Operating – and growing – a restaurant business in the Middle East and North Africa (MENA) region comes at a high cost, leading to reduced margins for restaurant owners and operators who sometimes see no business logic in expanding to new locations.
According to Ahmed Osman, co-founder and CEO of Egypt-based cloud kitchen operator The Food Lab (TFL), it can cost between $100,000 and $200,000 to rent food court space, repair it and acquire the equipment. needed to start a food business in the North African country.
The fact that companies cannot afford these high rental prices is not the only problem to be solved. Osman said rising rent prices are pushing a growing number of Egypt’s 120 million people from urban cities to rural areas – an economic process known as counter-urbanization – leaving restaurants with the additional burden of volatile demand.
“Operations are so inefficient because you’re spending all that upfront fixed cost getting people – lab manager, cashiers [and waiters] — but you actually have no idea if there’s a demand there or not,” Osman told PYMNTS in a recent interview.
Another major challenge he pointed to is the negative impact of high third-party aggregator costs on restaurant operators’ bottom lines, enough to deter even potential business owners and operators from venturing into the food business.
“Aggregators currently take 25-30% [in fees] just to manage the orders, the restaurant ends up making between 0% and 5% margin while making an initial investment of $200,000. [With that low margin] it will take a long time for them to break even, so they end up not doing everything together,” he explained.
That’s where he said the Cairo-based cloud kitchen service provider comes in, helping restaurants – their “brand partners” – minimize costs, increase margins and improve customer service. operational efficiency through managed shared kitchens.
From a margin of 0% to 5%, Osman said, companies can earn 15% to 20% without incurring any capital expenditure (CapEx) or risk involved: “It’s a pure revenue sharing model, which means that every time you sell, I take my cut; if you don’t sell, I don’t get a discount.”
Related: Restaurants continue to automate despite staff shortages and demanding consumers
Branding, marketing, customer segmentation
According to Osman, the Egypt-based startup, which launched in October 2020, is not limited to its core cooking business, having grown into a food and beverage infrastructure services company providing additional services to empower regional brands.
Powered by machine learning, the company’s virtual brand consultant gives restaurateurs access to a data-centric dashboard that provides actionable insights and recommendations on menu engineering and food analytics. suppliers, as well as how to optimize operations and finances by reducing the amount of a specific ingredient used. , for example.
When it comes to marketing, he said business owners in Egypt and the Middle East approach it very reactively without having a clear target market in mind.
“For example, they just put sponsor ads on Instagram or Facebook, but there’s no call to action,” Osman said. Here too, the TFL brand consultant supports them in customer segmentation that allows them to properly target customers.
“It helps brands know their customers so well that they can literally target people who haven’t ordered in the last 20 days, for example, simply by automatically generating a custom list that they can copy and paste into Facebook and running a sponsored ad,” Osman noted.
He added that the whole point of The Food Lab is to integrate into restaurants’ infrastructure and provide services that will allow them to optimize their costs, improve their profits and increase their reach thanks to the cloud kitchens or delivery-only restaurants – also known as dark kitchens, ghost kitchens or virtual kitchens – as well as supply-as-a-service, delivery or a central facility for their retail needs retail.
See also: Consumer adoption of food service robotics varies based on local technical standards
The future is in the cloud
The cloud kitchen concept is rapidly gaining traction around the world, with research showing that by 2025, 50% of all restaurant deliveries will be food prepared in a dark kitchen.
According to Osman, the pandemic has further accelerated this trend, with brick-and-mortar food businesses losing appeal as more people embrace the convenience of ordering and delivering food online in Egypt – a food delivery market of $7 billion.
Going forward, he said the plan is to leverage the recently raised $4.5 million TFL to expand across Egypt over the next 12-16 months, ensuring his kitchens ghosts are found in key hotspots across the country.
Ultimately, TFL’s goal is to “connect the nearest kitchen or the nearest kitchen to the furthest appetite,” Osman said. “[Distance] shouldn’t be an obstacle.
Register here for daily updates on all of PYMNTS’ Europe, Middle East and Africa (EMEA) coverage.