How lucrative are Cloud Kitchens?

30 September 2021 | Opinion

It is said that ‘when the going gets tough, the tough get going’. And thus, worldwide, the pandemic induced economic slowdown has given root to numerous innovations and previously untried business models. The concept of Cloud Kitchen is one such accelerated model, borne out of necessity. According to the recent report of Euromonitor, globally Cloud Kitchen domain will continue to expand and will become a one trillion dollar entity by 2030. We shall take a closer look at the scenario in India. image credit- shutterstock image credit- shutterstock

A cloud kitchen - also known as the dark kitchen, ghost kitchen, virtual restaurant, satellite kitchen - is a delivery-only restaurant format that does away with dine-in facilities. The system accepts orders online or through telephone, relying primarily online food aggregators such as Swiggy, Zomato, Ubereats, websites or mobile apps to accept online orders. However, with the increase in demand, many individual players and multiple brands have ventured into this business. Currently, the cloud kitchen market in India as well as around the globe is going through a lot of transformation owing to the bundle of opportunities it offers to its operators. 

However, the cloud kitchen concept is not new to India. In fact, the concept is almost a decade old now.  It was the outbreak of COVID-19 that acted as a catalyst for this domain. There is a sudden spurt in the number of customers opting for online food aggregators which has created a huge demand for cloud kitchen systems.

“Cloud Kitchen will rule the world in the coming years as online food ordering has become a new normal these days. They will not only include dark kitchens but will see that many restaurants will be running virtual brands within their locations that will act as additional sources of revenue for their operators. Consumer behaviour continues to shift to off-premise dining and this will continue to fuel the growth trajectory of cloud kitchens and virtual brands,” stated Mohamed Al Fayed, Co-founder/CEO, grubtech, a Dubai-based SaaS startup for cloud kitchens and ‘delivery-centric restaurants’.

India’s online food delivery market will be $21.41 billion by 2026, from $4.66 billion in 2020 with a staggering growth rate of CAGR of 28.94 per cent between 2020 and 2026. In recent years, this market has shown huge prospects and attracted heavy investments. After the new $250 million investment, Zomato's valuation hit $5.4 billion, up from $3.9 billion in December last year. Similarly, its arch competitor, Swiggy, is in advanced stages of talks with SoftBank to invest up to $450 million into food delivery startup, which will peg its valuation to $5 billion. This is one of the few industries which are growing with double digit CAGR, as per the report by Research and Markets.

The aforementioned figures clearly suggest that the introduction of the cloud kitchen concept has changed the entire face of the business. Currently, the country's cloud kitchen sector is dominated by players such as Rebel Foods, Tipping Mr Pink, FreshMenu etc. On the international front, players like Delivery Hero, Kitopi, Reef Technologies, IKcon and many others are taking the concept to a new horizon.

 

It's raining opportunities

The cloud kitchen industry will continue to grow exponentially and thrive because of the shift in consumers’ habits, brought on by COVID-19 induced conditions. Moreover, it makes good business sense today, for established brands and new entrepreneurs to capitalise via improved metrics of the model. The industry will keep getting more popular and accessible since resources and expertise is now easily available unlike earlier via organised players. 

“The reason behind the massive success of cloud kitchen is the low investment module. Since it is a virtual kitchen and works on a takeaway model, it doesn’t have to invest heavily on its ambience (lighting, décor, front-of-the-house salaries, and so on) that mostly require a lot of investment,” stated Lakshay Jain, Founder and CEO, Kitchen Centre, New Delhi. 

Kitchens Centre focuses on enabling young food entrepreneurs to enter the cloud kitchen space with affordable and lower risk investment by providing a plug and play kitchen model. 

Apart from low investment, the sourcing of ingredients is centralised, the R&D happens at a base kitchen and once a recipe is finalised, it can be easily replicated at different locations.

Echoing similar thoughts, Ashish Tulsian, Co-Founder & Chief Everything Officer, POsist Technologies Pvt Ltd, New Delhi stated, “Cloud kitchens are emerging as a strong backup allowing restaurant operators to streamline operations and become more efficient. While the concept was gaining popularity even before the pandemic struck, cloud kitchens have become more lucrative now, majorly due to two reasons. Firstly, they let restaurants deliver food straight to customers’ homes. Secondly, their operational cost stands at a fraction of traditional restaurant spaces as they utilise resources much more efficiently. Before the pandemic, there used to be a clear distinction between delivery focused and dine-in only restaurant brands. But this is going to change with each restaurant brand going to launch its own delivery centric brand. Many established hospitality brands have now started exploring the cloud kitchens model.”  

POsist Technologies is a company that provides restaurants and cloud kitchens with point-of-sale (POS), systems that allow them to run large, integrated operations.

As per the recent report by Datalabs which is a research arm of Inc42, cloud kitchen market in India will hit a rollicking figure of $1.05 billion by 2030. Hence creating a massive trade environment coupled with enormous amounts of job opportunities.

“Earlier the scenario was different because consumers who were ordering food from these kitchens have a simple motive of ‘not cooking at home’. Now, diners are very reluctant to go out and that creates an extra opportunity for cloud kitchen domains to grab to,” said Pawan Raj Kumar, co-founder at Hoi Foods, whose brands include Deez Biryani, Ketofy and Smoodies.

The cloud kitchen realm in India is yet to be explored to the fullest. Despite some big fishes of the online food delivery aggregator domain such as Zomato and Swiggy opening their own cloud kitchen Zomato Infrastructure Services and Swiggy Access, the major portion of the domain still remained unearthed. 

“A kitchen can be opened for as little as Rs 10 lakh,” said Tulsian.  He also added that a revenue-sharing model with an aggregator helps individuals start their business at a low risk.

 

Technology is the key

Deployment of cloud kitchen management software solves many of its operational issues. It eliminates the need of collecting orders on different screens for different brands, which is inconvenient while running a multi-brand cloud kitchen. A centralised panel takes up all the orders and sends them directly to the kitchen, where the staff views them on integrated Kitchen Display Systems. Additionally, a cloud kitchen business is all about delivering the order in time. A restaurant that is able to deliver less than 30 minutes is going to be more successful than another delivering in more than 40-45 minutes. Hence, technology is a major catalyst in a delivery-only business because restaurants need to manage the orders by seconds as a few seconds can make or break the business.

Owing to the greater demand for technical assistance in this domain, many companies have come up with end-to-end technological solutions to help operators to conduct their businesses at ease. “Our modules include the end-to-end journey of an order. It starts with a central menu management solution that allows our clients to manage all their menus across all the food aggregators like Zomato and others. Once an order is generated, we are able to route it to the right location, and the right station. The chef has everything he needs to start the order and prep the food in our Smart Kitchen Display system. Once the order is completed, our dispatching system takes over and ensures the order is matched to the appropriate driver with minimal time. We ensure the transparency of the entire life cycle is visible in real time in our dashboards and reports,” explained Mohamed Al Fayed.

Similarly, India’s Kitchens Centre is one of the country’s largest cloud kitchen ecosystems which provides compliant plug and play commercial cloud kitchens on rent to new or existing food delivery brands. Company helps new entrepreneurs to set up business and assists their growth via a dedicated team and helps enterprise brands to scale rapidly by providing easy reach and accessibility to real estate across India.

“We offer plug and play kitchens for entrepreneurs, tech based support to help them run their operations smoothly and a dedicated team which helps them with growing or scaling their food brands,” said Jain.

 

Spoilers do exist

Like many other businesses, the cloud kitchen domain also has some major hurdles to overcome. With many companies rolling up their sleeves to expand their portfolios in this domain, there is fierce cut-throat competition developing in this field. Apart from that, high commission structures of aggregators are also playing a spoilsport.

Post pandemic, there has been an immense increase in incoming online orders. Receiving and keeping track of bulk orders is an arduous task for cloud kitchen operators. There also arises a problem of insufficient delivery boys, especially during lunch hours.

Now most of the cloud kitchens rely heavily on delivery service providers such as Zomato and Swiggy. These aggregators provide their delivery couriers to the cloud kitchen and also allow them to reach out to new customer segments. But, all this comfort comes with a price: the commission payable to the middlemen. Food aggregators have high rates of commission which reduces the business’s overall revenue for cloud kitchen owners.

There is also a big issue of maintaining multi brand single location operations because it requires a high technological assistance for a smooth workflow. “Multi brand single location operations are complex and require technology to bring a profitable level of efficiency. Companies like grubtech have built a purpose built end to end platform to handle all aspects of the operation. Starting from central menu management, to smart kitchen management systems, it’s critical that operators leverage the available capabilities to ensure throughput and consistency are maintained throughout the operations,” said Mohamed Al Fayed.

 

Big players planning to dive in 

Online orders through cloud kitchens were already on the rise in India before the pandemic due to an increase in internet penetration and the rise of aggregators. The pandemic has only amplified this trend. Having said that, this entire delivery only model where aggregators are taking the orders, logistics specialised companies are delivering them, payment wallets and coupon companies are collecting payments with restaurants having their own QR codes, websites and apps, the entire world is learning to ace the delivery-only model, at once.

Now this entire trade circle is alluring big companies to be part of this platform. Entering of these giants will certainly heat up the competition but it will expand the dining plate of consumers.

Jubilant FoodWorks, which operates brands such Domino’s Pizza and Dunkin Donuts is aggressively gearing up to venture into this domain. As per the media reports, Kishore Biyani-led Future Group and Impresario Entertainment and Hospitality are planning similar moves. “We are experimenting with multiple ways to grow, and cloud kitchen is one such potential growth engine,” stated Jubilant FoodWorks in a statement released to the media.

Future Group is working closely on a cloud kitchen model which will allow them to sell healthy meals at a price cap of Rs 40 through Zomato or Swiggy. Impresario Entertainment and Hospitality, which runs the popular restaurant chains Social, Smoke House Deli and Salt Water Café, is also “piloting” into cloud kitchens, according to its CEO, Riyaaz Amlani.

 

Nitin Konde

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