Is Pakistan ready for Cloud Kitchen Networks? - A yummy analysis

Kids food art sandwiches background, funny faces and flowers

Spending my hostel life on the opposite side of Park Road in Islamabad, we were often declined orders from most of the food chains. In fact, once we were told by KFC “hum gaun me deliver nahi kartay” (We don’t deliver in villages), well that hurts when you wanted a Zinger after a long tiring day. 

Consequently, we had to order from not-so-good local restaurants. However, it is understandable there are a few issues when it comes to food deliveries, a few being :

  • Hard to reach every corner of large cities. 
  • Delivering hot food to locations far off from their branches.
  • Sky-touching real estate costs for rent and ownership both if a franchisee wants to increase their branch network. 
  • High maintenance costs for outlets. 
  • Dine-in areas and services going to waste given the pandemic situation. 

A new world calls for new services. We wish for a world where no one is deprived of Zinger burgers, irrespective of where they live. 

The only way to make this dream a reality are Cloud Kitchen Networks. It is a concept that provides a smart solution for all these problems.

But firstly, What are Cloud Kitchens?

A cloud kitchen restaurant is a shared kitchen space that runs on a delivery-only model. It provides kitchen space, equipment, chefs and ingredient at a high demand location. Collaborating restaurants can provide recipes, half-made meals, or ready-to-deliver meals to cloud kitchen. 

When ordered through a food delivery service, food is completed in such kitchens and delivered within a few minutes. Such cloud kitchens can have takeaway options but no dine-in facilities. 

The cloud kitchen format gives the restaurant the flexibility to launch more than one brand using the same kitchen infrastructure. This is the economical option for restaurants to reach more locations without investing in a new branch.

“These are hidden kitchens that serve food at lower rates since they reduce the operating costs of restaurants significantly. It also makes it possible for them to offer services in new geographies by simply maintaining their digital presence.” 

~ Abdus Samad Rashid, founder and CEO of Hotpod

Why Cloud Kitchens are the next big thing?

The idea of going out or cooking is becoming less appealing to millennials and Gen-Z. As a generation, we are more inclined towards comfort and avoid socializing unless necessary. A few reasons why cloud Kitchens is bound to succeed at this time:

  • It helps food business entrants sidestep high rents and real estate costs by shedding the front-of-house.
  • The more elaborate cloud kitchens are based on data intelligence such as area wise demographics of residents, popular cuisines and hyperlocal demand-supply.
  • They require lower financial investments as compared to a full-fledged restaurant but give you full opportunity to reach a large pool of customers.
  • Having a single shared kitchen keeps operational costs low.
  • It offers convenience to the customers, which is an important decision-making factor nowadays.
  • It lets you keep a flexible menu, changing according to season, trend, demand or your personal preferences without any hassle.
  • Cloud kitchens allow restauranteurs to experiment with new concepts, fail fast, and easily scrap ideas that aren’t working with low exposure.
  • These kitchens can optimize processes, ordering, and staff scheduling based on consumer behaviour thus giving them direct access to customer data.
  • Cloud kitchens can run very efficiently given optimized prepping and delivery processes.
  • Virtual restaurant brands can gain quick exposure through delivery apps saving them marketing costs as well.

Cloud Kitchen Networks in Pakistan

The revolutionary concept of virtual kitchens was already popular worldwide. Pakistan entered the $1 trillion cloud kitchen market as the pandemic encouraged food deliveries over dine-ins. 

There are a few cloud Kitchen networks currently operating in Pakistan.

  • Lettus Kitchens
  • Hotpod Managed Kitchen Network
  • Cloud Kitchens Pakistan

Cloud Kitchen Networks have different models differing in store-fronts, facilities they provide, outsourcing items, and packaging. Let’s go through the business models of a few operating in Pakistan.  

Working Model of Hotpod Kitchen Network

Hotpod is the first shared cloud kitchen platform in Pakistan providing kitchen spaces in high demand locations across the nation.

It provides a cost-efficient way to expand the distribution network of food businesses by giving instant access to the food aggregator’s user base.

Hotpod launched its operations from 3 kitchens in Karachi and planned to expand to more than 50 shared cloud kitchens in the country.

Working Model of Lettus Kitchens

Lettus cloud kitchens is a hybrid model. They are multi-cuisine spaces that enable 70 per cent-plus of frequently ordered online food options to be prepared in a single mid-sized kitchen. 

The kitchens are tech-enabled offering an online ordering platform, digital billing services, equipped kitchen stations and inventory management. 

They launched a portfolio of delivery-only restaurant brands partnering with brands that provide ready-to-eat products. Masoom’s bakery is one such example.

Working Model of Cloud Kitchens Pakistan

Committing to their tagline “You cook, we’ll do the rest”, they provide commercial kitchen and storage space, manage all delivery orders, handle logistics to deliver faster and more accurately, take care of the cleaning, maintenance, and security.

A turn of events 

On December 24th, 2021, Hotpod, Pakistan’s first and most renowned cloud kitchen platform announced shutting down its operations. 

“We were unable to reach a product-market fit and realized that the external factors pertaining to the food industry in Pakistan make cloud kitchens a much harder proposition at this time.” 

~ Taha Anis, co-founder Hotpod

This announcement was followed by an article explaining their vision, shortcomings and the reason they decided to shut down. 

Issues faced by Hotpod building cloud Kitchens in Pakistan

There are a few aspects in our country that don’t support cloud kitchens. 

  • Smaller margins are available to optimize fixed costs.
  • High inflation and currency depreciation increase food costs.
  • Price limitations on food delivery costs due to discount incentives by brands.
  • Taxation is an additional expense in an unregulated economy. Embedding taxes in food costs as per the rules increase prices well beyond what the unregulated brands offer. 
  • Customer acquisition for smaller brands causes unfavourable economics. 
  • Unclear growth graph for the physical infrastructure of cloud kitchens. 
  • Risk of perishability and quality degradation
  • Unreliable third-party delivery services.
  • Limited digital payment platforms. 
  • Increasing commissions and hidden costs from aggregators. 
  • Aggregators launch their own brands that overshadow all the rest due to their premium placements and allocations. 

Pakistan’s pioneer cloud kitchen platform shuts down, what does it mean for other cloud kitchen networks?

It is a concerning point for all such platforms. Is it really not the right time to build a successful virtual kitchen network in Pakistan? 

Hotpod shared its learnings throughout the process to help other similar platforms regarding the dos and not-to-dos when it comes to cloud kitchens.

Things Hotpod suggests doing differently from what they did:

  • They recommend running a smaller pilot as they created 3 kitchens right from the beginning.
  • Hotpod tried to create a model that solves issues with Customer Acquisition, Physical Infrastructure, Culinary Operations, Supply Chain, Stakeholder Management, Delivery Services, and Customer Services all in one go. They stated a better approach would be to choose a more specific problem in the food space.
  • It suggests aspiring entrepreneurs take a more tech-focused approach when it comes to cloud kitchen space.
  • Lastly, they suggest sticking to one model during the fundraising stage.

Keeping in mind the hurdles in the path of cloud kitchen setups, there still is a lot of hope in this evolving society. 

Unilever’s interest in cloud kitchens

Unilever issued an article titled “The sky is the limit when it comes to cloud Kitchens”. They plan to be a part of this boosting sector by providing packaging and ingredients appropriate for deliveries. 

“The food needs to remain stable, fresh and warm for longer. So we help design dishes and ingredients that, when the box is opened, look and taste as they would in the restaurant. That’s not straightforward when you consider these boxes can be in transit for some time and sped around streets on the back of a bike,” the article read.

With giants like Unilever contributing to the cloud kitchen space in Pakistan, the sector can grow exponentially. Learning from hotpod’s journey, there is a long way cloud kitchen platforms can go. 

We can expect the virtual kitchen networks to grow in Pakistan and change the food delivery dynamic altogether in 2023. Let’s hope for some yummy changes soon.

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