In the recent past, cloud kitchens have emerged as the next big bet in the foodtech segment in the start-up industry in India. Unicorns like Swiggy, Zomato, Ola and OYO entered the cloud kitchen domain through organic expansion, acquisitions and investments. However, similar to the intense competition in the food delivery space, the cloud kitchen space has also been witness to heavy competition, forcing players to rethink strategies and reinvent business models.
Experts state that margins in the cloud kitchen space at an average of 35-45% appear much higher than those in food delivery or the pure-play restaurant segment. “This is so as it is cheaper to run a 150-300 sq ft cloud kitchen than a full-fledge dine-in establishment. Thus rentals and manpower costs are lower and these benefits are passed to the customer,” says Anirudh Damani, managing partner, Artha Venture Fund.
According to Manu Nair, corporate executive chef at Billionsmiles Hospitality, it is the volume of business that makes the cloud kitchen format more feasible, along with ‘’better pricing and better discounts which tempt customers to order more.”
According to estimates by the National Restaurant Association of India (NRAI), the organised cloud kitchen market in India was worth Rs 928 crore in the financial year 2018-19.
However, the sector now seems ridden with quite a few challenges, including intense competition, due to the entry of multiple cloud kitchen platforms, inadequate logistics and related infrastructure and technology to ensure standardisation. This did produce some uncertainty in the segment with the likes of Twigly and even Zomato shutting down their cloud kitchen operations last year. For the ones that exist, the roadmap entails implementing a series of measures at the back-end and front-end to ensure that they not only survive but thrive.
An integrated technology backbone is necessary in the sector, says Jaydeep Barman, co-founder and CEO, Rebel Foods, which recently raised $125 million in a round with participation from Gojek, Goldman Sachs and others. “What the cloud kitchen space brings to the industry is benchmarking of the quality of food, service standards. Supported by a robust technology infrastructure, our cloud kitchens are equipped to handle different cooking techniques.”
Rebel Foods has instituted quality control measures at every level of preparation ‘’with the final level being when the order is at the pick-up station. That means that if at that stage the order does not pass muster, it goes back. So if an order is even 0.01% off the mark, it will be discarded and the dish re-prepared,’’ says Barman.
Moreover, experts state that budding cloud kitchen ventures should invest big time in data analytics to capture consumer buying patterns. Cloud-based point-of-sale (PoS) software is also needed to enhance the efficiency of the kitchen.
Besides stringent quality controls and technology adoption, another big differentiator in a market flooded with cloud kitchen brands will be the storyline created by a brand that attracts consumers to it, feels Damani. As they lack a physical presence, cloud kitchens should connect more rigorously with consumers through digital channels and establish strong engagement to ensure better brand recall.
Rebekah Blank, brand head, Fabcafe by Fabindia, which has considered opening cloud kitchens, says a focus on niche segments like vegan food, gluten-free, keto, etc. can help kitchens to consolidate their presence. Experts feel niche food segments currently do not find favour with dine-in restaurants and hence having a structured focus around this can provide an edge to upcoming kitchens. “Thirdly, cloud kitchen players should look at bringing out multiple brands under one umbrella kitchen. This is possible since the venture can leverage its existing infrastructure and technology, instead of investing in newer establishments. Multiple food brands automatically expand the consumer segment,” state experts.
