Think the food you are having at your favorite Italian restaurant is prepared in-house? It would have arrived bobbing on the backs of cyclists or motorbike riders. Cloud kitchen, which could be a $1 trillion industry by 2030, now has the potential to provide a growth mode to the hospitality industry in the Middle East.

The concept, which has been a lifeline during the lockdown, has not only been used by restaurant brands but now established hospitality brands are experimenting with food prep efficiency. Globally, the trend has gained credence with brands such as SBE Group, Accor Group, Marriott International, Hyatt, and ITC Hotels pivoting to the cloud kitchen model during the pandemic. In the US, a fractional 5% of hotels are operating ghost kitchens from their properties, but the number is expected to grow.

“Although F&B accounts for 15-20% of hotel revenues, it often hurts hotel profitability and requires twice the effort to manage compared to room operations,” says Joe Frem, the CEO and Co-founder of Matbakhi, a Riyadh-based cloud kitchen that launched last November.

Joseph Chalfoun, the area restaurants & bars director for the Middle East & Africa at Radisson Hotel Group, says, “As the F&B market in our region continues to grow and mature, a collaboration between hotel operators and cloud kitchens has become mutually beneficial.” Radisson Hotel Group recently partnered with KRUSH Brands to launch a cloud kitchen.

The marriage of ghost kitchens and hotels has the potential as a long-term business model, experts say. 

THE ELEPHANT IN THE ROOM: COST

So what are the reasons for this traction? Well, profit margins are slim in hotel restaurants.

Hotels primarily generate revenue through room bookings, including overnight stays and day-use rooms for business travelers, transit passengers, and those seeking a temporary space to relax or work. 

Hotels typically set their room rates based on various factors, including seasonality, demand, location, amenities, and room type. Hotel restaurants provide only an additional source of income.

According to Frem, for 2-4 star hotels, offering F&B services is necessary to maintain high room occupancy levels, and without it, occupancy rates can drop below 50%.

“Managing F&B operations is also more complex than room operations, requiring constant menu differentiation, procurement and handling of perishable items, and ongoing training,” he adds. 

Matbakhi aims to address these challenges by partnering with hotels to manage their kitchens and increase revenues through the online food delivery segment.

And it’s a win-win situation.

“By onboarding a cloud kitchen company into existing kitchens, hotels benefit from maximizing space utilization within their kitchens and improving their efficiencies and metrics. And cloud kitchens benefit from a turnkey solution, low investment cost, highly strategic locations, and fast deployment and launch of their operations within the hotel,” says Chalfoun. 

QUALITY VS. QUANTITY OR BOTH?

Also, cloud kitchens offer hotels increased access to favorite local brands, adds Chalfoun. “It allows hotels to diversify their in-room dining offerings with a wider selection of products, with immediate impact on profitability by decreasing labor costs and increasing F&B revenues.”  

“It allows the hotel to mass produce and distribute to other sister hotels certain food items, centralizing production and quality control.” 

The benefit of operating a cloud kitchen in an area with diverse consumer preferences lies in providing customized offerings. “By analyzing the customer base of each hotel, we can determine which brands will best suit their needs,” says Frem.  

A guest at a partner hotel who craves noodles or Indian food but is not available in that specific hotel can be fulfilled by sourcing it from another partner hotel that offers that cuisine. “This creates a network effect that enables data-driven personalized food offerings,” says Frem. 

THE FUTURE OF PROFITABILITY?

These collaborations are emblematic of a trend for an industry that has relied heavily on major investments in brick-and-mortar kitchens. 

Radisson Hotel Group is looking at expanding and strengthening its collaboration with cloud kitchen companies, especially ones that demonstrate a thorough understanding of the region and the evolving preferences of their customers. “We will also put a lot of emphasis on partnering with cloud kitchen operators who exhibit an understanding of hotel kitchen operations and who are flexible enough to adapt to our ways of doing things,” says Chalfoun. 

“We believe there will be tremendous opportunities for both hotels and cloud kitchen companies if the right business models are applied, ensuring equal and generous returns for both parties,” he adds.

For Matbakhi, the goal is to make its presence felt. “We want to establish a presence in all Tier 1 and 2 cities in the kingdom with 100 locations in the next five years,” says Frem, adding that it plans to expand its business to other countries in the MENA region, including Egypt, the UAE, and Kuwait. 

Chalfoun says collaborations between hospitality brands and cloud kitchens signify a significant shift in the industry’s operations. “As more consumers turn to food delivery and takeout services, these collaborations will become increasingly important for brands looking to stay competitive and meet the evolving needs of their customers.”