Cloud Kitchens: 5 (Bendable) Rules for Achieving Profitability

Starting a cloud kitchen operation in the time of COVID-19 is viable—but doesn’t guarantee success. Learn the rules to follow to turn a profit soonest here.


Necessity is the mother of invention. But the concept of cloud kitchens wasn’t born out of desperation.


Also known as ghost kitchens or virtual kitchens, delivery-only food enterprises had been becoming a thing even before the pandemic started. The rapid global spread of the novel coronavirus has only accelerated their popularity. The global cloud kitchen market is expected to reach $71.4 by 2027 with a CAGR of 12%.


The meteoric rise in popularity of cloud kitchens has been a ray of hope for the F&B industry’s most vulnerable stakeholders. When managed correctly, they could be a lifeline for financially battered restaurateurs, some of the first economic casualties of abrupt, prolonged lockdowns and strict social distancing measures.


The adoption of aggressive off-premise sales strategies has placed less liquid entrepreneurs in a good position to recoup their losses and ride out the disruption the COVID-19 outbreak has caused.


Further, the cloud kitchen idea wasn’t just a godsend for restaurant chain tycoons, bakery managers, franchisors, and food truck owners. This emerging concept has also opened doors for culinary experts aspiring to set up shop without having to source the massive capital necessary to open a brick-and-mortar location.


Cloud kitchens can be a great equalizer in helping you compete with the biggest food brands on somewhat equal footing. However, as hot as this business model is now, it’s still nascent. Its pitfalls are yet to be perceived, so there are guaranteed routes to profitability so far.


To help you pioneer this new territory of cloud kitchen operations, we have listed the ground rules you need to be aware of.


1. Don’t Reinvent the Wheel

If you have an established brand, irrespective of size, you don’t necessarily have to come up with new products to make a splash. Doing so involves more work, investment, and risk. Unless your current menu hasn’t really clicked with consumers, focus on selling what you’re already known for.


One danger of introducing something new and different is the possibility of cannibalizing your best-sellers. Excellent use of a cloud kitchen can boost the sales of your underperforming food items without undercutting your bread and butter.


Then again, not all dishes you consider ambrosia lend themselves to online delivery. If you can’t recreate the gastronomic experience for homebound consumers on the level of quality your dining patrons are accustomed to, continuing to push these offerings to consumers might hurt your brand in the end.


2. Develop Independent Virtual Brands

Delivery platforms have limitations. Such apps can’t always give every item on your menu the same exposure, resulting in a gross imbalance between orders.


If you’re appealing to a diverse clientele with various product categories, strongly consider creating sub-brands. This would make it easier to sell your different selections, since they would become more discoverable in search results. The existence of online-only spin-offs of your main brand can also help preserve its identity.


Repackaging individual menu offerings without completely abandoning the core tenets of your company can be challenging. But overcoming this hurdle could make or break your cloud kitchen.


3. Team Up With Third Parties

Strategic business partnerships have been the secret ingredient of many profitable delivery-only food operations.


So, why do you need to collaborate with others?


Less overhead is the strength of cloud kitchens. But space and equipment scarcity is often the bane of these internet-dependent enterprises. When you find suitable partners, all parties could benefit from each other’s unique assets.


Considering the increasing variety of eats on the Web, many businesses are becoming motivated to diversify their offerings in order to cast their nets wide.


Also, launching a franchise program or working with resellers will enable you to penetrate new markets, which is normally an expensive proposition. Either route will allow you to scale up your production and help boost your revenue through incremental royalties or more predictable sales.


4. Understand Your Operating Costs

The economics of cloud kitchens are different from those of dine-in locations. You ought to spot every nuance, or else you could lose more money as you sell more.


Here is where the value of collaboration is magnified. If you play your cards right, you may be able to outsource some of your production to business partners with lots of downtime. This could reduce your rental expense or eliminate it altogether.


Moreover, it’s imperative to pay close attention to your labor cost. Efficiency is king, so you must figure the best ways to optimize the hours of your staff. Most likely, you’ll have to cross-train them because you stand to lose money if they don’t wear more than one hat.


If you work with franchisees that open early and that close late, you’ll need to create sound shifts to address potential logistical nightmares.


Using technologies like Mosaic Analytics can help you study your P&L by capturing your sales and operating costs in one platform and highlight which items are profitable and popular in order to identify what should be your menu’s focus.


5. Price Your Menu Right

Proper pricing is everything. It’s unlikely that you’ll be able to get it right the first time, for it usually takes trial and error to identify the sweet spot.

Keeping your meals competitively priced is paramount. However, knowing how much your competitors charge may not help you as much as you might think without knowing their sales figures.


To ensure the profitability of your cloud kitchen, take each of your operating costs into account, including third-party commissions and packaging expenses, when finalizing your pricing structure.


Although some expenditures are inevitable, avoid those you can. Other than using the facilities of your business partners, you may be able to take delivery couriers out of the picture by doing the heavy lifting in order to keep your prices low.


Also, don’t invest too much on packaging prematurely. More often than not, you could get by with basic containers stamped with your brand name. As long as the food quality doesn’t suffer during delivery, simple, cheap packaging materials should suffice.


The Bottom Line

Nobody has an infallible recipe for success. Since what works for others may not for you, keep innovating and learn as you go. These rules don’t apply to every cloud kitchen operation. They are malleable, so bend them as you see fit.