Market Overview:

Cloud kitchens are commercial kitchens dedicated to the preparation of food for delivery and take-out. They enable restaurants to prepare food for delivery platforms like Uber Eats, DoorDash without needing a physical storefront.

Market Dynamics:

The cloud kitchen market is driven by the rising demand for online food orders during the forecast period. As per recent findings, the online food delivery market witnessed 30% growth in the last 2 years. Another driver for this market is the growing popularity of delivery-only brands. Brands focusing only on delivery channels are gaining traction among consumers. They offer affordable options and specialized menus for delivery. Further, such brands have lesser overhead costs as compared to restaurants with dine-in spaces which helps them offer competitive pricing.

Two major market drivers for cloud kitchens

Convenience and accessibility for online food delivery: The ease and accessibility of online food delivery through multiple food aggregator platforms has led to a surge in demand for takeaway and home delivered foods. Cloud kitchens allow restaurants to leverage this growing demand and cater food directly to customers' doorsteps without the need for dine-in infrastructure or space. This helps restaurants expand their reach through an asset-light model.

Lower costs compared to traditional brick-and-mortar restaurants: Cloud kitchens have significantly lower operating costs compared to regular restaurants since they eliminate costs associated with dine-in seating, servicing, interiors and other physical store elements. This allows cloud kitchen operators to focus only on food preparation and delivery operations. The lower cost structure makes cloud kitchens a highly profitable business model for restaurateurs and new food entrepreneurs.

Lack of physical branding and prominence as a restraint

Cloud kitchens operate distinct from traditional restaurants as they lack physical storefronts and signage that helps build brand awareness. Not having a prominently located physical space can act as a restraint as customers are unable to visit the kitchen or see food being prepared. This hinders direct brand discovery and trials. While cloud kitchens promote themselves through food aggregators and websites, building brand recall and patronage becomes challenging without a prominent physical presence. However, strategic branding partnerships can help address this restraint.

Opportunity in untapped local pockets

There is a significant opportunity for cloud kitchens to tap local pockets and suburbs that still have low restaurant and food delivery penetration. While top cities already have high densities of restaurants and delivery options, second-tier cities, suburbs and local communities offer an untapped market for food delivery. Cloud kitchens can leverage the infrastructure already set up by food aggregators and quickly expand into new areas not served by traditional restaurants by analyzing delivery demand patterns through localization. This represents a substantial growth avenue.

Rise of virtual brands and the power of multiple brands

A fast emerging trend in the cloud kitchen space is the rise of virtual brands - brands launched only for delivery with no physical restaurant space. Many cloud kitchen operators are leveraging the low costs to house multiple virtual brands under one facility. This allows them to launch targeted brands catering to different cuisines, taste profiles and price points. The popularity of multiple virtual brands from a single cloud kitchen premises is a notable trend as it empowers operators to scale volumes in a far more efficient manner than independent brick-and-mortar restaurants.