The Multi-Brand Ghost Kitchen
Retail & Consumer Focus
‘Ghost kitchens’ also known as cloud kitchens have globally risen in popularity since the pandemic and look set to be a fixture in a post-covid world.
Law Update: Issue 357 - Retail & Consumer
Layla AlalawiAssociate,Corporate Structuring
‘Ghost kitchens’ also known as cloud kitchens have globally risen in popularity since the Covid-19 pandemic and look set to be a fixture in a post-covid world. Against a background of tech innovations, and the rapid changing of consumer eating habits, consumers forced to turn to home delivery during that time have increasingly cemented their new dining habits and it appears that the market has changed permanently in the favour of cloud kitchen service providers. Multi-brand cloud kitchens, principally having multiple cuisines and brands centralised within a single kitchen with no storefront, are technology driven and highly efficient operators in the food and beverage preparation and dispatch space. With no physical dine in spaces, they rely solely on orders placed via websites, mobile applications, and aggregators, and prepare such multiple cuisines on a large scale. According to the Valuates Reports, the market size in North America, Europe, Asia Pacific, Latin America, Middle East, and Africa in 2020 was approximately USD 29.4 bn with an estimated revenue forecast of USD 1.12 tn by 2030 . Such projected growth provides a much-needed energising jolt to the food and beverage market.
Some clear advantages of cloud kitchens include the following:
Efficiency: operating multiple brands from one kitchen, allows batch preparation of ingredients for diverse menus, where custom built technology-based spaces enhance food preparation and delivery processes, with all the advantages of the apparent economics of scale.
Lower Costs: significant costs for setting up and maintaining a brick-and-mortar restaurant such as service staff, utility costs, dinnerware, signage, dine-in space, interior design are avoided leading to higher profit margins. Additionally, partners of cloud kitchens (i.e., the brands) are offered a chance to penetrate new markets or the food and beverage service industry as a whole with much lower levels of capital investment and in a faster timeframe, benefitting the partners as well as consumers who have accessibility to new brands in the market.
Flexibility: partners may effortlessly scale up or down by allocating and deallocating resources based on demand. Furthermore, they may experiment with new food and beverage concepts. Should such experimental menus receive low exposure and fail, they may easily abandon the idea and start fresh without significant losses. Prices of dishes based on ingredient prices and/or customer feedback may also be easily amended without the cost for new physical menus.
Leveraging third-party apps marketing: brands are able to gain exposure through the websites, mobile applications and aggregators, without the need for significant marketing spending.
Leading players in the cloud kitchen space within the Gulf Cooperation Council (“GCC”) market include, Kitopi, KLC Virtual Restaurants, Kaykroo and Sweetheart Kitchen and we have seen a trend in the market whereby venture capitalists are showing increased interest and recognising the huge growth potential and potential for significant returns. Taking the reputable 2018 start-up ‘Kitopi’ as an example, who was involved in one of the largest funding rounds in the Middle East region in 2021, the company received USD 415 million from a group of investors led by Softbank Vision Fund 2, with participation from Chimera, DisruptAD, B. Riley, Dogus Group, Next Play Capital and Nordstar during its series C funding round. Such funding is currently fuelling its rapid expansion in the Middle East and entry in the Southeast Asia markets. With its unique in-house developed technology, known as the Smart Kitchen Operating System (SKOS), Kitopi has optimised all aspects of kitchen operations, maximising efficiency, and utilisation. The expansion included entry into the Kingdom of Bahrain, a market long famed for its dynamic food and beverage industry, with renowned local and regional brands such as Boxit, Eat Fresh, Prept, Urban Slice and others as invested brands and new food brands in Bahrain such as Right Bite.
From a regulatory standpoint, the process of setting up a cloud kitchen service in Bahrain is, commensurate with Bahrain’s wider commitment to ease of doing business, straight forward. Although there are currently no specific ‘cloud kitchen’ commercial activities published by the Ministry of Industry and Commerce (MOIC), it is generally accepted practice that cloud kitchens operate under the ‘food and beverage service activities’ and ‘catering services’ guise. In recent years, Bahrain has increasingly liberalised the restrictions relating to which commercial activities may be undertaken by 100% foreign owned entities. Despite this however, foreign national shareholders outside of GCC and American nationalities, will require a minimum percentage of Bahraini or GCC ownership to undertake cloud kitchen service activities in Bahrain.
Proper licenses and certification are a significant consideration when establishing a cloud kitchen in Bahrain. These will ensure proper sanitation, food safety and preparation. The Bahrain Ministry of Health and General Directorate of Civil Defence approvals and licenses are required to legally undertake cloud kitchen services in Bahrain. Such licenses impose stringent requirements for amongst other things; handling and preparing food, packing and packaging, materials fittings and equipment; and fire and safety equipment. Note that the Ministry of Health and General Directorate of Civil Defence sets out the initial requirements in their application forms provided online and offer aid throughout the licensing process to entities wishing to obtain such licenses. It is further recommended that licensed engineering offices listed under the ‘service providers directory’ are engaged with to provide drawings/layouts of the premises facilitating the adherence to the licensing requirements mentioned above.
With projected future growth in the cloud kitchen arena in the GCC, food brands as well as food entrepreneurs may benefit greatly from partnering with cloud kitchens across the region and taking advantage of the continued diversification of the market to include the online marketplace. Benefits of the cloud kitchen business models as well as technological advancements in all aspects of kitchen operations, continue to make this aspect of the food and beverage service market an increasingly exciting area, and one that looks set to continue into the future.
For further information,please contact Rad El Treki or Layla Alalawi.
Published in April 2023
