By Associate Professor Dr Daniel Chong, Associate Dean (International) – School of Hospitality and Service Management, Sunway University
With a better understanding of the pandemic and its aftermath on global inflation, smart businesses are adapting to similar challenges in a more agile and responsive manner. As dine-in experiences gain traction, venture capitalists should keep an eye on cloud kitchens. These centralised food prep facilities, also known as “ghost kitchens,” lack a storefront and focus solely on delivery. As a result, it has a low entry cost, low rental, and requires less labour to operate. This not only reduces overhead costs, but it also removes the earnings pressure by persistent global inflation of material costs and highly appreciating physical location. Even after COVID-19, it appears that cloud kitchens will continue to grow. Looking ahead, the market is expected to be worth US$ 112.53 billion by 2027, with a CAGR of 11.50 percent from 2022 to 2027. The key success factor, however, is to keep an eye on the following challenges:
Customers’ Acceptance and Experience
Any cloud kitchen’s success depends on consumer acceptance and approval. The cloud kitchen concept actually encourages individuals to look for little more in food than is necessary to satiate their hunger in terms of significance, enjoyment, and feeling. When movement is under control, this phenomenon is probably readily understood, but it is challenging when things are normal. The experience economy is based on the concept of providing customers with unique experiences that go beyond simply eating food, resulting in memorable consumption. However, there aren’t many opportunities for meal delivery services to offer such a distinctive experience. Not only are creative efforts desperately needed to develop the ordering, receiving, and consuming experiences of customers, but also post-purchase engagements.
Absence of Customer Engagement
In-house dining arrangements are best suited for customer interactions and attention to their needs. Cloud restaurants must find ways to communicate clearly with their customers in order to incorporate their needs and feedback into their operations. The service provider serves as the link between the product and the customer. Gone are the days when food service providers were only concerned with providing good food and not with how the customer was treated while the product was being delivered. The cloud kitchen operator is the key person in this context, ensuring that engagement is still possible digitally throughout the purchase and delivery process.
Difficulties with Marketing and Branding
There is no brand boost from the storefront. Normally, customers are constantly reminded of physical locations, especially in high traffic areas. However, it would be difficult for Cloud Kitchen marketers to participate in a wide range of marketing and promotional activities in a number of hypercompetitive and dynamic digital markets. Additionally, consumers are becoming more inclined to value hedonic features of goods and services. However, in the absence of dining ambiance and elegant table setting, the operators of Cloud Kitchen should depend primarily on the aesthetic value of their food offerings and packaging to attract customers.
Workplace Environment and Employee Motivation
Because employees wouldn’t be engaging with clients, some staff would compare working in a cloud kitchen to working in a factory rather than the hospitality industry. Employee motivation, performance, and welfare may all suffer in a non-interactive work environment. By offering a choice of workspaces, employers can promote innovative working practises and provide employees the freedom to choose the setting that best suits their needs and the task at hand. Of course, there are other ways to boost morale and motivate people, but if important stakeholders (staff and customers) are not physically linked, developing a brand culture may be more difficult.
Limited Control Over the Delivery Process
Because all orders are take-out, cloud kitchens rely on the delivery process. Monitoring the performance of delivery personnel and the quality of the journey is difficult. Furthermore, excessive reliance on third-party delivery services results in high fees that can eat into profit margins, and you have little control over last-mile delivery, which can compromise food quality and jeopardise your brand. On-time delivery has a significant impact on customer satisfaction, and any negative delivery experience may lead to lower future ordering. Furthermore, any delivery flaw, such as a delay, incorrect quantity, or menu item, may result in order cancellation. The efficient delivery boosts the brand and boosts trust towards the cloud kitchen organisation.
Food Quality and Food Safety
Your reputation as a delivery-only food service provider depends on the food arriving in top condition. Major challenges arise while trying to maintain the food at the proper temperature so that it reaches the consumer on schedule. It should not only be the right temperature for them to enjoy it, but also be secure food safety. Priority should be given to packaging choices that ensure food safety and allow the product to withstand the conditions of delivery.