Why Cloud Kitchens Fail?

Pankaj Giroti, Chief Advisory Mentor, TallOak Hospitality (Consulting Advisory)

Although the cost of setting up a cloud kitchen is low, one does save on the front of the house cost, but sometimes cloud kitchen operators do not factor in the high working capital for running a successful cloud kitchen. It generally takes 6 to 9 months to come into profits, depending upon your cloud kitchen’s location, menu offering, pricing and food cost.

The ideal menu for a cloud kitchen should be with low food cost and higher yield, for which one can charge a decent amount and the customer does not mind paying. One should always keep a close watch on the food cost and tweak the menu regularly according to the pricing and availability of the raw materials and customer demand.

Maintaining consistency in food delivery through its quality and packaging experience, is utmost critical, in order to create guest satisfaction, retention of customers, by gaining their loyalty and in turn getting repeat orders.

Failure to create direct delivery options via promoting the brand’s website and encouraging the customers to order directly and the cloud kitchen delivering a better experience than the delivery partner makes a huge impact on the profitability of the cloud kitchen.

Another very important factor is the lack of Standard Operating Procedures (SOPs), the success of a cloud kitchen depends on how effectively and efficiently the SOPs are implemented and followed by the team and not adhering to the SOPs leads to poor operations management and controls.

One feels that while we are online on the food delivery partner’s platform, the cloud kitchen does not need to do any kind of marketing. It is very imperative to create a direct customer base and reach out to as many customers as you can. The online aggregators have a limited area of delivery for a particular cloud kitchen, but how does one reach out beyond that area. Failure to do so again leads to low sales and profits.

There are many reasons for the failure of cloud kitchens, but the most critical reasons are thin margins, kitchen space rentals, higher commission of the third party online delivery partners, rising competition, lack of dining experience, lack of SOPs, inconsistency in operations and food preparations, poor financial planning, fancy and elaborate menus, lack of marketing, lack of guest interaction as explained above.

Hence, before entering the cloud kitchen space one should do a thorough analysis and be prepared to face the challenges of the cloud kitchen business.

Source: https://chefbharath.com/why-do-cloud-kitchens-fail/