In an ever-changing landscape, F&B businesses are being forced out of their comfort zones and being made to take steps into the unknown in order to salvage their companies and keep moving forward. While brick and mortar restaurants still exist, and some business owners stand by them wholeheartedly, there are others who have broken away from this traditional viewpoint and ventured down different paths to scope out new, cost-effective ways to take their eateries to the next level. One of the most heralded solutions has been cloud kitchens, as they have been tried and tested and proven to be a successful model for businesses to make it big.
Like any form of change, there are always going to be people on both sides of the fence who vehemently defend their business model. But, when pushing everything aside and getting down to the nitty-gritty of comparing cloud kitchens vs restaurants, there are a lot of separate categories that need to be closely scrutinised before deciding which one reigns supreme.
Finding the ideal location
Being situated in the right area is vital to the success of both cloud kitchens and normal restaurants, as it is one of the determining factors behind whether they are successful or not.
Needing a physical location that is smack bang in a high traffic area so that they have plenty of customers to target, brick and mortar establishments have to put some scoot in their boot to bring them through the door. This can be incredibly difficult, especially considering that flexible work, whereby companies have adopted a work from home policy, has become more commonplace. As if that wasn’t enough, they will also have plenty of competition right on their doorstep or in the surrounding area, meaning they will have to constantly be ahead of the game in order to keep attracting diners to their premises.
It doesn’t stop there, however, as staff, interior design, and licence and permit costs all have to be taken into account. The overall look and feel of the space have to be homely, but, at the same time, complement the theme of your restaurant and the kind of cuisine being served. For example, if you are running a Malaysian restaurant, the design of the place has to adhere to this.
They have already got a leg-up over traditional restaurants as they are situated in large facilities run by cloud kitchen providers like KitchenConnect. With plenty of locations to choose from, business owners can do some research on which area will suit their eatery best. Furthermore, the cloud kitchen facilities are usually a stone’s throw away from offices, schools and residential neighbourhoods, meaning there is a huge customer base to tap into right from the start.
Cloud kitchen can also partner with numerous food delivery companies to increase their reach, which increases their customer count even more.
How much does rent cost?
Given how expensive rent can be, it is one of the factors that have to be looked at in the battle between cloud kitchens vs restaurants. In this case, cloud kitchens would emerge triumphant as their costs are significantly lower than that of their brick and mortar adversaries.
Since they occupy more real estate, it’s only natural that they will have to pay more in rent. Plus, if they want to be in a central location, it’s going to cost even more. In Malaysia, restaurants are generally 1,800 square feet in size and require an investment in the region of MYR 750,000.
Businesses operating out of cloud kitchen facilities don’t need to fork out a jaw-dropping amount on rent as their working space is around 123 square feet on average. As a result, the investment needed hovers around MYR 39,000. Given the stark difference in rent prices between cloud kitchens and traditional restaurants, it becomes obvious why many new restaurateurs opt for the former as it doesn’t require them to risk so much money right away. Even business owners who have run brick and mortar restaurants are utilising cloud kitchens when expanding into new markets as they want to test the waters first before committing a significant amount of cash.
The cost of employees
Next up in the battle of cloud kitchens vs restaurants is the number of staff needed and the costs associated with employing them. Once again, regular eateries come up short as their employee costs far exceed those of cloud kitchens.
With a bigger space and customers dining in, normal restaurants are in need of more staff to ensure a perfect dining experience. From general managers to bartenders and waiters, the list can go on, which further increases the bill for employee costs. On top of this, the staff need to be trained, which can also cost money, as you want to ensure they take care of customers and fulfil their every request. In Malaysia, restaurants need about 10 to 12 people on average. However, this number could increase depending on how busy your eatery gets.
With a smaller kitchen space and typically only catering to online deliveries, the number of staff cloud kitchens need is minimal. All in all, it’s about 2 to 3 chefs to cook the food, but this could rise if the number of orders coming in increases substantially.
What are the operational costs?
Incorporating everything from the ingredients that need to be bought, to the packaging and the technology utilised, there are numerous operational costs that cloud kitchens and restaurants have to keep tabs on. Once again, however, it is the establishments with a dine-in area that fare worse in this category.
Having to fork out a lot of fresh ingredients, takeaway boxes, menus, POS systems, and a whole lot more, normal restaurants have to keep a close eye on their operating costs as it is easy for them to get out of hand. If you specialise in more than one cuisine or offer fusion food, their list of supplies goes up even further. Add employees and a user-friendly website to the recipe, and you can see how their costs can rise incredibly quickly.
Cloud kitchens also have a hefty bill when it comes to paying for supplies, as they need to have enough on hand to fulfil all their delivery orders. They do, however, have a major advantage when it comes to technology, as cloud kitchen providers like KitchenConnect provide the very best systems and software so that they can monitor all their orders on a single tablet. This can be done even if they partner with a plethora of food delivery companies. Like their brick and mortar counterparts, cloud kitchens also need professional websites, primarily because their entire business model revolves around online orders.
How much is the set up?
The set up costs in the battle of cloud kitchens vs restaurants vary based on the amount of equipment needed to keep your business running like clockwork. However, cloud kitchens have a distinct advantage in one aspect – the time it takes to start serving customers.
Brick and mortar restaurants will require a sizable amount of equipment, but just how much depends on the number of customers the premises can hold when fully booked. You will also require certain specialist equipment, especially when making specific dishes that have to be prepared in a particular way. Aside from that, restaurants will need the basics, such as pots, pans, utensils, etc. It is also necessary to keep extra stock of everything so that broken plates or damaged utensils can be replaced. Fine dining establishments will have to spend even more on equipment as they need to maintain an air of luxury.
Cloud kitchens don’t need plates and silverware, so their main focus will be on having all the equipment needed to push their delivery orders out in a timely manner. This includes specialist equipment, as you cannot cut corners when it comes to the quality of your food. If you neglect this aspect, you are headed for absolute disaster!
What are the profit margins?
This is not so clear cut and dry when it comes to cloud kitchens vs restaurants, as you can be raking in cash with both business models. Ultimately, it comes down to which best fits your specific needs and requirements.
Having to bear the brunt of more costs in comparison to cloud kitchens, it should come as no surprise that traditional restaurants need to wait longer to become profitable. In Malaysia, the approximate time needed for restaurants to break even is about 48 weeks. But, if you were able to find a way to offer something that becomes a talking point in the city, you will cut down the time needed to hit profitability.
With fewer costs and a customer base served up on a plate thanks to the central locations of the facilities cloud kitchen providers like KitchenConnect run, it usually takes as little as 6 weeks for businesses operating out of these kitchen units to break even. Given the fact that an increasing number of people are placing food orders online, the timeframe for breaking even might be lower going forward.
The marketing costs
Every business has to engage in marketing these days, and it’s no different in regard to cloud kitchens vs restaurants. Both have to make their voices heard online and work hard to build a rapport with their customers in order to win their loyalty.
Brick and mortar establishments with a physical location have to work tirelessly to bring customers through the door. They need to get the word out there and with the old-school days of newspaper advertisements pretty much gone, they have to focus their attention on social media, which can be used to grab the attention of their patrons. The key to doing this is posting interesting content that touches on all aspects of your business.
Linking up with influencers is another surefire way of getting more fans, especially if you convince them to do a food review. Given the mass following these social media gurus have, their fanbase will be quick to place orders if they hear your food is exquisite. It is also worth conjuring up a discount or promotion based around an influencer and getting them to promote it on their social media channels. This way, it will reach a staggering number of people, many of whom will take advantage of it, try your food and potentially become long-term customers.
The aforementioned online marketing tips can be used by cloud kitchens, too, since they have to form an online bond with their customers. Given that their entire business is centred on receiving online orders, it is in the best interest of cloud kitchen businesses to have a strong marketing strategy prepared.
Which route will you go down?
While the battle between cloud kitchens vs restaurants shows no signs of abating anytime soon, you now have all the knowledge needed to make an informed decision on which model best adheres to the distinct requirement of your business. So choose wisely before committing to a specific path.
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