A Cloud-Based Restaurant Revolution:

While Covid-19 has devastated the revenues of dine-in restaurants, it has also facilitated the emergence and rapid growth of cloud kitchens. In the years before the pandemic, most food delivery platforms offered only a limited menu, and few top-tier restaurants provided any kind of delivery option at all. But the pandemic has brought changes to food delivery, greatly expanding the offerings of “order online” platforms. 

Surprisingly, even as Taiwan’s mid-2021 Covid outbreak abated and people returned to restaurant dining rooms, many establishments chose to retain their online offerings. According to a 2021 whitepaper by iChef, a Taiwanese provider of point-of-sale systems to restaurants, revenues from deliveries grew from only 2.5% of restaurant sales in the fourth quarter of 2019, just before the pandemic started, to 10% of revenues in the fourth quarter of 2021, when Taiwan had very few domestic Covid cases. The latter figure suggests that consumer behavior has changed, and that food services have now entered the digital era. 

The rise of cloud kitchens

With no physical storefront and no established business reputation, how do cloud kitchens, also known as “ghost kitchens,” persuade members of the public to place orders with them? Food writer Yeh Yilan believes that trust in the brand is paramount. She explains that when an already well known and well regarded dine-in restaurant launches a delivery service, the brand’s reputation gives consumers the confidence to give it a try. New brands, on the other hand, must create consumer identification through their brand’s values. For example, “Many cloud kitchens offer low-calorie or low-glycemic-index meals. The key selling point of such meals is their ‘healthiness,’ a value that appeals to office workers. For these consumers, the meals’ taste is a secondary consideration.”

Cloud kitchens are hardly the first restaurants to standardize and automate food and beverage production processes. In fact, chain restaurants and fast-food restaurants have been doing so for years. But cloud kitchens have differentiated themselves by reducing personal service to the bare minimum, creating even clearer and more standardized production lines. “While there is a market necessity for this kind of thing,” says Yeh, “people expect more from dine-in restaurants, such as when they gather with friends on the weekend.” Cloud kitchens aiming to deliver restaurant-­quality meals have to meet higher standards.

Cloud kitchen workers use digital platforms to check incoming orders. 

A Just Kitchen employee packs up an order. (photo by Jimmy Lin)

Rigorous testing

Take Just Kitchen, for example. Established in 2019, the company provides services to more than 40 in-house and partner brands and has already listed its stock on the Canadian, German and US markets. In addition to working hand in hand with Taiwanese brands like Formosa Chang and Chili House Restaurant, it has partnered with well-known international brands such as MrBeast Burger and Paul. In Taiwan, Just Kitchen operates a 1,500-square-meter hub kitchen in Taipei’s Neihu District, and a further 22 satellite kitchens around the island. It has also established a beachhead in Hong Kong, and plans to target the Southeast-Asian market next. 

To get Formosa Chang’s signature minced pork over rice just right, the Just Kitchen team made many visits to Formosa Chang kitchens and experimented with a variety of production processes. When dealing with dishes from well-known international brands, kitchen visits weren’t feasible and the company instead had to rely on video presentations to get its processes down. These efforts require the utmost attention to detail, including even the precise measurement of a teaspoon and the duration of the pressure applied to a fried beef bun. Just Kitchen does everything in its power to meet its partners’ demands, going so far as to import identical ingredients and kitchen appliances. “For example, 800 Degrees Pizza, an American brand, designated a particular oven for us to use,” recalls Isaac Lee, Just Kitchen’s director of marketing. 

Just Kitchen organizes frequent test tastings to ensure the quality of the food its online customers receive. One interesting thing about these tastings is that employees don’t try the food while it’s piping hot. Instead, they have to wait until it cools to check that it still tastes good when cold. The company also tests the impact resistance of its packaging materials to make sure they don’t deform during delivery. Just Kitchen tests every­thing before putting it into service. 

Isaac Lee, Just Kitchen’s director of marketing, stresses the importance of digital technology to cloud kitchens. (photo by Jimmy Lin)

At peak dining hours, a steady stream of couriers passes through a cloud kitchen collecting orders for delivery. (photo by Jimmy Lin)

A data-driven approach

Cloud kitchens utilize a variety of different business models. Just Kitchen’s strategy to raise its profile and earn consumers’ trust consisted of both developing its own brands and partnering with existing brands. Over time, the company has shifted the balance between these two approaches from 80% in-house brands paired with 20% external brands to its present 50:50 split. As a cloud kitchen, the company takes a very data-driven approach to new product development. Externally, it looks to Google Trends and social media platforms to identify the hottest foods on the market. Internally, it analyzes the more than 100,000 food orders its customers place every month to see which flavors are popular in different geographic areas and how much consumers are willing to spend. 

Just Kitchen’s chefs use these results to develop dishes that are then taste-tested internally. Next, the company evaluates the cost and determines pricing of the winners, draws up standardized production processes for them, and launches them into the market. The whole process only takes one and a half months from start to finish. 

Just Kitchen also uses data to site its kitchens. While traditional restaurants lean towards bustling locations, Just Kitchen looks at the delivery area within two kilometers of the potential site of a new kitchen. It also examines social media advertising data to see how often locals are already using Just Kitchen’s service, to make sure that new sites don’t poach customers from existing ones. 

Just Kitchen is also trying out a program that will deliver northern Taiwanese specialities to residents of Central and Southern Taiwan. Offering Formosa Chang dishes south of the Zhuoshui River is a case in point. “We can help businesses extend their footprint to Central and Southern Taiwan,” says Lee. “The data we generate provides a useful reference for these brands’ expansion plans. It’s like a pre-test for market research.” On the one hand, as a vertically integrated food service business, Just Kitchen is serving the diverse palates of its own customer base; while on the other, as a contract supplier, it is developing products and markets for other food brands. In this way it is building a “one-stop” online food court that works with established brands while also attempting to incubate newcomers. 

“A big advantage of cloud kitchens is that they enable restaurateurs to quickly establish their own brands. Just Kitchen provides them with a lower-cost alternative to the incredible expense of opening a dine-in restaurant. We are an accelerator, enabling new entrants to establish their own virtual restaurant brands by allowing them to hone their skills and demonstrate what they can bring to the table. If consumers respond positively, the brand can take a look at partnering with us to open a dine-in establishment,” explains Lee. 

Food writer Yeh Yilan has commented on changes the pandemic has brought to restaurants’ dine-in and delivery businesses. (courtesy of Yeh Yilan)

Challenges and advantages

Rapid technological progress and the pandemic-­induced acceleration in the virtualization of the restaurant industry have increased the public’s willingness to try out new kinds of services. For all that the digitization, technological transformation, and diversification of the restaurant business is inevitable, these trends represent a real burden for traditional restaurants. Deliver­ies require different workflows than dine-in opera­tions. They also increase labor and packaging costs, which take a big bite out of restaurant profits. 

And will consumers who have become used to delivered meals develop lower expectations of fine food? Will the convenience of delivered meals cause people to give up cooking at home? “Home cooking is an important part of every nation’s culture. If people stop cooking at home, how will Taiwan’s food culture be passed on to the next generation?” wonders Yeh. 

Viewed from another perspective, cloud kitchens lower the cost of starting a food business, and provide especially large economies on rent, which is usually the biggest expense. In addition, different brands can share the same kitchen and even benefit from joint purchasing, saving still more money. Cloud kitchens have yet another advantage in how easily they transcend geographic limitations. Lee observes that consumers choose what to eat based in part on where they like to travel, and adds, “We enjoy making ‘food diplomacy’ a part of our business, bringing in tasty food from abroad and taking Taiwanese food overseas.” Taiwan has warmly embraced Japanese and Korean food, and Just Kitchen is also bringing Taiwanese treats like boba tea, beef noodle soup, and minced pork over rice to inter­national consumers. 

Cloud kitchens probably owe their existence to the same kind of pandemic-driven catalysis that has reshuffled and reorganized many other industries. There is nothing inherently good or bad about this kind of upheaval. Times change, technologies change, and every­thing has its up- and downsides. As Lee describes the current moment, “It is the worst of times, it is the best of times.”

Healthy prepared meals are especially popular with office workers.

Cloud kitchens lack dining rooms, but this makes them very flexible. Here, Just Kitchen is raising its profile by operating a food truck in a busy commercial district.