What Is The Cloud kitchen Business Model?

Cloud kitchens are delivery-only restaurants that do not seat diners. As a result, the businesses that operate cloud kitchens receive online orders via websites and apps. There are many benefits to the cloud kitchen business model, including lower start-up costs, lower operating costs, and less maintenance. The model also allows restauranteurs to prepare food for multiple brands in one kitchen.

Despite the apparent benefits, however, cloud kitchens are a relatively new concept. Multiple iterations of the cloud kitchen business model have been created as business owners seek the maximize their revenue from an industry predicted to be worth $1 trillion by 2030.

The three distinctions between cloud kitchen business models

In general, there are three ways to separate the various interpretations of the cloud kitchen business model. These include:

  1. Ownership – the kitchen may be independently owned or by the restaurant itself. In some cases, a third-party provider that leases out cloud kitchens to business owners may be the owner.
  2. Structure – this describes the nature of the work arrangement. One business may share the kitchen with several other businesses. Two businesses may work in tandem under an umbrella organization and also share equipment. There is also a scenario where operations are managed in-house from a centralized location with a hub-and-spoke system containing cloud kitchens and fulfillment centers. 
  3. Origin – while the archetypal image of a cloud kitchen restaurant is one with a wholly digital presence, many bricks-and-mortar restaurants also run cloud-kitchen services to overcome space or location-based constraints.

Different types of cloud kitchen business models

Let’s now take a look at some business model types with respect to the distinctions we outlined in the previous section.

Ownership

  • Restaurant-ownedcloud kitchens that are independently owned tend to be more expensive and face many of the same obstacles as bricks-and-mortar restaurants, such as hiring suitable staff and identifying an appropriate location. To manage the risks associated with independent ownership, the business model should seek to minimize startup and overhead costs and only scale once the business starts to take off.
  • Third-party owned – for restaurant owners who want to avoid the risks, obstacles, and capital investment of owning a cloud kitchen, they can choose to operate out of a third-party facility. These tend to be commercial kitchens that can also provide staff, utilities, technology, and delivery or fulfillment services.

Structure

  • Hub and spoke – the hub and spoke business model has three core variants: single brand, multi-brand, and shared kitchen. The purpose of the hub and spoke system is to use a centralized production facility (usually in a low rent area) where food is premade and then distributed to smaller locations where the meal is finalized. Smaller locations tend to be food trucks or other pop-up structures that are strategically placed to cover more ground and take advantage of the last-mile delivery concept.
  • Shared facility – one of the fastest ways to increase profits is to share the cloud kitchen with other businesses. The kitchen may be shared by two independent business owners who remain distinct but work around each other in the same space. However, it can also be shared by a multi-brand conglomerate where one company prepares food for multiple brands from a central kitchen. Each brand is a separate entity but may nevertheless share prep stations, ingredients, and cook staff to enhance productivity.

Origin

  • Offshoot locations – these are delivery-only versions of restaurants that seat diners in a traditional setting and are favored for obvious reasons. The restaurant has already built brand equity and can leverage its existing business model in the cloud kitchen industry where overheads are lower. Some business owners will use cloud kitchens to test out new menu items for inclusion in their brick-and-mortar restaurants.
  • Delivery-only – the most common and most recognized cloud kitchen business model where restauranteurs avoid costs associated with front-of-house staff, bathroom facilities, décor, furniture, and underutilized floor space. Delivery-only cloud kitchens need to focus on online marketing to turn a profit with a simple but functional website and app and a strong social media presence.

Key takeaways:

  • Cloud kitchens are delivery-only restaurants that do not seat diners. Instead, businesses that operate cloud kitchens receive online orders via websites and apps and may prepare food for several brands on the same premises.
  • Cloud kitchen business models are defined by three core factors: ownership, structure, and origin. Ownership models include restaurant-owned and third-party owned, where a separate entity leases commercial kitchen space to sometimes multiple businesses.
  • Structure-based models include the hub and spoke approach and shared facilities, while origin-based models encompass restaurants that open cloud kitchens as a side hustle and delivery-only, perhaps the most recognized of all.

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