Cloud Kitchens: A Data-Driven Approach to Running Less-Risky Restaurants

TABS Group Staff Writer — Technology Trends

The behavior patterns of millennials are quickly disrupting almost every market both directly and indirectly, and are forcing marketers to battle this challenging landscape with unique and innovate concepts. With millennials earning more and spending more, and urbanization seeping across developing nations rapidly, the world is more closely connected than it has ever been, and our lives are increasingly being driven by tech-based services and products.

According to an analysis of the psychology of millennials by Deloitte, millennials prefer anything that is convenient and can save them time as they juggle their bustling lifestyles. Fast-changing work habits are one of the major reasons for the food industry’s digital takeover. With the paradigm shift in the food consumption habits of millennials, over 60% of them order food online or dine-out multiple times a month (Inc42).

The millennial culture also brings about a shift in socio-economic workplace norms; more households are seeing both men and women contributing greater amounts to the joint household income. With lives becoming (more) fast-paced, one of the areas that suffers the most is the work-life balance, or lack thereof. Trends show that individuals, roommates, couples, and even those married without children have made a significant shift from cooking at home to ordering delivery or eating with friends on the way home from work. Governed by the increase in purchase power and high demand, as mentioned in Inc42 the online food delivery market is expected to become an opportunity of more than $5 Bn by the year 2023.

With the ever-growing technology, the food industry has been experiencing multiple innovations for quite some time. When analyzing the risk at a high level that a restaurant faces in the extremely saturated food and beverage space, there are lots of areas where the business could suffer a fatality. The newly introduced and well-received answer to this problem is a concept known as cloud kitchens. To put it simply, Cloud Kitchens are food preparation facilities usually in constrained physical spaces that offer delivery as the only method of service. The concept is a smarter way to run a ‘successful’ restaurant based on the fact that it requires much less up front capital to run efficiently and is easily expandable across different locations. It has received so much attention and popularity over the past few months that those who tend to be more risk-adverse are seeing it as a legitimate alternative to opening up a traditional brick-and-mortar restaurant.

The profit margins of these cloud kitchens rely heavily on third-parties for home or office delivery orders, placed through apps or web platforms, and depend on data collected by these delivery fulfillment services like DoorDash, GrubHub and Uber Eats. These aggregators are not only a reliable link between chef and diner for fast door to door deliveries, but also serve as a marketing channel spreading awareness about the brand and food.

The cloud kitchen concepts also reduce the margin of error in regards to the meal being prepared. The integration of Internet of Things (IoT) in restaurants are making operational bottlenecks disappear, another huge risk factor owners have to work through. Now, IoT powered kitchen management devices and applications help optimize the preparation and packaging process in real time. With the data from these third-party delivery platforms, cloud kitchens can optimize inventory and reduce the amount of wasted food as well as improve the bottom line $.

Infrastructure

As the volume and popularity of delivery drastically increases, cloud kitchens are beginning to pop up by the dozens in major cities, and established restaurants are now shifting their business models to include a cloud kitchen type aspect.

However, building a brand has been proving to be difficult for these virtual restaurants. Initially, it is easier for these restaurants to attract customers based on flash discounts or free items, but to keep them coming back for more is the challenge. While it is a great model to potentially achieve a higher profitability, there is a huge risk that looms above. Once the food is out of the kitchen, it is now in the hands of the delivery partners. A wrong turn, an accident, a speed bump that comes out of nowhere — the list goes on of things that could happen to the perfect order that left the kitchen with no fault. Unfortunately, a bad experience with a delivery driver that affects the quality or taste of the food gets pinned back on the restaurant in the minds of the diners. The delivery platforms, relying on ratings to police their drivers, make it extremely easy for customers to complain. And when they do, the cost of the refunded meal usually gets passed right back to the restaurant, at no fault of their own.

I have a prediction — by the end of 2020, I expect at least one or two of these third party delivery partners (UberEats, DoorDash, GrubHub, etc.) to begin white labeling the food that they deliver. It won’t be “Sammy’s Diner has the best chicken parm” anymore — the restaurant’s name will be long forgotten. Their job will be to just make the food, becoming the cloud kitchen OF these mega-tech companies. After all, it’s the tech companies that own the most valuable asset — the data. They know what works and what doesn’t, what type of people order what food in what locations. With the tens of millions of data points these companies are capturing, machine learning algorithms will easily be able to boost operational efficiency and in turn, profits for these companies.

With the shift in food consumption habits of millennials, cloud kitchens are definitely the way forward in the F&B sector, and while restaurants are jumping at the concept right now, I think the true giants will be the tech titans. Right now, they are letting the restaurants bearing the burden while they collect 10x the value in data, and when there are enough data points to create a predictive analytics model, they will launch hard and fast. Immediately, the independent, standalone cloud kitchens will be at an immense disadvantage due to their heavy dependency on these delivery platforms.

Sooner than we think, a whole new cohort of business models will emerge from this continuous amalgamation of technology and food.

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© 2019 The TABS Group

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