The Outlook for Cloud Kitchens in 2020

Although commissary kitchens have been used by food trucks, caterers, and other food businesses for years, there’s been a more recent surge of interest and investment in delivery-only brands sharing out-of-town kitchen space. These virtual restaurants aim to fulfill the increased demand for food delivery.

For a broader overview of cloud kitchens, you can read our comprehensive guide. However, in this post, we wanted to look ahead at what’s in store for cloud kitchens in 2020. With so many new technologies emerging and coming together, it’s an exciting time, but there are still a few questions hanging in the air. 

Will restaurants and tech systems be able to keep up with demand? Will the demand for delivered meals keep rising? How will the landscape change next year? Let’s explore this trend a little deeper to find out its driving factors and where it’s headed.

Driving factors

Demand for food delivery

A recent report on the state of the food delivery by eMarketer predicts that by 2020, food delivery apps will surpass 44 million users in the US, reaching nearly 60 million by 2023. From a dollars and cents perspective, Statista predicts a huge market volume of US$28 billion by 2023.

Two food delivery companies are in the top three fastest-growing of any brands in the US, according to a report by Morning Consult. DoorDash takes the top spot, with Postmates coming in third. Even more established brands like UberEats and GrubHub were in the top 20, despite the explosive growth they’ve already seen.

All of this points to an increase in demand for delivery that traditional restaurants will struggle to fulfill. That’s where purpose-built delivery-only kitchens will step in.

The gig economy and the rise of on-demand workers

The gig or sharing economy, fueled by the connectivity of the internet age, is in full swing and is expected to hit $335 billion by 2025. Now that everyone has a smartphone in their pocket that can track their every move, casual workers are able to find work just by signing into a platform. Being paid by the gig, rather than being on a salary or hourly wage, works for casual workers as much as it does for restaurants, who benefit from the flexibility on-demand workers offer and from not having to pay for employees when they’re not needed.

This has contributed to the growth of delivery platforms like UberEats and DoorDash, and it shows no signs of going away. Although regulations may slow it down, the gig economy continues to grow.

Urban real estate prices

With more and more people moving to urban centers, real-estate prices continue to rise. Cloud kitchens, not needing the footfall of an urban storefront location, have been able to benefit by moving further out of town into cheaper industrial areas. The only constraint is that they need to be close enough to deliver to residential areas with a high demand for meal delivery.

Emerging technologies decreasing the cost of delivery

Looking further forward, drone delivery and kitchen automation are among the new technologies set to disrupt the standard restaurant model further. We have already seen the opening of robotic kitchens like San Francisco’s burger-making Creator, and Spyce, whose robotic chef is backed by culinary legend Daniel Boulud. Uber has revealed plans to test its own delivery drone next year, which will help the company with the ‘middle mile’ of its ghost kitchen deliveries.

Tech-minded shared kitchens are much more able and likely to adapt quickly to these advances.  They are perfectly positioned to take advantage by building their businesses around the new tech, giving them even more of an edge over storefront restaurants.

How will the landscape change in 2020?

The cloud kitchen landscape, being so new, is still very fragmented. There are lots of moving parts operationally and tech-wise, which haven’t yet found their final alignment. There is a distinction to be made between the more traditional restaurant industry players, who are adapting to the demand for delivery and the tech companies moving into the food delivery space, who are looking to profit from the boom. We’ll take a look at the current landscape and how where it is likely to go moving forward.

The current landscape

Traditional brick-and-mortar restaurants are more interested in creating delicious food for as many happy customers as possible, but they have seen the need to cater to the enormous demand for off-premises dining, with a growing percentage of their orders coming from delivery. Because of this, more and more restaurants are looking to cloud kitchens to keep up with the increased demand for delivered meals.

On the other side of the map are the tech start-ups who have entered the game specifically to profit from the boom in food delivery. This includes the consumer-facing delivery platforms, with their insatiable appetite for growth into more and bigger markets as well as B2B software providers. These companies provide the tech platforms on which the whole industry relies. 

At this stage, the platforms remain disjointed, with no one player able to successfully link up all the operational software services specifically for ghost kitchens. The best-known brands are third-party delivery providers like UberEats, DoorDash and Postmates. But many of these brands are moving into providing their own shared kitchens to host virtual restaurant brands. As we move forward, the lines may blur between the restaurants and tech companies, with the restaurants getting more tech-savvy and the platforms starting to create their own food brands. 

There is a distinction to be made between the tech platforms and real-estate businesses like Kitchen United, which act as a ‘WeWork for food businesses’ without providing the tech themselves. The Food Corridor is a platform designed to give shared kitchen providers the resources, tech, and community they need to successfully manage their physical locations.

To add even more to the confusion, there are companies like Kitopi, who take over all of the preparation, cooking, packaging, and delivery operations for virtual restaurants, leaving the restaurant operators free to just market their menus. Another notable player is Relay, which helps restaurants in New York fulfill their third-party delivery orders, without actually beginning to accept orders itself.

So what do the next 12 months hold in store for cloud kitchens?

A unified cloud kitchen software platform

Although all the technology necessary to run a cloud kitchen effectively is out there, with software for renting commercial kitchen space, organizing orders through the kitchen, managing inventory and production, analyzing customer data, linking up to delivery partners and much more besides, it hasn’t yet been fully implemented into one coherent system, or tech stack. But with more and more ghost kitchens popping up, it’s only a matter of time before someone steps up, begins aggregating up the available offerings, and meets this demand.

Steve Delpino was instrumental in the founding of Green Summit Kitchen, which took New York by storm in the last decade as the first cloud kitchen. He is now Head of Central Operations at Kitopi and sees the need for a unified operational system for cloud kitchens. Steve reveals, “We’ve done a half a billion dollars in sales in 19 months, it’s insane what we’re doing, but we use around 40 different pieces of tech to do what we do because there’s no one tech [platform] out there that does everything or encompasses everything that we need.”

No doubt we will also see a unified software platform emerge for cloud kitchens to take orders, process payments, send tickets to different parts of the kitchen and link up with delivery services seamlessly. The question is will this come from uniting existing platforms or will we see a new player emerge?

Expect a lot more ghost kitchens

With the barrier for entry low for virtual restaurants, and with so many big-name facilities opening next year and beyond, we can expect an explosion of delivery-only brands. And with much of their business already coming from delivery, large chains and fast food providers will be looking to ghost kitchens more and more to improve efficiency and cut costs as they try to meet the demand. 

Big players like Cloud Kitchens, Kitchen United, DoorDash Kitchens, all backed by big venture capital investment, are making moves in the cloud kitchen space, opening up large shared kitchens and already getting interest from big-name brands. 

Only the best will be left standing

With all the growth and excitement over cloud kitchens, there is also a lot of competition. Steve Delpino sees no sign of it stopping yet. He says “It will continue to grow over the next two or three years with everybody trying to do it. Then we’ll be left with people that have really invested in the technology and the ones that really understand their markets.”

The Food Corridor is one such company that has prioritized getting to know its audience inside out. On a mission to help shared kitchen providers in every aspect of running their businesses successfully, it has built a strong community as an aggregator for the industry and has been instrumental in leveling-up the existing commercial kitchen infrastructure over the last four years. 

Those who don’t fully understand their customers will fall by the wayside. As the leaders emerge and start to buy up smaller competitors, we may see a split between the mass-market delivery companies that offer access to the biggest markets for large chains, and smaller, bespoke providers. 

High-quality restaurants often suffer from the inconsistencies of the big delivery companies. For example, waiting times can double or triple in bad weather, leaving the restaurants with unhappy customers and bad reviews. Smaller delivery platforms who are more closely tied to a restaurant’s success could make sure they keep waiting times the same, no matter what the conditions, and ensure the quality of the food is high at the point of delivery to the customer.

Delpino explains the importance, for delivery-only brands, to start off on firm ground, “As you get into the space you really need to partner with a good tech company preferably somebody that’s not too big yet somebody who wants to grow. They’re the ones that are better to work with and to really grow with you.”

Be part of the cloud kitchen revolution in 2020

If the outlook for cloud kitchens has inspired you to get involved, you need a solid partner to support you on your journey. There are two main ways that The Food Corridor can help. 

If you want to find out more about running a cloud kitchen, including all the resources you need for planning, registering your business and opening your own shared kitchen, head to our resources library to find out more. If you’re interested in opening a virtual restaurant yourself, head to The Kitchen Door to find a shared kitchen in your area.

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