation of supply of food will allow for efficiencies in the system and promise for closer proximity to end consumer.

 Kitchen infrastructure services are also provided by Swiggy and Zomato. There are also several other independent players in this segment.

The advantage of using City Storage Systems is that you don’t have to align with either Zomato or Swiggy, if you had taken Zomato Infrastructure Services (ZIS) then the operator will be bound to use only their services but now with City Storage Systems you would have the opportunity to work with both the food aggregators.

City Storage System Model

In their model, each city will have a general manager who looks after operations in real estate. They up to generate demand through online ordering, consulting and marketing.

The Promise of City Storage System

What their promise is to bring to the table is not just the supply of organised large-scale kitchen infrastructure but also the emphasis on efficiency.

The promise is to look at automation, IoT and robotics.

Efficient Cloud Kitchen

The entry of Travis Kalanick in India is a boost for the cloud kitchen market but in my opinion, their implied focus on efficiency will have far-reaching effects.

Cloud kitchen is are inherently inefficient. They're also fighting for market share and have increased pricing pressures because of increased competition and promotional practices of food aggregators.

Cloud kitchen operators may not have optimised production, purchase or delivery operations, in that light the promise of Travis Kalanick is interesting.

Let’s illustrate some of these.

Cloud Kitchen Automation.

Keats a Berlin-based company has invested a lot in automation. They focus on how to revolutionise food preparation to achieve a really simple goal-serve hot food hot.

They have designed food which can travel well.

In the automation venture they have invested in Wi-Fi-connected ovens, software supported food send process amongst others.

IoT Application In Cloud Kitchen.

IoT means the Internet of things.

This is where machines can talk to each other.

The application of IoT can be used in monitoring temperature food to inventory management and better production practices.

Imagine food being delivered to a customer and the service provider will be alerted if the temperature of food falls below the threshold level.

Production in most cloud kitchen is not thought through. IoT can enable the food operator which is right quantity food, produce the right quantity of food and serve accurately. To get a deeper perspective read Cooking With IoT

It promises the increase in efficiency results in greater production capacity and increases margins.

Robotics In Commercial Cloud Kitchen.

The promise of robotics is that machines can do the work of cooking of food cheaper faster and better as a human being. Your next order could be prepared by machine or an automated production system.

This has been implemented in the West in bits and pieces, look at the video to understand the potential.

Pizza Created by Robots Kitchen- Video

In a country like India, they will also be concerned with the social impact.

Will robotics replace jobs?- Video

Robotics in Indian Kitchen will happen but in distant future. Currently the biggest challenge is proximity to consumer.

What does this mean for you?

As a cloud kitchen operator, you will have an option to participate in kitchen infrastructure services without aligning to any one food aggregator.

An established operator will be able to quickly scale up to new locations. Kitchen infrastructure services promise to lower the barrier to expansion for established players.

This is going to be better for consumers. In the foreseeable future, you will see further price drops. There will be faster delivery of food.

Imagine food being delivered to you within seven minutes.

There will be a flight toward quality. As a gets more and more competitive mediocrity and inefficiency will get sacrificed.

What can you do now?

Cloud kitchen is here to stay and will continue to grow tremendously.

But as you invest in this business consider thinking of operation design of the kitchen. Think of adopting technology to bring about greater efficiency and understanding of your business. Finally, think of scale.

Summary

The investment by Travis Kalanick is a boost for the cloud kitchen infrastructure services. It is a matter of time that these five billion-dollar company will have a national presence.

The consumers and the operators are going to be spoilt for choice with better price discovery and greater efficiency in the business model.

 In my view what is exciting is City Storage System emphasis on efficiency and bringing in automation, IoT and robotics. It is also a signal for first-time operators to adopt technology to enable to bring about efficiency the operations and scaling the business.

Domino's Pizza Problem & More

Domino’s  Pizza faced declining sales, and there was a PR nightmare of an employee sneezing in one of the features. At the time it was still number three, but there was overwhelming feedback that the quality of Domino’s Pizza was inferior.

It was commented, 

They created a focus group, and the overwhelming feedback was everything about the pizza was wrong. The pizza tastes like cardboard.

Own The Problem

Instead of hiding and not recognising the problem, Domino’s Pizza owned the problem.

They understood that it was a problem with the quality of the product, which resulted in mediocre tasting pizzas and the quality of the HR policy which resulted in reduced engagement and absence of a sense of ownership with employees.

They had begun to sacrifice product quality is to make sure their pizzas will deliver on the 30 minutes and even compromised on driver safety.

To their credit, it must be noted that the company did not make excuses or gave discounts or then compare itself to competitors, or promised to be faster. It recognised that although it was a leading the way in delivery, it was for all the wrong reasons.

​

Domino's Pizza Fights Back

To overcome this challenge, Domino’s Pizza ’s management, the product development and marketing team work together. They came up with the new recipe for their pizzas. And the marketing department made a virtue of all. With the 18 month-long campaign that "we listen".

 There were mostly three dimensions of Domino's Pizza turnaround.

One was improving the product quality, and

secondly, they also enhance the quality of the HR policy for frontline staff. They created a career path frontline staff to rise and be a part of the management.

Thirdly, marketing, which made a virtue of their mistake.

The video below is part of Domino's Pizza Campaign which captures their story, the pain, acceptance and fight back.

So Domino’s Pizza had strong leadership, budgets to steer it away from the edge of a cliff.In the end the won the uphill battle and dominated pizza category overtaking the market leader.

So should one wait till the end or in-build feedback mechanism that helps you make a course correction? 

As a restaurant owner you may not have the resources to fight back when you are on the brink instead you can adopt simple, ​effective practice to improve your business everyday. 

You Can Improve Restaurant Performance, Here's How

In my view, small continuous improvement is the sustainable way, but what stops us? But first lets understand what does a System and Continuous Improvement mean

What You Don't Know About Restaurant System Could Hurt You?

All restaurants face challenges from time to time, and are unable to improve because  the problem is because restaurants don't have a system to listen to the voice of the customer. 

Restaurants also sometimes misinterpret the question. 

People Dependent Versus System Dependent Operations

This is especially true of restaurants which are people dependent versus system dependent.

 What I mean is when there is a problem — the leadership look for someone to pin the blame (or accountability as it may be called). If the food is terrible, it must be the chef's fault!. Furthermore, the restaurants may also don't have a system to make or identify food what the customer wants.

Let me repeat that they don’t have a system to know what the customer wants!

 It could be argued that; they have their backsides facing customers.

Adverse Restaurant Culture

 In an environment where you do not have a system, restaurant not owning customer problems, I mean being people dependent and not process dependent, you create a culture where blaming happens, and people blame employees when customers complain.

And resolution of problem is by taking haphazard tactical decisions.

 Again look at the Domino’s Pizza turnaround story.

The CEO of Domino’s Pizza 's Pizza admitted the problem and committed himself to change.

What kind of problems restaurants face?

Restaurants facing problems can be an operational level, or they can be a service design problem.

By operational level, I mean that the locus of control is within the four walls and within a department itself. A services design problem, we look at the value or lack of created for the customer; is by many people and departments or process coming together.

So how do we go about improving restaurant  Business or Quality?

To Improve Restaurant Performance Faster, Create A System This Way

There are necessarily two broad areas, and I will define it by calling it the

inner game, and

 the outer game.

Inner Game - Your Attitude To Feedback

The inner game, you want to look at the mindset of the restaurant owner and the culture of the organisation.

We need to own customer problems.

Don't blame people, blame systems.

It is the belief that people are generally never wrong. The people make mistakes, and those mistakes are not because of their inherent nature but because of the following inadequate procedures, process or system.

If you fix the procedure or service design, then the results will be better.

 Recognise that its problem of the restaurant system, one can detach oneself and have an impartial view of customer feedback both internal and external.

Your job is to optimise the restaurant system to serve your customer. This is not a one and done exercise but requires you to revisit your systems and get better.

Outer Game- System You Need To Improve Performance

In a sense you need to create, adopt and follow system which identifies and understand complaints or feedback.

Here one will examine a method to look at customer feedback and how they can be systematically managed to bring about lasting change.

The outline of methodology is as follows-

​​​​Easy Way To Identify Customer Complaints

Restaurants can create a system to get customer feedback.  A restaurant must have multiple touchpoints to get this feedback.

Comment Card

A simple effective system could be a formal comment card which is given the restaurant Or using technology like SMS to get in touch with customers to get their feedback or even better still speak to the customer and ask how their experience was.

Another way is to respond to online reviews at food aggregator websites.

Listening Post.

 Listening posts are essentially empowering and requiring that everybody must record customer feedback. A member of staff could be recording customer feedback on a piece of paper and pen. One practice is to have small notepad with every employee to record any feedback comment given.

Restaurant logbook

There must be a restaurant logbook where all these comments and critical incidents are recorded. The critical incident report needs to be made by the staff to record all positive and negative comments or anything which was observed in the operations.

In an open culture, all members of staff contribute. Deviations in customer experiences or processes are welcomed as an opportunity for improvement.

Have A System To Review Customer Feedback.

The system to review customer feedback is that there must be a structured method adopted by the organisation- the restaurant will review customer feedback on a day-to-day basis and a weekly basis on monthly basis.

 People do what the boss checks.

 If the ownership of the management takes a particular interest in customer feedback and staff recognises that there is no blame on any individual then is quite likely that the stop staff will own up to mistakes and that they will be a healthy communication about what is wrong with the organisation. And how they are not able to fulfil customer requirements.

Read Restaurant Quality 101

You need to have a system to take corrective action.

L.A.S.T. 

The restaurants need to have a system to resolve customer complaints or take corrective action.

Bandage Treatment is on the shop floor.  

One method is to practise at the shop floor. When there is service break down, staff need to respond immediately. The purpose is to provide immediate resolution to customer needs or at recover from breakdown by offering an alternative.

There is an acronym called last spent out as LAST which can be used to orient staff o how service recovery is done. LAST stands for-

​Within the restaurant environment, staff need to be empowered to immediately resolve customer issues. The employee needs to listen and understand customer issues, apologise, offer a solution or alternative and take action.

On spot resolution of food delayed, quality of food, service is not the end of complaint cycle; unfortunately, many restaurants stop there.

  The more significant issue is to understand why did the problem occur and what can be to make sure that it never happens again.

Root Cause- Deep Study To Eliminate The Real Reason For Service Breakdown

The management or restaurant owner must recognise the root cause of the complaints or customer feedback and take action.

The source of the problem can be in a different department.

For example, purchase specification can result in poor quality – and resulting in poor taste.

Poor maintenance practices can result in the fridge, breaking down, which diminishes the quality of food which produces a complaint.

 I cannot emphasise enough that there has to be an environment where people are not blamed and systems are.

A breakdown in your process needs to be examined by the management.

System To Monitor The Implementation And Effectiveness

Quite often, they may not be any process established, and everybody is just winging it.

It goes something like this, there has been some customer complaint or a service break down in the restaurant, and they will be a grand meeting, and they will be a resolution, and everybody will say “YES”, and then nothing is implemented.

The management or the restaurant owners must monitor the solution is given for all these meetings.

Primarily what we have accomplished till now, we have found out a way to pacify the customer, and then you had a team meeting to discuss the problem and depth and perhaps come with ingenious solutions, and everyone is promised to take action on them, but no one ever does.

​ Please note that the restaurant needs to make sure that the solution has been implemented and also check that the solution which has been implemented works to resolve or eliminate the complaint permanently. This is no easy task.

The cycle time to achieve and then to wait monitor and review the results of effectiveness of the solution is very time consuming and requires diligence.

 Improving customer experiences or making a restaurant profitable requires the improvement of services but also the product.

A special mention needs to be made for improving your food or creating new dishes. 

How To Improve Restaurant Food?

If you are creating a new meal or recipe, it is imperative that you find out what the customer wants before you even start creating a new dish.

Once you have created your prototype dish you then you test with your customer and get feedback, and make the necessary changes.

 After this dish is approved, get all stakeholders on board. And then only launch the product.

A large company like Dominos Pizza was immensely successful and courageously led forward by its management to take necessary action to turn around the restaurant chain.

It is essential that you as the restaurant owner adopt best practices to get feedback daily before the problem blowouts of proportion.

 But there are some things which need to be understood from Domino’s Pizza experience.

Do you need help solving your restaurant problems? Mango Kurry can help you to understand what is stopping what is preventing a restaurant to grow. And do contact us if you need any help.​

The Ultimate Guide-

How to Start a Cloud Kitchen? 

Start here to know what you need to open a cloud kitchen startup

I have a great opportunity for you. But only if you choose to take it. Are you ready?

To open a cloud kitchen is now becoming one of the most popular ways to get a start in the food industry. Opening a cloud kitchen  promises you best of both worlds, low cost, and high returns; two things that most startups want to have more of. It may sound like a dream come true.

Taking your restaurant online can be confusing. There are so many questions and not enough answers. How do you make your restaurant successful online? Is it even possible to make money online? God, there is just too much information out there! How do you know which information to trust? And which information is going to help you make your business successful? 

It’s not your fault. Our information age is an information overload. There are so many places to get information on how to start your own business. Buzz words, listicles and misleading stats galore! Where do you find information to help? There is a ton of information out there.

It's our endeavour that you will have a better understanding of this business, the good and the challenges, allowing you to take a measured risk. 

And answer for yourself whether cloud kitchens are a  cheap place for startup food businesses to get started and an easy way for investors to make money!

What is a Cloud Kitchen?

Cloud kitchens are restaurant food delivery businesses. They are also called these ghost kitchens or delivery kitchen. They serve home meal replacement market aka home delivery and corporate or office goers market.

 Why call good old delivery kitchen a cloud kitchen?

Well, customers order food online using food aggregators platforms and apps; are delivered food at home or office without ever needing to visit the outlet. Never needing to visit, allows owners and operators to create commercial food production facilities in non-premium locations saving them with reduced rent and labour.

Here is a thought for you- If you’re starting a cloud kitchen, then you are an Internet business!

State Of The Cloud Kitchen Industry

The State Of The Cloud Kitchen Industry is that it is going through many positive transformations right now.

The low cost of entry to set up this business, the perceived high margin has attracted many players to cloud kitchen business.

 The environment is supported or enabled by the growth of the Internet, smartphones and the emergence of online ordering platform by food aggregators.

All this to serve up the pent-up need of a customer who wants a variety of quality and value at a press of a button.

Cloud kitchen concept is perhaps the first preference of a first-time entrepreneur who wants to venture into the food business.

This market with a supportive environment has also attracted existing restaurant brands to bolt on the opportunity by adding a delivery kitchen operation to the current services.

Furthermore benign govt policy is also encouraging home chefs to start a cloud kitchen from home and take advantage of the ecosystem.

The category is seeing the emergence of big players like Rebel Foods, Fresh Menu, Box 8, Petoo restaurants and more. This food delivery segment is going to see more investments with players like Future Group and Oyo rooms throwing their hat in the ring.

The food aggregators like Zomato and Swiggy have descended the mountain to set up their kitchens. 

They’re aggregating food supply to allow fast response time and perhaps better margins and lower costs.

Read Travis Klanick Comes To India.

Graph indicates a rising global interest in cloud kitchen with India as number 2 region in the world where this interest has peaked.

As a first-time entrepreneur, you need to have a birds-eye view of the advantages of starting a cloud kitchen; there perceived disadvantages and the self-imposed mistakes which can squash your dreams.

Pros & Cons  Starting Cloud Kitchen

Advantages Of Delivery Kitchen.

Have you thought of opening a Cloud Kitchen? It is a relatively low cost entry to this business as compared to other food businesses. All this promises that a delivery kitchen business can be a very lucrative business.

Cloud kitchens are perfect for startups because they don’t require extensive capital investments for equipment. They can be used by small businesses and large companies alike. A cloud kitchen can be used by both existing businesses as well as startups.

Here are some key advantages of cloud kitchen

Low Rent.

A cloud kitchen concept is in an industrial area or back alleys in a neighbourhood and as such, saved from high rent. A low rent translates to both lower Capex and Opex cost. A low rent means that your brokerage will be smaller, and the required deposit will be lower, and this can prove to be a considerable saving.

Real estate owners on High Street not only charge high rent but also charge up to 9 months of deposit. A cloud kitchen concept with this reasonable rent gives a first-time food entrepreneur a fighting chance to be successful.

A low rent also allows parties allows the restaurant brand owner to serve customers at lower prices and creating value.

Lower Barrier to Entry.

As the operation is just limited to a kitchen, the total Capex cost is much lower than a full-fledged restaurant. Anyone with a modest budget can start earning money from a cloud kitchen concept.

Less Operating Headaches.

A restaurant has many moving parts and a restaurant owner not only has to manage production but also customer service and the maintenance of public areas. All this involves hiring and having a massive staff strength.

A cloud kitchen gives a restaurant owner to focus only on one thing-kitchen operation but serving the same amount of customers.

A 500 ft² cloud kitchen space can efficiently with delivery service serve the same number of customers as a 1000-1500 ft² restaurant. All this without the additional overheads  costs of human resources, rent, electricity et cetera.

Lean Startup.

A cloud kitchen can be designed to be a very lean operation -with less staff and kitchen equipment, enabling for a low-risk venture. It is possible to start a cloud kitchen staff as less as 2 to 3 people. A conservative business owner can quickly reach operating breakeven.

There are equal if not more, the disadvantages of starting a cloud kitchen and a first-time owner needs to be aware.

Disadvantages Of Cloud Kitchen Business

It’s no secret that delivery restaurants are among the fastest-growing segments of the restaurant industry. While there are many advantages to operating a delivery restaurant, there are also some disadvantages of cloud kitchen.

Here are some of the most common ones:

Dependence on Food Aggregators.

Your access to your customers is through online ordering platform of food aggregators like Zomato and Swiggy. You have to play by their rules, and they will change the rules to suit them. In their fight to acquire customers, you may be the casualty. You will see a higher pressure on margins with food aggregators providing discounts and seeking an extra share a profit.

There is a real fight on who owns the customer. Who is the ultimate guarantor of quality for the customer?

Earlier one would have imagined that the restaurant brand owner and his team are the final guarantor quality for the customers, but now this power has shifted to food aggregators, this puts restaurant owners at a significant disadvantage.

Masked Customer Data.

When you start operating this business, you will find your surprise that the food aggregators think it is their customers and not yours. Their viewpoint will translate into then not sharing customer data with you. Imagine you will not know who your customers.

Masked customer data substantially limits the chance for marketing and bringing about improvement in the operations.

These limits annihilate the ability to build a relationship with your customer. With food aggregators masking customer data, you may be reduced to just a commodity supplier. Unless you’re smart about it? 

Competing With Food Aggregators.

If it weren’t bad enough that you are dependent on getting through to your customer with the access provided by the food aggregators like Zomato and Swiggy, you would now be competing with them.

 In their quest for higher margins, they have begun the process of aggregating supply, i.e. the supply of food by setting up their own fully equipped kitchens. This action will allow them faster response times and higher margins.

 On the flipside, they may provide a local brand to scale up across the city or country very quickly. However, my view is that they are not that benevolent and are therefore in for themselves.

Like any industry or category of food service, each has its share of advantages and disadvantages; however, you can dig a hole by making self-imposed mistakes. Some of them are illustrated below.

Start Up Mistakes Self-Imposed Mistakes Of First-Time Cloud Kitchen Food Entrepreneurs.

Are you a budding restaurateur dreaming of starting your venture?

Entrepreneurs are normally optimistic and eager to start their businesses ideas. Most people like to think they have what it takes to be successful in business and launch a startup with a set of noble intentions.

Congrats! 

You have decided to create your own restaurant, and you’re ready to jump into the great unknown of food entrepreneurship. 

But no one should be entering the restaurant business or cloud kitchen business blind.

Here is an attempt to bring about a  little awareness that helps you to avoid fatal mistakes made by first time entrepreneurs.

My view is that a bit of negative preparation is needed for success.  This is a must-read for those who might think they’re ready to sink their teeth into owning a restaurant or cloud kitchen.

Build and They Will Come.

Cloud kitchen owners often think that there is an eager market just waiting for them to open their kitchen.

 In reality, the customer is busy in their own lives and are spoilt for choice. This problem is predicated by the lack of visibility of a cloud kitchen.

Food aggregators sites are like search engines, and visibility is hard to come by. The business is not evenly distributed and is quite likely that a minority hogs an unfair share. To make matters worse, food aggregators charge a premium on the first page. Promotions with food aggregators is an expensive proposition.

A new or old cloud kitchen needs to have a marketing plan to bring about awareness of the product and services. A cloud kitchen must have a roadmap as to how they will bring about awareness and acquire first-time customers. Being dependent only on the food aggregator to get them results may get them into trouble.

Underestimation of Cost and Overestimation of Revenue.

Quite often, the first time cloud kitchen owner makes back of the envelope calculations to estimate as to how much his or her cloud kitchen business venture will cost.

Quite often inspired by misleading information available on the net.

Worse, ......

,,,,,,,,,there is a gross overestimation of revenues and profits earned based on vague, fuzzy mathematics.

As much as starting a cloud kitchen concepts may be lucrative, it demands thorough financial planning and operational planning.

Detailed financial plans must be created with the assistance of an experienced hand. An experienced hand with domain expertise will be able to guide on what is the cost structure of the food business.

The information available on the Internet is generally incomplete if not misleading. Each business is unique. Moreover, because you have limited funds, there will be trade-offs to be made.

Financial planning can give you insights and help you save money, and as such financial planning can be deemed to be free.

Starting with a Mammoth Menu.

I found that first-time cloud kitchen owners are in the illusion that more variety results in more sales, far from it. A large variety may result in any inefficiencies in the system.

Namely,

• significant inventory levels,
•  increase production times,
• increase time for preparations and
• staff.

A better method may be to refresh the menu by adding and removing menu items continuously.

 It gives your patrons something new to look forward to and helps to provide a reason to carry out marketing campaigns.

Product Focus and Not Customer Focus.

In their pursuit of the dream to open a cloud kitchen, a new  owner quite often will say that he wants to create or offer a product idea because no one else is providing it.

Being product focussed  is supply-side thinking.

It is akin to say that one may open a dosa restaurant on the top of Mount Everest because there is no dosa restaurant up there. As you may have guessed, the restaurant will fail because there are no customers.

The customer focus requires them to look at the current dining experience of customers and see what they can do to fill the missing gap. Your menu is an answer to their problems.

Fall in Love with a Name.

As stated earlier, a cloud kitchen is an Internet business, and concepts of search engine optimisation apply to a cloud kitchen, example,  when a customer is searching for a dining experience on the food aggregator app that quite likely to use keywords.

If your name has that keyword your quite likely to be ranked higher, so if your cloud kitchen focuses on biryani, then it would be prudent to have biryani in your name. You are then quite likely to feature higher in search results.

Who you are and what you serve is established by your name.

Research on the food aggregators app, you will notice that even though the names of dishes to throw up restaurant names, a restaurant where the keyword will come up higher.

Your product focused name of your restaurant also helps and marketing as it helps to communicate who you are and what you stand for clearly. This clarity in communication, in my opinion, goes a long way to build the success of the restaurant.

Can a restaurant which does not have the product keyword succeed? 

Yes, it can.

However, in my opinion, having the keyword in the product name is so much more efficient.

Till now we have looked at the state of the industry’s and have understood clearly some of the advantages and disadvantages of the cloud kitchen model and year been cautioned of some of the mistakes you may unwittingly make.

 Now before we look at how to start your cloud kitchen, let's understand capacity utilisation and cloud kitchen.

Cloud Kitchens - Open a Cloud Kitchen With Effective Space Capacity Utilisation

Cloud Kitchen Business Models.

Single Kitchen Models.

This original cloud kitchen  is your basic delivery kitchen model where a first-time cloud kitchen startup food entrepreneur serves a single unique  Cuisine from the base kitchen.

Single Kitchen-Multibrand, Multi-Category, Multi-Cuisine

To enable better utilisation of the kitchen assets, single kitchen multiple brand, can be used to create multiple brands based on multiple cuisines or multiple categories from an only Cuisine.

Its production capacity limits the outlet.

This kitchen business model strategy helps to both maximise the revenue and de-risk the company if any of the brands failed to perform.

Hub and Spoke Cloud Kitchen Model.

A single kitchen trading area is limited. It can only efficiently serve people within 2 to 5 km radius.

In this kitchen business model strategy, there is one single large delivery kitchen and several small satellite kitchen dispersed across the city.

 This separate large kitchen does all the heavy lifting of production and the satellite kitchen located closer to the target market are merely assembly operations.

The critical advantage of this strategy is that a brand can expand its trading area significantly.

Fresh Menu is perhaps a prime example of this strategy.

A variation of this strategy is to combine the hub and spoke model with a multi-brand approach. Depending on the concept, there may or may not be a storefront.

Subscription Model.

The subscription business model is a kitchen business model which requires the consumer pays the kitchen in advance for regular service of food and beverage. The subscription model is quite popular in the juice category and the wellness segment.

The mistakes sometimes people do is to rely only on one business model to make the restaurant successful. The subscription service is a continuity model and can be very fruitful when combined with other business model stated above.

Meal Kits- Food Delivery Model.

A recent phenomena meal kits promise aspiring home cooks to create restaurant-style food with the exact ingredients. In the make it the kitchen supplies recipes and the precise quantity of ingredients to create the meal. It is often combined with a subscription service.

Food Aggregators Shared Kitchens.

The two leading food aggregators Zomato and Swiggy who offer online food delivery,  have started to create Shared Central kitchens with varying degree of infrastructure and invite new brands to operate the kitchen.

The value proposition is to allow an established brand in one community to open up in another area in the city or a new city altogether.

It allows for quick setup of kitchen operations for a new business venture. Tedious measures like licenses are taken care off.

From the food aggregators perspective,

• they can now open up shared kitchens where there is an unmet demand and therefore grow the delivery market.
•  By aggregating supply of they can reduce the response time for deliveries, which creates a better experience for customers.

By aggregating supply of unique and successful delivery kitchen owners, one food aggregator may be able to lock out the other, thereby gaining a competitive advantage.

 In a scenario, if you want to have a memorable meal from a tied-in restaurant only available with Zomato, Swiggy then would lose patronage. That is a compelling proposition.

By offering this shared kitchen food delivery service, they may be able to charge higher commissions. They may do so because they have created the shell infrastructure and the returns of which are borne by commissions earned.

If the food aggregators are successful in this model, that they have successfully compiled winning food suppliers, they may then be less dependent on the rest.

 After cornering the best food supply, they will be willing and able to charge higher commissions from everyone else.

30% of commissions are around the corner.

Base Kitchen Infrastructure.

There is a new breed of food entrepreneurs who have now started to open fully equipped base kitchen space to the size of 1000 ft²-1500 ft² with the sole purpose of leasing out to multiple brands.

Here the order and delivery are taken care of by the food aggregators or delivery kitchen owners. They offer quick entry to anyone starting in this business.

 With size and scale enable a food delivery kitchen to scale across the country. The successful kitchen will not have to look for a place, a license, waste time in setting up a fully equipped kitchen. Of course, all this will come at a price.

Food Truck Base Kitchen

A special mention for food trucks. Rising in popularity of food trucks ownership, food trucks are often created without a base or central kitchen. A food truck owner needs to create a base kitchen for prep to support food truck operations.

Now that you have an idea of the industry and the various kitchen models, you can now start planning your business venture. Planning Not Implementing!

Read Top 5 Food Safety Issues In Food Trucks

Cloud Kitchen From Home

Another model to consider is to start a cloud kitchen from home. This is model takes advantage of govt policy, prevalent ecosystem and low cost investment.

How to Open A Cloud Kitchen?

You know your food will be great!

But the promise of good food is NOT a sufficient condition for success for cloud kitchen business. 

Many aspiring cloud kitchen vendors are unaware of the fact that to succeed, they need a playbook to plan, build and operate.

Starting cloud kitchen can be divided into four stages. -

Planning Stage.

Start a cloud kitchen with maximum emphasis on this stage,

Who Is My Customer?

Before you open a cloud kitchen you need to know this. The biggest trap a new cloud kitchen startup owner falls into by focusing only on the product, but he or she wishes to serve.

 I would caution you against that. 

Instead, what you need to do is articulate who is your customer, this extends to articulating the demographic and psychographic profile of a customer for your ideal customer and understand what the state of his current meal experience is.

Your customer profile will enable you to understand the gaps which your product and service will fulfil. Understanding who your customers are will also allow you to do effective marketing, which will be critical to your success.

Keep in mind that you will be unable to be all things to all people. Whom you will serve with not necessarily defined by your menu, but the articulation of your message and the meal experience will determine the customer.

What Is My Concept?

The concept is the articulation of your value proposition for your customer. With your business ideas there needs to be fit, and you need to be able to research to verify that the customer wants what you will be serving.

Crafting a concept is perhaps one of the single most crucial things in which you need to invest your time on before you start a cloud kitchen. Your ideas need to be validated by market research.

Choose Your Name.

Choose a name that sells!

Sometimes first-time owners try to be clever with the names; I would caution against that. Choose a brand name which conveys to your target audience what you’re about.

There is a science to it.

 However, my advice is when you open a cloud kitchen choose  a name with your product category mentioned. If your concept we specialise in biryani then have biryani in your name.

As mentioned earlier, you are an Internet business and the customers searching you online by using keywords on the food apps. In my opinion, you will increase the chance of discovering a lot more. Also, product base brand names quickly communicate to your customer what you stand for. 

If there is confusion, there is no sale.

Read Restaurant Branding Is A Waste Of Time

What Is My Menu?

After you’ve articulated a concept and have a clear idea of who is a Target customer, you must prepare a menu suited for a Target customer.

Your menu should be relevant ideally for all-day parts and all meal parts.

At this stage, I would go back to my Target customer and say hey this what I want to serve what you think? Take the feedback to heart and then iterate.

Craft a menu for your cloud kitchen business very early in the game, do it right up in front instead of running frantically to create a menu when your kitchen is done.

 Early on, you have much time to think and evaluate and make changes; later, you will not have this luxury.

How Will I Make My Menu?

I cannot emphasise enough that it is vital that recipe prototypes are made well in advance.

 Don’t leave this last-minute.

 In my experience, those who don’t make recipes in advance, never do.

The accuracy of the recipe is not the most significant outcome.

Valid recipe documentation will help you to understand what the ingredients are needed, what is the difficulty in the production process, what staffing may be required  and most importantly what is the cost to make my dish. 

Knowing your costs are critical to success.

These insights are vital to creating an effective design and plan for the profitability of your operations.

Famously said, “it is easier to correct an examination paper, then to set for an exam and write a paper.”

Implying that you can always correct recipe writing a recipe from scratch is extremely difficult.

Professional recipe documentation is a tedious long drawn exercise and must be so. The skills are not readily available despite what many people claim.

How Much Will My Cloud Kitchen Cost?

All this information is required to put together to create a financial plan for your cloud kitchen.

 In this business plan is a system, you want to understand how much money will be put in and how you will get that back. Your cloud kitchen business model needs to make sense on paper.

The business plan covers the Capex cost for your project. Capex Cost is one of the first areas where people get it wrong and underestimate the cost of the project.

Your financial report will articulate your weekly plan-which essentially means that you need to know from Monday to Sunday from breakfast to dinner how much you will earn. Here you need to identify the key performance indicators for your operation.

The project report articulates your profit loss statement and the ROI that you will make.

 It is often said that financial projections are fantasy, but breakeven is a reality.

As a business owner, you need to know your  breakeven and articulate how many customers protest you need per day per week and per month and how much money do you need per day, per week and per month to breakeven.

The financial plan is the articulation of intent. Whether you take a franchise or your own cloud kitchen startup this a critical first step. Moreover, it will give you immense strength and costs insight needed to build a successful operation.

If you don’t do that or if you don’t get professional help, let me warn you that most restaurants which too badly don’t do so because of bad food they do so because of poor financial planning. 

Preopening plan execution.

Till now much planning has been done. It would help if you made another plan, and it’s called the pre-opening plan.

Before you enter the execution cycle, you need to build a work breakdown structure which will clearly state who will do what and when.

At this stage, you begin to hire your core team and delegate the task to everyone. In this execution plan, you spell out who your vendors are, when will the recruitment start and what will be a construction schedule be.

Final Design & Construction.

At this stage have got the possession of the site, and your focus is now on the execution of your plans. There is a tremendous amount of work to be done, and speed is everything.

The last thing you want is an escalation in your project cost because you have not planned out your project.

All the planning which is carried out will fructify now, as you will know exactly what you need to buy, what the design of your cloud kitchen will look like, who the vendors are and what a newly recruited staff will do work. 

At this stage, you will execute your preopening marketing plan, a website, hopefully, and be ready to take new customers delivery orders.

The end of this stage is followed by the final development of the menu and operation of your recipes.

Grand opening.

Finally, the day of reckoning- cloud kitchen is now open to your customers. The opening of a new cloud kitchen is involved either a Big Bang opening and telling the world that you open or soft launch to check that your team gets into the right rhythm.

 If you have carried out preopening marketing, am sure you will have no trouble attracting customers would be willing to try you out and experience your food and hospitality.

Summary.

Starting a cloud kitchen is an exciting process. It is full of opportunities and to make sure you get everything you deserve you need to spend time on planning not just the development of your project but also planning how you will run and promote your cloud kitchen.

 It will help if you build flexibility in your kitchen design that you can tap different opportunities to maximise your revenue potential.

As a Kitchen And Restaurant Consultant, we are first-time restaurant owners to start plan and execute their project.

I often ask my clients or prospective clients. What do they want from their restaurant business?

 Quite often, they say they want to create a brand.

 Quite often, they are tempted to spend all their hard earned limited resources on branding. The idea that one needs to create a logo or colour or packaging material which is of prime importance for success.

 Far from it.