The rise of online food delivery services in Saudi Arabia has made cloud kitchens an appealing model for entrepreneurs. This popularity stems from their lower capital costs compared to traditional restaurants, attracting many new business owners over the past decade.
In 2023, the value of the cloud kitchen market in Saudi Arabia was estimated at around $173 million. The sector is projected to grow at a compound annual growth rate (CAGR) of 11% from 2024 to 2030. This highlights the growing interest in and benefits associated with the role of cloud kitchens in the market.
Saudi Arabia has the highest number of online food delivery users, totaling approximately 7.9 million. Following Saudi Arabia are Egypt with about 3.6 million users, and the UAE and Morocco with 3.2 million and 3 million users, respectively.
In this article, we’ll tackle the costs and procedures involved in establishing a successful cloud kitchen business in Saudi Arabia, helping you make informed decisions when embarking on this venture.
What are cloud kitchens?
Cloud kitchens, also known as ghost kitchens or dark kitchens, operate without reception areas. They do not involve direct interaction with customers.
Instead, they focus on preparing meals and delivering them through various delivery platforms.
This business model includes significantly lower costs due to their smaller space, reduced staff, and the absence of a traditional dining area.
Cloud kitchen business models
Cloud kitchens can take various forms depending on market needs. They all play a crucial role in helping restaurants thrive.
The main models include:
The single-brand model
In this model, the ghost kitchen operates and manages a single brand, offering food and products under that brand name.
For example, Kitchen Park in Saudi Arabia provides cloud kitchen spaces designed to operate single brands. This helps reduce operating costs and enhances product quality.
Multi-brand model
This model involves operating multiple brands from one kitchen, allowing a diverse range of cuisines to cater to a wider variety of tastes.
For example, Kitopi operates multi-brand cloud kitchens in Saudi Arabia. They offer full operational services for multiple brands from a single kitchen, reducing operating costs and increasing food diversity.
The franchise model
This model helps a cloud kitchen’s private brand expand. It does this by offering franchises to other partners who use the same brand name, along with logistical and marketing support to these franchisees.
For example, Saudi’s Koshari Plus established a cloud kitchen franchise system that lets local partners use its brand. It provides essential support to ensure consistent product and service quality.
The rise of cloud kitchens in Saudi Arabia
Driven by the demand for delivery services, ghost kitchens are on the rise across the kingdom. Especially in major cities such as Riyadh, Jeddah, and Dammam.
The Saudi cloud kitchen market was valued at $230 million in 2022. It’s expected to at a CAGR of 7.7% to reach $335 million by 2030.
Cloud kitchens offer various benefits, making them a strategic choice for entrepreneurs looking to capitalize on the increasing demand for fast food, while requiring lower capital investment.
Initial costs to start a ghost kitchen in Saudi Arabia
Before starting any project, you need to estimate expected costs. These expenses can vary depending on factors such as the city, country, location size, and other variables.
To help you establish a ghost kitchen, we will explore the initial costs associated with such a venture, specifically in Saudi Arabia. We will provide estimates in Saudi Riyals.
Cloud kitchen equipment
The cost of ghost kitchen equipment varies depending on the type and quality of the items used.
For example, cooking ovens, which are critical to starting a cloud kitchen business, vary in type and size. They can either be gas-powered or electricity-powered. Their prices range from SAR 10,000 to SAR 40,000.
The prices of refrigerators and coolers also vary depending on size, capacity, and technology. They typically range from SAR 8,000 to SAR 25,000.
Additionally, the price of equipment for food preparation, chopping, and workspaces falls between SAR 5,000 to SAR 20,000.
Leasing space
Shared kitchen spaces can be rented outside the city at lower prices. Monthly rent typically ranges from SAR 5,000 to SAR 15,000.
Prices increase the closer you are to the city center and commercial areas. Compared to traditional restaurants, rent is much lower as traditional restaurants require at least double the amount.
Licenses and permits
To start any business, you need to apply for and obtain the necessary licenses and permits. Cloud kitchen permits are generally easier to obtain than those for traditional restaurants.
This process includes getting approval from the Saudi Food and Drug Authority (SFDA), meeting municipal health and safety requirements, and obtaining Civil Defense approval. Fees vary based on the size and type of business and the area in which you operate.
Technology costs
Technology helps streamline kitchen operations. The most important software used in cloud kitchens includes point-of-sale systems, the kitchen display system (KDS), and inventory management software.
You can get all of this with Foodics, which offers various monthly packages that include both software and necessary hardware, such as the KDS.
Cost of a ghost kitchen: Monthly operating costs
Operational business costs encompass various expenses that must be managed effectively to ensure business continuity and profitability.
Here is an overview of these costs, along with approximate estimates in SAR.
Staff salaries
Staff salaries are one of the most important monthly expenses for any kitchen or restaurant.
In ghost kitchens, this includes salaries for head chefs, their assistants, delivery coordinators, and cleaners. Chef salaries typically start at SAR 4,000 or 5,000 per month.
Food and packaging supplies
Costs vary depending on the quality, order size, and supplier selected, as well as whether the food and supplies are local or imported.
Packaging materials can impact product quality and must be approved by the SFDA.
Software subscriptions
These include all software and management systems that facilitate cloud kitchen management and operations, including the point-of-sale (POS) system.
For instance, Foodics’ POS system starts at SAR 229 per month. Foodics also offers integration with delivery providers like Jahez and HungerStation through additional subscriptions via its app marketplace.
Marketing and customer acquisition
Create a cloud kitchen marketing strategy, including advertising across social media, to reach your target audience.
Partnering with local influencers and running promotions can also help attract customers. Marketing campaigns can start at SAR 5,000 or more, depending on the strategy and budget.
Optional but strategic investments
While some investments are optional in the realm of ghost kitchens, they can be critical for sustainability and growth.
Here are a few of those strategic but optional investments that are worth considering early on.
Branding and bilingual design
A design that accommodates both Arabic and English can help expand the customer base and attract both local and foreign visitors.
Loyalty programs
Although it’s optional, one of the benefits of loyalty programs is it helps build lasting relationships with customers.
These programs can provide customers with offers and points that can be redeemed for future purchases. So, it’s worth investing in them.
If you are using Foodics, you can connect your kitchen systems with loyalty programs to analyze customer data and make personalized recommendations based on previous orders, enhancing customer retention.
Cloud kitchen management platforms
These platforms help you manage all kitchen operations by monitoring inventory and analyzing performance, saving both time and effort.
Foodics provides a comprehensive cloud kitchen management system, including an integrated POS system, inventory management software, accounting solutions, among others. It also offers integrations with major delivery providers in the Kingdom via the app marketplace.
Quality assurance and feedback systems
Advanced systems let you collect and analyze customer feedback and complaints, facilitating ongoing problem resolution. This ensures consistent quality and continuous improvement, meeting customer expectations in the Saudi market.
Actual cost estimates for ghost Kitchens in Saudi Arabia
The cost of establishing a ghost kitchen varies depending on the chosen business model and the required capital investment.
Here are some examples along with their respective costs:
- The shared kitchen model is ideal for entrepreneurs seeking to start a business with minimal capital. The monthly cost for this option ranges from SAR 10,000 to SAR 15,000, making it a great choice for startups.
- The medium kitchen model is considered a self-contained kitchen equipped with basic necessary equipment. It offers greater independence and control compared to the shared kitchen model. Prices range between SAR 200,000 and SAR 300,000.
- The luxury kitchen model is characterized by its ability to operate multiple brands. Supporting rapid growth and expansion, this cloud kitchen model relies on advanced automation technologies and integrated POS systems. Initial cost for this model is roughly SAR 500,000.
These figures provide a starting point for estimating your restaurant budget for a ghost kitchen. However, we recommend conducting a detailed feasibility study before embarking on your project.
Cost-saving tips and smart strategies for Saudi entrepreneurs
There are numerous ways for entrepreneurs in the cloud kitchen sector to save costs and enhance profitability.
Here are some tips for launching a successful cloud kitchen project:
Rent kitchens near commercial areas
You can save on many monthly operating costs, especially rent, by choosing locations close to commercial areas.
These leasing costs are typically lower than in busy districts, while still allowing you to serve those areas effectively.
When selecting your project location, make sure delivery providers are available nearby for quick deliveries.
Improve menu to align with local tastes
Updating your menu to feature locally popular dishes, such as burgers and fusion cuisine, is a vital step. This strategy boosts your brand’s appeal to local consumers, increasing demand while helping to minimize costs.
Further reading: Menu Engineering 101 article
Start your cloud kitchen brand gradually
Consider starting with a limited number of menu items to test the waters and gather customer feedback. Based on this data, you can then expand your offerings and introduce new dishes that resonate with your audience.
Use analytics and software tools
We recommend using analytic tools to monitor kitchen performance and manage inventory effectively.
By analyzing order data and customer behavior, you can reduce food waste and adapt your menu to local tastes. This not only lowers costs but also enhances profit margins.
These strategies can help you minimize operating expenses and establish a solid foundation for sustainable growth in the expanding cloud kitchen and delivery market in the Kingdom.
Conclusion
With the rapidly growing on-demand delivery market in Saudi Arabia, cloud kitchens have emerged as one of the most appealing business models for aspiring entrepreneurs. They offer low-cost setups, quick launch times, and the potential for smart, fast scaling.
However, achieving success in this sector requires more than just enthusiasm.
It starts with careful planning, a deep understanding of market demands, and full compliance with local regulations. Using modern systems, such as Foodics’ restaurant management software, provides comprehensive control over operations and enhances the chances of growth and profitability.
Don’t let your project remain just an idea. Invest in digital infrastructure, choose your location wisely, and study the business model that aligns best with your vision. Cloud kitchens are not only a lucrative opportunity; they also serve as a platform for building a strong brand that can expand across the Kingdom and the region.
Experience the power of Foodics’ platform for cloud kitchens! Book a demo, and we’ll contact you soon.
