Everyone Says Cloud Kitchens Are Cheap to Start. They're Wrong

About this episode

Mohamed Shahrzad, co-founder and Chief Business Officer of SMAKIT, joins host Shan A Salam to break down the realities of building and scaling cloud kitchens in the Middle East. Drawing on his hospitality finance background at Hyatt Hotels, Shahrzad explains why cloud kitchens are neither cheap nor easy, debunking common industry misconceptions. He details his progression from hotel cash management to restaurant consultancy, navigating the restaurant delivery boom during COVID-19, and running a successful proof-of-concept in Ras Al Khaimah. Shahrzad reveals how SMAKIT launched up to 85 virtual food brands within 18 months in Qatar, generating over 400 delivery platform revenue streams. The discussion delves deeply into unit economics, optimising operating profits (CM1) versus net profits, managing station-level kitchen layouts instead of full culinary departments, segmenting menus for discount-seeking versus quality-seeking customers, and leveraging AI for inventory control while preparing for future hybrid takeaway models.

Key takeaways

1. 1Cloud kitchens are primarily convenience and technology businesses rather than traditional culinary operations.
2. 2Relying solely on deep discounting attracts non-retaining customers and prevents long-term brand loyalty.
3. 3Optimising operating profit and contribution margin at the kitchen station level is far more critical than chasing vanity top-line revenues.
4. 4A single physical kitchen can maximise efficiency by sharing standard equipment across multiple distinct virtual sub-concepts.
5. 5Food delivery aggregator visibility caps each brand at a natural volume threshold, making brand diversification a practical necessity to scale revenue.
6. 6Deploying AI and predictive models in inventory management reduces food waste and controls raw material procurement budgets.

Chapters

1. 00:00Highlights
2. 02:30Introduction
3. 05:00Meet Shaharzad - From School to Hyatt Hotels
4. 13:40Left Hyatt, Started a Restaurant Consultancy
5. 16:01Operating Profit vs. Net Profit
6. 20:25COVID, Losses, and a 450-Member Restaurant Community
7. 22:38How Delivery Split Ratios Changed in F&B
8. 24:12Restaurant Aggregator Platforms
9. 31:56"Never Taking a Job Again" - The Decision
10. 33:29Met Arjit Das - Pitched the Cloud Kitchen Idea
11. 35:06Proof of Concept in RAK
12. 42:19Started a Cloud Kitchen
13. 55:17Discount Lovers vs. Brand Loyalists
14. 1:04:29Why You Shouldn't Build a Brand on Discounts
15. 1:12:49Growth of the Company
16. 1:20:16Cloud Kitchen to Takeaway; The Hybrid Model
17. 1:24:24Data Driven Company
18. 1:27:12Advice for Cloud Kitchen Beginners
19. 1:33:44This Is a Convenience Business, Not a Food Business
20. 1:46:14Conclusion