How to Start a Cloud Kitchen Business? [Step-by-Step Guide]

High start-up costs, regulations, and red tape are some of the factors that are changing the food industry around the world. And, India is not an exception.  Due to the pandemic, customer footfalls have become less frequent in most restaurants across India.

Cloud kitchen is one of the most successful small business ideas in India in the F&B space. According to an industry report by Redseer, India had around 5000 cloud kitchens in 2019. The sector will be a $ 3 billion industry by 2024, up from $ 400 million in 2019.

The business saw a major boom after the COVID-19 pandemic, as more and more people started ordering online food, after the restrictions were lifted. In this article, we will tell you what is a cloud kitchen and what are things you should know before starting one.

What is a cloud kitchen?

A cloud kitchen is also called a ‘ghost’ kitchen, delivery kitchen, or virtual kitchen. It is a commercial kitchen space that provides food businesses, facilities and services to prepare food. It focuses solely on fulfilling online food orders and delivery.

Cloud technology can facilitate online ordering at a low cost. A cloud kitchen can be a centralised commercial food production facility where several restaurants can share the resources and prepare food.  The number of cloud kitchens in India is expected to grow at above 50% year on year, and it is considered as one of the most profitable small businesses.

How does a cloud kitchen work?

Unlike traditional restaurants, a cloud kitchen allows food business operators to prepare and deliver food at minimum costs and overheads. It allows restaurants a kitchen space but offers no dine-in facility.  The reason why cloud kitchens are proliferating in India is due to 3 main reasons-convenience, choice, and cost.

Cloud kitchens can be in a warehouse with numerous workstations, stainless steel tables, and hood vents. They can have their online ordering website or app or they can accept orders through the various food delivery platforms. Customers can order through their mobile and have the food delivered to their homes or offices.

How to start a cloud kitchen business?

The high-profit margins in the cloud kitchen business are attracting many players, making it the first choice in small business ideas. The ecosystem is supported by the internet and smartphone penetration, and the growth of online food aggregators. So, without further ado, let’s dive in!

1. Know your customers

Demographics play a major role in the success of a cloud kitchen. Before you start a business cloud kitchen, you should know your customers and to whom you want to serve. For example, the requirements of a family are completely different from a young, gym-going, twenty-something. Families require a balanced meal while gym-goers prefer protein-rich food. So, you should know your clientele before you come up with your food concept, menu offerings, and marketing tactics.

2. Choose a concept

How do you choose the right concept for your cloud kitchen? The first step is to find out what your customers are looking for. One way to do it is to go online and google. For example, if you are targeting health-conscious people, you have to find out what type of food they prefer. To find out about the preferred cuisine of your target audience you can go to different forums like Facebook. You can check the dietary preferences of different groups there.

3. Gain Experience

Running a cloud kitchen demands knowledge in a wide variety of fields. Apart from the basic knowledge of cooking, it will be good to know about accounting, marketing, and sourcing of raw materials. A degree in hotel management and some work experience in the hospitality sector will help you immensely.

4. Study your competition

See which are the popular dishes your competitors are serving, and also what they are not serving. Also, which items have high demand and are selling well. For example, if you see that gluten-free doughnuts are being picked up by many customers, you know that it is a promising product.

5. Costs

Expanding a restaurant is easier than you think. With commercial kitchens optimised for delivery, you can launch a new location in less than a month. The cost is 40 to 50% less than the cost of a brick-and-mortar restaurant. The real estate costs and labour expenses will be far less.

You can bear the initial start-up costs from your savings. If you don’t have sufficient funds, you can ask your family or friends for help. Another option is to apply to your local bank for a business loan.

6. Location

You need not locate your cloud kitchen in a prominent location. An industrial area or a back alley in a neighbourhood will work just fine. A low rent will translate into a lower brokerage and CAPEX cost. A 500 square feet space will suit your requirements just fine. Make sure to have a driver parking area with a seamless delivery system.

7. Get a license

You have to get an FSSAI license that will regulate how your food is stored, cooked, and delivered. The license period is valid from one to five years and must be renewed periodically. You can mention the FSSAI number on your packaging to inspire confidence in your customers.

8. Equipment

Most of your initial investments will be spent on equipping your cloud kitchen. The list is many ovens, burners, utensils, plumbing, and so on. One option is to rent an operational cloud kitchen fitted with basic equipment, so you customize it as per your needs.

9. Quality of food

You have to keep the quality of your food very high, or else it will eat into your reputation. Hire a good chef who is an expert in your chosen cuisine. Use fresh ingredients and try to source them locally.

10. Packaging

The only point of contact between you and your customers is the packaging.  You can develop your brand through creative packaging. To reduce your carbon footprint you can pack the meals in biodegradable packaging instead of plastic. The food should be sealed properly to avoid contamination.

11. Pandemic Precautions

While safety and hygiene have always been important in the food industry, you should now give extra importance to this, if you want your business to thrive. You have to do a temperature check daily on all kitchen and delivery staff. The staff should wash their hands at regular intervals, and sanitise the kitchen frequently.

12. Technology

You can track your orders without a hitch using technology. When a customer places an order through an app, you will be able to view that on your mobile, laptop, or tablet. You can hire a chef to do the cooking, or you can do it yourself, with some help.

13. Delivery

You have to hire a good driver. Delivering food accurately and promptly means a lot of happy customers. Or, you can use online food delivery platforms like Swiggy and Zomato to facilitate logistics. Another option is to launch your own food trucks with popular items like chicken pizza or biryani.

What are the potential challenges with cloud kitchens?

Logistics is the biggest challenge for cloud kitchens. The high fees of delivery apps can eat into your margins. On the other hand, having your own delivery service will eat into your costs.

Providing food deliveries is a promising business in these times of lockdowns and social distance. This is the only way to counter high rentals and reduced margins of the traditional food business. One of the ways you can grow is by focusing on your brand instead of providing kitchen facilities and services to restaurants and other clients.  So, don’t wait; open the most profitable small business of the cloud kitchen business now!

Also read:

1) How to Open a Restaurant? 10 easy steps to help you open a Restaurant of your own!
2) Top 10 Businessmen in the Industry & What You Can Learn From Them
3) Top-5 markets in India every businessperson should visit
4) Where to Get a Small Business License?
5) Kitchen Equipment Manufacturers in India

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FAQs

Q. Who are the largest players in the food aggregator business in India?

Ans. The two biggest players in the online food delivery business are Swiggy and Zomato.

Q. How much do I need to open a cloud kitchen?

Ans. You can start a business of a cloud kitchen with as few as 2 or 3 people.

Q. Is there any software that can help me in getting orders from multiple sources?

Ans. Yes, there are many Point Of Sales software available in the market.

Q. What are Meal Prep companies?

Ans. Meal Prep companies are those who require cloud kitchen space for only a few days a week.