Are Cloud kitchens new frontiers for Bangladesh restaurants?

| Updated: June 01, 2022 17:30:15

Are Cloud kitchens new frontiers for Bangladesh restaurants?

In an age where everything is on the Cloud, it is unsurprising to know that your food too is introducing 'Cloud kitchens'. Cloud kitchens are one of the latest trends for budding entrepreneurs and restaurateurs in Bangladesh. The trend became mainstream as the Covid-19 pandemic approached, heavily impacting the restaurant industry. As restaurant owners looked to sustain their work, Cloud kitchens became commonplace.
Cloud kitchens are kitchen facilities with the primary objective of preparing food for delivery. Despite being positioned as the new frontier for restaurants, they cannot offer dine-in privileges. However, due to factors such as low-overhead cost and high flexibility, they continue to remain a lucrative option for business owners to operate their businesses.
Why are Cloud kitchens amazing?: Starting a restaurant is typically a very high investment. The Cloud kitchen model allows owners to avoid many of these - such as increased commercial rent, cost of decoration, zoning compliance, etc. Abdullah Al Faiaz, the founder of Mohammadpur-based Meatbox brand FRISE, resonates with this statement, "It took me approximately Tk 0.1 million to set up my operations, and frankly speaking - it's possible to do it for less. We couldn't imagine such low startup costs years ago."
Unlike the multiple-month-long process of opening a brick and mortar restaurant, Cloud kitchens can be set up in weeks. Furthermore, once you've created the infrastructure, starting a new brand is as simple as developing recipes and implementing them.
Cloud kitchens have lower overhead costs of operation. Unlike brick and mortar restaurants, they don't require expensive and prime locations. Restaurants can keep staff payroll to a minimum and divide other costs among the businesses operating in one facility.
"Rather than focusing on marble-tiled kitchen counters, we can focus on providing a solid meal to our customers," says Abdullah. For most restaurants, lower overhead costs mean higher margins. Higher margins allow restaurants to be more profitable and provide more value to customers due to flexibility in pricing strategies.
Cloud kitchens further emphasise customer value due to the locational flexibility. HM Nafees, head of New Business at Foodpanda, mentions, "Customers can order their preferred dishes from places where certain restaurants were not previously available. Tehari Ghar Gulshan is an example of this."
Added convenience of operations: Centralised kitchen operations allow seamless management for Cloud kitchens operating multiple brands. Cloud kitchens can simultaneously manage operational upkeep, such as bills, inspections, compliance, and security. We've seen this repeatedly with Kludio (8+ brands), Live Green BD (5+ brands), and many other ambitious restaurant enterprises.
Platforms like Panda Kitchen assist the process by providing brands with rent-free space and other logistical facilities. "This model helps entrepreneurs expand their restaurant business and reach new customers without making huge investments," states HM Nafees.
The dark side of Cloud kitchens: "Bangladesh isn't ready for Cloud kitchens yet," says Kishwar Hashmee, the founder of former multi-brand Cloud kitchen Kludio. Kishwar reflects upon why he decided to close operations early this year as he cites, "In Bangladesh, the Cloud kitchen model works for small scale businesses. It is near impossible to scale big with a Cloud kitchen."
Despite being ugly, certain realities and obstacles exist for the ambitious restaurateurs operating off the Cloud - and they're essential to overcome.
The cost of delivery: "When you're operating a Cloud kitchen, you're outsourcing a major operation to third parties: delivery," says Maruf Hasan Nirzhor, one of the co-founders of Chillox. "Third-party delivery services will charge hefty commission cuts, harming your profitability. Furthermore, they will also assume a lot of control over your model - prompting you to provide discounts and offers for competitive advantage on their platforms. We have always tried to avoid pivoting to a Cloud-kitchen model."
Brands may attempt to create their internal delivery infrastructure. However, due to the sheer effort and upkeep required - very few brands have tried this.
Demand aggregation: "While the Cloud kitchen model enables large supply, it is difficult to raise customer demand for your product via this model," says Adnan Khan, one of the co-founders of Cheez, Bangkok Express, Zushi, and Habibys.
Kishwar Hashmee echoes the same sentiment, "The Cloud kitchen model is good for managing volume, but volume bottlenecks at a particular time." That is to say; Cloud kitchens are more challenging to grow than typical brick and mortar franchises.
Intangible experiences: The lack of demand aggregation is because Cloud kitchens are grossly intangible experiences. "Having food is an experience, but when you're playing a game of food delivery - these experiences are compromised. You can have nice packaging, good food, and cool social media communication - but you are nothing more than a meal," Adnan Khan speaks of the model's shortcomings.
Other founders seem to agree. Kishwar Hashmee adds insight, "When dining in, you'd order across the menu. You'd order fries and drinks that add to your basket size. However, people don't do that in deliveries. They only order what they need. This is detrimental to overall revenue, which wouldn't exist for brick and mortar restaurants."
Can Cloud kitchens sustain in Bangladesh? The Bangladeshi food and beverage industry is exceptionally volatile to macroeconomic conditions. Fluctuations in the supply chain and high price elasticity make it increasingly difficult to sustain. While Cloud kitchens receive a competitive edge by avoiding many overheads, they are increasingly reliant on delivery services and commissions.
This narrative is seconded by seasoned founders like Adnan Khan, who states: "The Cloud Kitchen Model in Bangladesh cannot mirror that of low-population density first world countries. The conditions here are unique, and we must curate our strategies." He adds, "Considering hybrid models and low price segments are perhaps the way to proceed."
All considered, Cloud kitchens eliminate many long-standing barriers to entry into the restaurant industry. Despite the adversary, they offer a beacon of hope to ambitious restauranteurs and alike -- making it worth observing and perhaps pursuing for the future.

The writer is a junior at the Institute of Business Administration, University of Dhaka. He is also a marketing technology professional with a focus on Web 3.0 applications.
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