Operating — and growing — a restaurant business in the Middle East and North Africa (MENA) region comes at a steep cost, resulting in shrinking 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 take anywhere between $100,000 to $200,000 to rent a restaurant space, fix it and acquire the equipment to launch a food business in the North African country.
The fact that businesses cannot afford these high rent prices is not the only issue at hand. Osman said rising rent prices are pushing an increasing number of Egypt’s 120 million population from urban cities to the rural areas — an economic process known as counter urbanization — leaving restaurants with the added burden of volatile demand.
“The operations are so inefficient because you spend all this upfront fixed cost to get the people — lab manager, cashiers [and waiters] — but you actually have no idea whether there’s demand there or not,” Osman told PYMNTS in a recent interview.
Another major challenge he highlighted is the negative impact high third-party aggregator costs have had on the bottom lines of restaurateurs, enough to even dissuade potential business owners and operators from venturing into the food business.
“Aggregators currently take 25-30% [in fees] just to handle orders, so the restaurant ends up making between 0% to 5% margin while making an upfront 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 it all together,” he explained.
This is where he said the Cairo-based cloud kitchen services provider comes into play, helping restaurants — their “brand partners” — minimize costs, increase margins and improve operational efficiencies through managed shared kitchens.
From a margin of 0% to 5%, Osman said businesses can end up making 15-20% without taking on any of the capital expenditure (CapEx) or risks involved: “It’s a pure revenue share model which means whenever you sell, I take my cut; if you don’t sell, I don’t get paid a cut.”
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Branding, Marketing, Customer Segmentation
According to Osman, the Egypt-based startup, which launched in October 2020, is not limited to its core kitchen business, having expanded into a food and beverage infrastructure service company providing additional services to empower brands in the region.
Powered by machine learning, the firm’s virtual brand consultant gives restaurateurs access to a data-centric dashboard that provides actionable insights and recommendations on menu engineering and supplier analysis, as well as how to optimize operations and finance 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 a clear target market in mind.
“For example, they simply put sponsor ads on Instagram or on Facebook, but there is no call to action,” Osman said. Here too, TFL’s brand consultant helps them with customer segmentation that enables them to target customers correctly.
“It helps brands know their customers so perfectly 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 on Facebook and run a sponsored ad,” Osman noted.
He added that the whole point of The Food Lab is to embed itself into the infrastructure of restaurants and provide services that will allow them to optimize their costs, improve their profits and increase their reach through cloud kitchens or delivery-only restaurants — also known as dark kitchens, ghost kitchens or virtual kitchens — as well as procurement-as-a-service, delivery or a central facility for their retail needs.
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The Future is Cloud
The cloud kitchen concept is quickly gaining traction around the world, with research showing that by 2025, 50% of all restaurant deliveries will be food made in a dark kitchen.
According to Osman, the pandemic has further accelerated this trend, with brick-and-mortar food businesses losing their appeal as more and more people embrace the convenience of online food ordering and delivery in Egypt — a $7 billion food delivery market.
Moving forward, he said the plan is to leverage the $4.5 million TFL recently raised to expand across Egypt in the next 12 to 16 months, ensuring that its ghost kitchens are in key hotspots across the country.
Ultimately, TFL’s goal is to “connect the closest kitchen or closest cuisine to the farthest appetite,” Osman said. “[Distance] should not be a barrier.”
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