Antonio Nacoud
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What Is Killing Cloud Kitchens in Latam?

By Antonio Nacoud | Tue, 07/12/2022 - 15:00

As time goes by, many more people are trying to open a cloud kitchen. I am one of them, and after two years of operating, I came across the main reason why cloud kitchens fail big time. If you have a good admin in place, a good product, and a good service, then the most probable reason why your cloud kitchen could fail is because you are focusing most of your efforts on third-party platform sales rather than their own channels.

Just to clarify, this doesn't mean that the third-party platforms like rappi, uber eats and ifood are the killers; they are actually great tools. But it is how cloud kitchens use them that makes these platforms a really great ally or a business killer. Now surprisingly, how to use third-party platforms is the most common thing that cloud kitchen owners get wrong.

The majority of people think that focusing on platform delivery is where they will make the most profit and it's often where they focus 80 percent (if not 100 percent) of their effort, mostly because these platforms already have a user base and require very little operational support for the restaurant.

There are a lot of advantages to selling through platforms and there is a reason why they thrive: Marketing. These are very powerful marketing tools to get new customers to try your products and increase awareness without investing much on ads. And this should be your focus on these platforms. Platforms are an amazing partner so that the user base that is exploring through their marketplace can get to know you.

But the channel that you should be focusing on as much as possible is your own. And these are the three main reasons why:

1. The customers who buy food from these platforms are not your customers, they are the platform's customers.

You don't have access to them, you can't retarget them, and you don't have any tool to convert them into loyal customers. If the next time they want to order and the platform offers them a better promotion from your competition you have a high chance of losing the customer. We have to understand that each dollar that we spend on ads for these channels is a new customer that we will give the platforms, not gain ourselves.

2. The gross profit you can make on third parties is very small due to the high margins they charge because of their higher user acquisition costs.

And worse, some owners argue that they don't care because they end up increasing the prices for their final consumers. What they don't know is that they end up paying the cost anyway because they lose customers due to high prices so their sales are less overall.

3. They can change their business model, close down, or fall under new government regulations overnight.

Third parties can change how much they charge anytime, close down your zone-city, or can even go broke as we have seen before with some platforms. In such cases, kitchens have nothing to do and all those customers disappear like air with the platform. Sometimes, government regulations are even applied overnight, such as in the case of Mexico, which decided to retain an extra 8 percent of the total amount sold to get the tax cut right at the moment the sale is made.

To conclude, the channel that you should be focusing on as much as possible is your own, where you have full control. You have your customer data to retarget and make customers loyal. And you have full control over most of your costs. When you invest in marketing to get customers to a third party you are essentially getting the platform a client; when you invest in your own channels, you are getting yourself a client that you can make loyal with more tools other than just trying out your food.

I strongly recommend that everyone who opens a cloud kitchen to strictly follow this rule and invest as much as they can on their own channels to have full control of their customers. Over the past two years of helping more than 3,000 restaurants, I've seen many brands turn the table around and go from selling 100 percent on third-party platforms to selling 70-80 percent on their own channels within a few months of investing in the right efforts. They end up significantly increasing their loyal customer base, sales, and profitability. Nevertheless, there is this thought that operating your own sales channel is very expensive and demanding but today, Latin America has some options for online checkout and website providers as well as logistics and delivery fleets. So, if most of your sales are from external platforms, it's time to get to work!

Photo by:   Antonio Nacoud