You’re running (or thinking of running) a cloud kitchen, and you’re here trying to figure out how to keep your costs down?
(Or a ghost kitchen. Errm, virtual kitchen? Or maybe a dark kitchen? For this post, let’s just all agree that we can use these terms interchangeably, or we won’t get anything done.)
Anyway, kudos on putting (reducing) costs front and centre.
So let’s quickly cover two basic core attractions of this (relatively) new food industry concept:
- cloud kitchens can be very profitable (pay attention to that ‘can’ there), and;
- cloud kitchen operations are much easier to scale than dine-in operations.
But, the road to profitability is covered in thorns and brambles. Most cloud kitchen operators run on slim margins. And scaling any business with slim margins is scary.
The only way to really make a killing with cloud kitchens is to make sure the cost side of things is always front-of-mind.
That’s why, in this post, I’ll focus on 24 ways cloud kitchen operators can cut costs without compromising on food quality or employee happiness.
[FYI: the quick links take you to the original post outside of Medium.]
- General cloud kitchen cost-reducing tips
- Food cost management hacks
- Rent & property cost-slashing ideas
- Waste management best practices
- Labour cost tips and tricks
- Delivery cost hacks
Let’s dig in.
General Cloud Kitchen Cost-Reducing Tips
1. Automation is the Key to Cutting Cloud Kitchen Costs
To reduce costs, try to automate as many BoH processes as you can.
The obvious automation-ripe processes that come to mind are purchasing, invoicing, inventory counts, and food cost calcs. This is all software-ready stuff that apps can do better than humans.
If you want to shoot for the stars, installing a conveyor belt that takes prepped food to a takeout window (already done in self-serve sushi restaurants) is a great way to reduce FTE/labour cost.
Oh, and did you know that robot chefs are already here? Apicbase recently partnered with ICE + FRIES in Reykjavik to help them create the world’s most advanced bionic street food bar where robots mix cocktails and prepare chips.
The whole F&B process, from ordering to production, procurement to stock-taking, is a closed-loop powered entirely by Apicbase. Something to think about, right?
2. A Tech Stack That Allows for Integration & Streamlining
Pick a tech solution that can handle as many of your day-to-day business needs as possible (procurement, invoicing, stock-taking, inventory, and menu engineering… just to name a few).
Your goal here is to have a single source of truth for your operation, without bogging yourself (or your employees) down with multiple apps and different ways of doing things.
In addition to saving you time, your choice of F&B management platform should also save you money by seamlessly integrating (fully or via API) with other ‘best of breed’ apps. For example, Deliverect for online orders, or Strobbo for personnel management.
3. Make Your Whole Operation Cloud-Ready
Live up to the industry name by making everything — SOPs, employee training, inventory, procurement, recipes, tech & allergen sheets — cloud-based.
Now, when you’re switching locations or expanding your operation, your initial time investment is cut in half because everybody (including new hires) is following established, streamlined procedures.
4. Check & Tweak Your Systems When Needed
A profitable cloud kitchen is not a set-it-and-forget-it operation. You’ve built your systems — you know what you’re ordering and when; you know your target food cost; you know your food prep procedures.
But you don’t exist in a vacuum, and things do change.
Regularly review your systems and operations. Analyse your sales data and double-check recipes. Make sure employees are doing everything by the book. And scrutinize vendors to find better deals on raw ingredients.
Incremental tweaks will prevent problems from blowing up and allow you to continuously lower your cloud kitchen operating costs.
5. Invest in Better Equipment (& Check On It Regularly)
Sure, a combi oven increases your initial investment costs. So does getting an aquacooker or a blast chiller. But these appliances can potentially offset a lot of future costs. They can help you cut down on labour costs. Or pivot to a different cuisine without having to spend extra.
For some cloud kitchen operations, going all-in on high-tech is not a great idea. But for you, it might be. Before you buy a second-hand gas stove, crunch the numbers and figure out if front-loading your equipment costs will help you save money in the long-run.
Oh, and don’t forget about maintenance. Cloud kitchens are work-intensive. This means more wear and tear, and more chances for things to break down. Pencil in regular maintenance (and don’t skip it). Why? Because replacing a valve on that brand new aquacooker is a helluva lot cheaper than buying a new unit.
6. Invest in photo equipment (& break Instagram)
This hack initially isn’t going to save you money but exquisite visuals will boost your sales. And bigger volumes wíll bring your food cost down (more on this in hack n°8).
With online ordering, people haven’t got much more to go on than the photos. The more appealing they are, the more chance you have of winning that order.
A simple photo studio for food will make you more money.
Ghost Kitchen Food Cost Management Hacks
7. Think Virtual Brands (& Lots of Them)
The beauty of the cloud kitchen concept lies in the fact that you don’t have to commit to providing a singular dining experience. Finally, an opportunity to go as eclectic and as fusion with your food as you’ve always wanted to!
Check what’s missing in the areas that you want to service and give yourself a leg up. There are several sushi places around but no Lebanese? And no Egyptian?
Do some on-the-ground research to see what it’s worth to you to bring a dash of the Middle East to the neighbourhood. One decent chef can easily execute dishes from similar cousines (which means reduced labour costs).
And because of bigger volumes of the same raw ingredients, you get to work out better deals with your suppliers.
8. Make Your Recipes Work for You
Since you’re offering similar-but-different styles to customers, you’ve covered offer variety. As for the individual recipes, however, it pays off to be smart. Focus on those dishes that use the same core ingredients.
When you have a lot of ingredient crossover between menu items, you can stock up (at reduced cost). More importantly, though, you can easily keep food waste at a minimum because your inventory turnover is higher than that of dine-in establishments.
9. Keep Your Menus Simple AF
To run a cost-effective cloud kitchen, you need to focus on two things: speed and volume. Ditch the idea that you’re running a fine-dining experience, and take an axe to your oversized offering.
Your menus need to be streamlined because an abundance of choices triggers Netflix syndrome. This is a choice overload that results in customers ordering their food elsewhere.
A lean menu — one that features 10 items at the most — is easier to manage, cheaper to offer, and causes fewer headaches (and waste). Oh, and 86 most of your French-sounding dishes (or, at least, rename them) — haute cuisine is not a popular delivery item and can leave you in the hole.
10. Learn How to Quickly Check Your Food Costs
Wouldn’t it be great if you could calculate your food costs once, and just say: “We’re at 20% and we’re staying put?”
That simply never happens.
Food costs go up. Food costs go down. If you don’t know how to check them at a glance, you can bet that up will be their general direction. Avoid that with useful calculations: days sales in inventory calc and inventory turnover ratio.
Or, you know, let Apicbase tell you all you need to know about food costs (and how to keep them down).
Hacking Property & Rent Costs of Virtual Kitchens
11. Shared Kitchens Might Work for You, Too
They might, especially if you’re in a large metropolitan area where they’re popping up like shrooms after a good rain — I found this one in central London after 10 seconds of googling.
Shared kitchens are usually fully equipped, licensed, and ready to go. You just have to sign the contract, bring your cloud and your ingredients with you, and get to work.
However, you trade in flexibility for these super-low initial costs so that needs to be considered as well. Shared kitchens are great for Mom&Pop-type of virtual brands that have a recognisable ring to them, don’t work around the clock, and have very lean menus that are always in demand.
12. And So Could Temporary Pop Up Locations…
… especially if you keep an eye on large manifestations and events happening within driving distance. Being close to where people gather, even for a few days, lets you shift large volumes, making a quick buck and growing brand awareness in a previously unserved area.
These pop up locations can be simple containers, designed to give you physical access (delivery apps will only serve a radius of 2.5 km from where you are), as well as a place to add the finishing touches to a dish. For these types of kitchens, most of the prep is done at one centralised location in any case.
13. Rent Out Your Extra Space
If you own a lot of kitchen space that you’re not using, why not welcome other virtual brands into your space and become a host kitchen?
Depending on the size of your operation, this can turn lucrative, fast. Worst case scenario is that you offset some of your loan or utility costs for a month and if things don’t work out, part ways with the renter.
Waste Management for Dark Kitchens Made Easy
14. Make Your Dark Kitchen Operation Waste-Proof
Food waste management hinges on employees understanding what the cost of waste means for the business. And operators often grapple with how to address that.
Well, it comes down to training, detailed SOPs, and this handy little trick I’m about to share with you.
Have employees record all waste (down to every last oversized potato peel) over a week, and assign a monetary value to it. Weigh everything, put it in bin bags, and store it in a fridge.
Once your employees see five big bags of food wasting away (where there should be only one or two), they’ll approach trimmings and overproduction differently. Mostly, it’s not out of the goodness of their heart, though — a part of that extra cost they’ve generated was earmarked for their bonus pay (so make sure to tell them that).
In-depth resource: Restaurant Food Waste Management — Drive Down Food Waste & Costs
15. Get Your Mise En Place In Order
This means drilling down to the ‘quarter-of-three-centimetre-diameter-tea-spoon-of-sugar’ level.
Your common kitchen worker likes it when you take the guesswork out of the equation. Otherwise, one salad gets two tomatoes, and another three. At the end of the week, you’re putting out 20% more tomatoes than you are supposed to.
Go granular with your mise en place — prepare tech sheets, visual recipes, training videos. And digitize everything so that you have it ready for another location. You save money, time… and probably a couple of tomatoes, too.
16. Repurpose Your Trimmings
This is where all that time and effort you’ve spent on recipes pays off.
It’s a lot easier to repurpose ingredient trimmings in a cloud operation than it is in a regular dine-in restaurant. When you run several virtual brands, one of them could be trimmings-intensive, serving broths, soups, stews, and similar. This gives you an opportunity to get creative without wasting a lot of stuff.
Labour Cost Hacks for Cloud Kitchens
17. Unlock Data to Optimise Employee Scheduling
Okay, so you’re operating with a skeleton crew. Does that mean you can’t drill even deeper to fully optimise employee scheduling?
Of course not.
After a while — and after consulting your historical sales data — you can make sure that there’s never an idle pair of hands in your kitchen. At some points (for example, during the afternoon hours when it’s your sandwich brand that’s getting most of the orders), you’ll need just a kitchen hand to put bacon in between bread slices.
During some evenings, you might need your chef and just one assistant instead of two (middle-of-the-week slow nights).
Use your data to know how many people you’ll need and when. If in doubt, under-staff but have someone on standby, ready to come in if things get busy.
18. Work On Employee Retention…
Another one that’s easier said than done, thanks to the industry’s notoriously high turnover rate.
But, there are still ways to hold on to experienced employees:
- pay slightly above the market rate if possible;
- work out an employee-centric benefits scheme (subsidised childcare, for example);
- provide training and mentorship (and advancement opportunities);
- introduce engagement campaigns and rewards.
These are just off-the-cuff ideas (but they work across different industries) — the point is that, even with these kinds of investments, building long-term stuff is often less costly than hiring/training new people every few months.
19. … But Onboard in a Flash
Sometimes, you just won’t be able to keep a staff member. So you’ll have to go through the whole hiring rigmarole for the nth time.
Speed things up by making onboarding lighting-fast. Send out your training procedures, SOPs, and tech sheets to new hires immediately after hiring them (before their first shift). Encourage them to get to know processes and the ways of doing things.
Your best friend here, however, is video. Here’s how you leverage it:
- create step-by-step stop motion videos for food prep and plating;
- upload video to your F&B management platform;
- connect everything to an overhead kitchen screen.
Now, new hires have an on-demand guide and can learn while they work. They’ll get proficient much faster, and the added bonus is that existing staff will be there to guide and advise (and not hand-hold new hires for a week, wasting precious time).
(Cue in humblebrag — you can do beautiful stop motion videos with Apicbase, and we can hook you up with state-of-the-art tech).
20. Save On Labour Costs Via a Central Kitchen
If you’re running several cloud kitchens (physical locations) to cover more ground, consider switching the bulk of production work (for example, stockable sub-recipes such as broths, sauces, doughs, and similar) to one centralised location.
That way, you’ll be employing fewer chefs and sous chefs (medium to high salaries), and more line chefs and kitchen hands (lower-end salary tier).
This central kitchen can be in a low rent area, and your pop up locations can be smaller in size (so you’ll be paying less in rent overall). Just remember to factor in an internal order-tracking solution otherwise, you’ll have no idea how individual kitchens are performing.
Reducing Virtual Kitchen Delivery Costs
21. Customer Data? A Money-Making Machine
Too easily, ghost kitchen operators relinquish customer data to third party apps. For some who just want to run a bare-bones kitchen, this makes sense. However, if you want to scale your business, not knowing who your customers are (and where they are) is a big no-no.
Find some way to capture customer data occasionally — add an on-site ordering option, offer takeaway for a brief period of time, run your own in-house delivery for a month. This will help you figure out how and where to scale, or what to change when pivoting.
22. Incentivise Takeaway (Where Possible)
You prep the food and the customer drives to your location to pick it up? That’s the bank, right there. It’s clean money with little overheads and zero associated delivery cost.
To incentivise takeaway, build a social media presence, an email list, or similar, and work on building up your reputation (for one virtual brand or all of them). You can offer coupons or pick-up-only discounts on a regular basis and still have a lower overall cost than when working with any type of delivery.
23. … Drive a Hard Bargain With 3rd Party Delivery Operators
I’ll be honest here — wiggle room leaves much to be desired when it comes to these kinds of negotiations. Most deliveries take between 20 to 30% of order value, dipping to around 25% if you sign an exclusive deal with one of them.
BUT — don’t let this stop you from trying.
If you’re running established brands in your kitchen, and a delivery operator is just breaking into a market, you have a chance to get them below 20% of order value, at least for some time.
24. … But Don’t Depend On Them
Best advice I’ve ever got? Don’t build your house on rented land.
So I’m passing it on — don’t depend exclusively on 3rd party delivery apps. Yes, I know — know they’re largely responsible for the take-off of the cloud kitchen concept. Yes, they are helping you make money.
But we have no idea what the future holds. Have safeguards in place so you can pivot quickly if there are any unexpected twists or turns in the industry.
When you’re ready, build your own app, website, or an email list. Start slow but try to grow that aspect of your business. The future of cloud kitchens might well be a hybrid model that you’ll be prepared for. Having a takeaway counter (or running partial, weekdays-only deliveries) doesn’t cost that much, but it will help you test the waters.
It REALLY All Comes Down to Cost Control, You Know
Like… really really.
I can’t stress enough how important it is to have the cost side under control if you want to turn a profit in your ghost kitchen. And especially if you’re looking to scale your operations.
Every little bit helps here — 0.5% saved on food cost. 1% rescued from trash cans. 2% eked by fine-tuning employee shifts. It all adds up and, in the end, it’s what grows your bottom line.
If you’re ready to get those costs under control and expand (because expanding while you’re running in red means you’ll only bleed out faster), get in touch with us here at Apicbase.
We’ve built an F&B management platform the cloud kitchen concept in mind. Let’s stomp out those pesky costs.