cloud food kitchens delivery kitchen said restaurants
Cloud kitchens to dominate India’s food-tech industryIn June last year, when the COVID-19 pandemic was at its peak in India,Gurugram-based food and beverage company, Lite Bite Foods (LBF) that operatesaround 200 dine-in restaurants and cafes across the country, accelerated itsplan of foraying into the cloud kitchen space.Cloud kitchen restaurants are essentially businesses that run kitchens solelymeant for food delivery and do not have dine-in facilities.With restaurants being shut for months due to the nation-wide lockdown imposedby India in late March, the demand for food delivery has surged. LBF, whichhas been delivering food through Swiggy and Zomato for a few years, sawrevenue share from food deliveries jump from around 18% pre-COVID-19 to almost100% by May 2020.“For the last one year, we were focusing on increasing our deliverypenetration because we are very bullish about the Indian food deliverymarket,” Vineet Manocha, senior vice president at Lite Bite Food, told KrASIA.A delivery person collecting food parcel from a restaurant in Bengaluru beforethe pandemic. Picture by Avanish TiwaryBut a large number of its outlets are located inside shopping complexes,making food delivery difficult for the company, since delivery people have topark their vehicle and pick up the orders from inside the mall. Therefore,setting up cloud kitchens was an easier way for LBF to increase its deliverypenetration, Manocha added.“There will be continuous growth of food deliveries over the next five yearsin India, and that is why we had started thinking about cloud kitchens.” LBFannounced its plan to open 36 cloud kitchens across five cities by 2023.### With a pinch of saltThe multiple lockdowns in India brought the restaurant business to ascreeching halt. A CRISIL report said the country’s organized dine-inrestaurants are estimated to experience a 40-50% dip in revenue till March2021. In the first half of 2020, nearly 90% of restaurants registered with theNational Restaurant Association of India (NRAI)’s were temporarily shut down.Naspers-backed food tech major Swiggy—one of the first Indian food deliverycompanies that was betting big on cloud kitchen—had to shut and relocate manyof its non-profitable cloud kitchens in April.In November 2019, unaware of the pandemic that was about to affect the foodand beverage industry, the company announced it will invest USD 35 million inSwiggy Access, its cloud kitchen brand. In fact, early in 2020, the companysaid it has created over 1,000 kitchen-only spaces for its existing restaurantpartners.“Since the onset of Covid, we have already begun the process of scaling downour kitchen facilities temporarily or permanently, depending on their outlookand profitability profile,” Swiggy co-founder and CEO Sriharsha Majety wrotein a company blog post in May.Although Swiggy said the decision was taken to reduce the cost of operationduring the pandemic, a source with the knowledge of the matter told KrASIAthat the food aggregator had overestimated the number of orders for its cloudkitchens in certain cities pre-COVID-19.The source added that Swiggy had likely decided to shut down its cloudkitchens since it invested heavily into cloud kitchens based on the estimatedorder numbers, which it failed to meet. Swiggy did not respond to requests forcomment at the time of publication.A Swiggy delivery person’s two-wheeler parked in Bengaluru. Picture by AvanishTiwary“As COVID-19 disrupts daily life across the country, the hospitality industryhas come under severe pressure,” a Swiggy spokesperson earlier told KrASIA. Hefurther said that the company is “renegotiating contracts with landlords,relocation of certain kitchens to more optimal locations, and discontinuingoperations at a few kitchens that have been severely impacted since thelockdown came into effect.”Sehaj Singh Kukreja, co-founder of Delhi-based cloud kitchen startup CheferdFoods told KrASIA that the cloud kitchen market took a dip of 30-35% duringthe initial months of lockdown since corporate offices, which accounted for amajor chunk of food orders were shuttered. Chefered Foods was founded in 2018and operates brands like Pizza On My Plate, Burger In My Box, and Deli SaladCompany.According to Kukreja, the frequency of food orders has gone down since thelockdown started, but its impact is being mitigated by an increase in thenumber of new users coupled with an increase in order value.### Cloud kitchens: Serving the needThere are about 2.8 million restaurants in the country, of which only around700,000 are organized, Rohan Agarwal, director at Redseer Consulting toldKrASIA. Therefore, there is a supply gap for good quality food in the country,he said.“Cloud kitchens have been serving the purpose of solving the supply gap,” saidAgarwal. “Essentially, cloud kitchens provided a model for outside food to beconsumed at home with a very minimal capital investment.”As of 2019, there were about 5,000 cloud kitchens in India, Agarwal said.According to Redseer estimates, the number of cloud kitchens in India isexpected to grow at a rate of 50-60%.In terms of the gross merchandise value (GMV), the cloud kitchen sector isexpected to become a USD 3 billion industry by 2024, up from about USD 400million in 2019, said Agarwal. In contrast, the overall food services industryis expected to grow only 10% over the next five years, he added.“This indicates that the growth in terms of the supply is going to come infrom the cloud kitchen segment in a major way,” said Agarwal. “The idea isthat cloud kitchen models will be able to close the supply gap or contributeto closing that gap in a significant way ahead.”Besides, the dependence of traditional restaurants on food deliveries forrevenue has increased amid the pandemic, said Agarwal. Dine-in restaurantsgenerated around 20% of their revenue from online orders pre-COVID-19, whilenow the revenue share has more than doubled, he added.In a report released by Zomato in September, the overall food delivery sectoris clocking over 85% of pre-COVID-19 GMV, up from over 75% in August.Manocha of LBF said the company’s revenue share from home deliveries hasincreased more than threefold to about 60%. He attributes this rise to thelaunch of its cloud kitchens and its own food delivery app ‘FOOGO,’ whichaccounts for nearly 40% of its cloud kitchen orders at present. The companysaid it will invest around USD 3.4 million to build cloud kitchens and expectsa turnover of about USD 13.6 million from the segment in three years.As of now, it has launched four cloud kitchens which are used by 10 brands,six of which are existing LBF brands. LBF has also launched four new cloudkitchen brands–Rolls and Paratha Company, Thali on Go, Fast Bowl, and BegumNoor Jahan Biriyani.As the pandemic continues into 2021, more and more restaurants are likely toexplore the cloud kitchen model to maximize revenue, although it may be moredifficult for small restaurants than their deep-pocketed counterparts.