Dark or cloud kitchen model … is this the viable option for those venturing into the restaurant industry?

Brody Sweeney

By Brody Sweeney, founder, Camile Thai Kitchen

In 2019 and also at the beginning of this year industry experts were predicting consistent growth in the franchise market for 2020. While Covid-19 may have altered that prediction, there is great news about franchising, even during a global pandemic.

A lot of franchise brands are thriving, depending on the exact industry. So, for franchisors and franchisees, there are many reasons franchising will be more important in 2021 than ever before.

Moreover, a crisis can rejuvenate the way we operate and help us to rethink and revolutionise our practices. This has included an accelerated focus and adoption of new technologies, such as kitchen robotics, cloud kitchens and drones.

Although, in the current climate, the success of a franchise business also depends on future-proof, flexible franchising models. Models that are and will be adaptable enough to meet the needs and requirements of future lockdowns and restrictions.

At the end of May, Camile launched a lower-cost franchise model which is targeting venues such as hotels, pubs and restaurants that have been forced to close due to lockdown measures, but which have professional cooking facilities that could be converted into ‘cloud or dark kitchens’ for home delivery, even while they remain closed.

Through this innovative new franchise program, hotel, restaurant and pub owners can maximize their kitchen space and bring new options to market, increasing revenue almost immediately with easy-to-prepare items designed for delivery.

Driven by the pandemic, cloud or dark kitchens have been shaking up the entire restaurant industry. It’s a restaurant-model with no storefront, no tables and chairs, no internal seating at all. This kind of approach lowers so many overheads and helps deliver a concept that is high-profit and comparatively low-risk. More and more existing restaurants and Quick Service Restaurants chains are now venturing into cloud kitchens because of its operational efficiency and low start-up costs. So, what’s it all about? Let’s first set the scene.

UK’s food delivery market
The total foodservice delivery market was worth around £8.5bn in 2019, largely thanks to the rise of online delivery concepts. Although telephone orders still account for a large share of orders, deliveries ordered online or via an app have increased dramatically. If we take a closer look at the online food delivery market in the UK, it is revealed that the ‘dark kitchen’ category holds a major share in the growth of the online food delivery market.

Revenue in the online food delivery segment is projected to reach £4,649m by the end of 2020. Revenue is expected to show an annual growth rate (CAGR 2020-2024) of 6.5 per cent, resulting in a projected market volume of £5,974m by 2024. The market’s largest segment is ‘Restaurant-to-Consumer Delivery’ with a projected market volume of £3,195m by the end of 2020.

With the rise of food-tech start-ups and such high internet penetration across the entire UK (by 2025, a penetration of 97.5 per cent of the total population is forecasted), the online food delivery market shows no signs of slowing down. The booming online food delivery market is yet another growth deterrent of the dark kitchen industry, which is one of the biggest reasons why big brands are going forward with the concept of a ‘dark kitchen’.

Which type of franchise would be a better fit for you?
Food franchise opportunities are widely available in the UK and there are many different options, such as fast food, health food, pizza, sandwich shops, smoothie and juice bars as well as restaurant franchises.

In the UK, the need for healthier food options is definitely on the rise. 2021 will be a year where healthy living is a huge megatrend. Spending so much time in lockdown with a focus on creature comforts, has led to reports of rising obesity. Once restrictions are lessened with the vaccine roll-out, consumers will likely shift refocus on areas like health, wellbeing in order to be prepared for their “re-emergence” into the social scene.

Driven by the need to get back in shape, consumers are likely to flock to food and drink businesses that will offer such healthier alternatives. So this megatrend is definitely something potential food franchisees should consider for 2021.

If you are thinking about going into franchising this or early next year, another important factor to consider is whether you should join a large existing brand or if it would be better to go with a new franchise business. Finding an opportunity to start with an established franchise can be tricky. Some well-known big companies may have an opportunity, but it could be hundreds of miles away. Also, partnering with, for example, a Domino’s Pizza franchise in the UK or Ireland is virtually impossible, as existing franchisees and company-owned store managers snap up all the available opportunities.

So a new franchise brand provides much more flexibility in that regard. Also, with a solid, young franchise your annual sales growth will likely be higher than in an established franchise, as your brand awareness grows. That means lots of opportunities to grow personally and for your business.

Dark or cloud kitchen model: Is this viable for someone who wishes to venture into the restaurant industry?
Generally speaking, the operational cost of a restaurant or pub is very high because of various factors such as start-up costs, real estate or rental fees, interior design, IT, inventory, manpower, salaries, material cost, and other miscellaneous expenses. In a ‘dark or cloud’ kitchen many of these expenses get cut down. They don’t require investment in real-estate and interior costs.

According to a recent poll, permanent closures continue to increase across all industries, with the restaurant industry now reflecting the highest total business closures. Seven out of ten UK pubs and restaurants fear they will become financially unviable and forced to close next year as a result of damaging Covid-19 restrictions.

The main trade bodies representing the beleaguered sector – the British Beer and Pub Association, the British Institute of Innkeeping and UK Hospitality – said the new findings revealed that 72 per cent of members expected to operate at a loss and to be unable to survive because of the collapse in trade.

Another benefit of operating a ‘dark or cloud kitchen’ is the fact that it provides simplified menus so that the focus can be on automation. Everything can be automated, from pre-preparation activities to packaging. ‘Dark or cloud kitchens’ are also exploring more technologies to allow them to automate the entire operation.

Despite delivery costs, a ‘dark or cloud kitchen’ is still a more affordable model than a brick-and-mortar restaurant where infrastructure and operational costs do not allow you to make high margins. If you have higher margins, you have the ability to offer more competitive prices in terms of food quality and service. Further, overheads are less as ‘dark or cloud kitchens’ do not have to be in a prime location, as customers will never visit the venue.

The industry can already see an increase in interest from those looking to buy their own franchises, and we are expecting that this will materialise as a tidal wave of franchise sales by early 2021.

For the above reasons, I would highly recommend anyone who considers buying a franchise to take some time to do the research and figure out what kind of franchise you would like to own. There are plenty of affordable options that you can start with, and if you need more assistance, hiring a specialist might help you to whittle down your options but also direct you to options you may not have considered.

Author: Brody Sweeney, founder, Camile Thai Kitchen
Serial-entrepreneur Brody Sweeney is founder of Camile Thai Kitchen – the UK’s fastest growing Thai food chain with 36 locations, including six in London.

Camile, which turns ten this year, was created in response to the ever-growing demand for high quality, healthier and more sustainable home delivery options. With a strong tech focus, the company is working to leverage cloud kitchens and kitchen robotics to create a new genre of convenience dining based on health, sustainability and speed.