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Fine-dining chains smell the money in delivery-only brands



Large fine-dining and casual restaurant chains have launched a new set of affordable delivery-only brands that sell through food aggregators Swiggy and Zomato, utilizing their excess kitchen capacity and cloud kitchens to cash in on the food delivery business that they predict would make up for almost 30% of sales.

Interestingly, the move comes even as restaurateurs are protesting deep discounting by food aggregators, chiefly Zomato, in the dine-in business, through the #logout movement that gathered steam last year.

“The industry is seeing a huge opportunity to build a high-quality affordable brand for food delivery,” said Anurag Katriar, president of the National Restaurant Association of India (NRAI) and CEO of deGustibus, which runs three delivery-only brands with an average order value of Rs 280-Rs 310.

Infographic: Rahul Awasthi
Some of the delivery-only brands include Impresario’s Boss Burger, Hung-Li and Del Italia, Azure Hospitality-incubated Rollmaal and Speedy Chow, deGustibus’ Neel ki Biryani, Indigo Burger Project and the soon-to-be-launched Mandarin Monkey, along with The Olive Group’s Olive Pizzeria.

Impresario owns Social, Smoke House Deli, while Azure operates Mamagato, The Olive Group houses Monkey Bar, SodaBottleOpenerWala and deGustibus runs Indigo.

“Casual diners and fine dining restaurants have seen a surge in their delivery orders from an average of 8-10% to between 20% and 30% of total sales,” said Karan Tanna, founder, Ghost Kitchens, a company that incubates delivery brands.

At the same time, even as the central government’s stand — on whether cloud kitchens set up by online food ordering companies Swiggy and Zomato violate foreign direct investment norms — remains unclear, a slew of startups providing delivery-only infrastructure to emerging brands have launched operations.

Read: Cloud kitchens on boil as DPIIT checks FDI compliance

Players including Ghost Kitchens, CloudKitch, KitchenCentre, FoodCoWorks, KloudKitchen, Smart Co Kitchens, the Travis Kalanick-backed City Storage Systems and Flipkart-backed Shadowfax are looking to either incubate food brands or tap home chefs and existing restaurants, in the process helping them set up their own cooking facilities.

These infrastructure businesses offer food brands affordable, licensed and shared real estate space as well as marketing, technology, maintenance, licensing, and business expertise to open and launch a brand on food delivery apps — all at low capital cost and 30-day lock-in period. The food brands pay these infrastructure companies anywhere between 5% and 10% of their gross sales and a nominal rent as commission, according to a contract reviewed by ET.

“Everything about the restaurant experience is designed for dine-in, and while delivery is an increasing percentage of the business, many operators are forced to make a tradeoff,” said Vicky Singh, founder, and CEO of Smart Co-Kitchens. “Delivery only co-kitchens help these brands expand faster, profitably and with lower risk,” he said. Singh’s startup plans to expand to 24 facilities in 36 months across Delhi, Mumbai, and Bangalore.

Delivery-only kitchen brands, which today constitute about 10% of food delivery orders, could grow to as much as 35%-40% in the next two years, according to estimates by investors in the space.

“There has been a paradigm shift in the market, which is difficult to ignore by big restaurant groups after Swiggy and Zomato scaled and added a layer of convenience, comfort, and choice for the consumer,”said Katriar of NRAI.

The cloud kitchen market in India was valued at more than $160 million last year and is forecast to grow at 18% until 2026, according to a report by Reports and Data, a markets research and consulting firm.

The hectic lifestyles of people in cities and the rising trend of conveyance are key reasons for the fast pace of growth of the cloud kitchen sector. “The presentation, the preparation and divert time is a very important part of this concept,” chef Anshu Raj, who is also the founder of Caterspoint, said.

The two largest food delivery apps, Zomato and Swiggy, also offer the same service, but the restaurant’s reach is limited to that particular platform, and may also not be open to first-time brand owners. “Only renowned and reliable operators will be eligible to use these kitchens,” said Zomato in its blogpost introducing the initiative.

Swiggy, for instance, offers its Access Kitchens only to select restaurants, limiting the scope of businesses to use the service. Swiggy said it plans to invest an additional Rs 75 crore, taking the total investment by the Naspers-backed company in its cloud kitchen business to Rs 250 crore.

“Cloud kitchens have to be on multiple aggregator platforms to prevent an aggregator from having a stronghold on the kitchen and hedge distribution risk,” said Naveen Sharda, AVP, Moravia Capital AG.

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