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Cloud Kitchens: Cooking up a storm in the foodservice industry

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Cloud Kitchens, Dark Kitchens, Internet First Kitchens, Online Kitchens, Delivery Only Kitchens, Ghost Kitchens – these are all the different names given to the fastest growing food delivery business in India and perhaps, globally. Essentially, a kitchen without a store front, is called a . Customers access their services through online channels, mostly through online food aggregators, brand website or app and even through various social media platforms.

Cloud Kitchens: Cooking up a storm in the foodservice industry

“Like restaurants are designed to serve dine-in guests, similarly, cloud kitchens are designed to deliver food experiences. Cloud kitchens depend on business from virtual channels such as websites, apps and from delivery aggregators, and that’s how the term was coined. Convenient food options at the consumer’s
fingertips is what is driving the momentum in this sector,” states , Founder and CEO, CloudKitch.co.in.

“Cloud kitchen is the new line of business which has come up in the foodservice sector. It is an extension of what e-commerce does – which is to deliver food in a way where you do not have to bear the running cost of running a restaurant,” adds , Director, deGustibus Hospitality Pvt Ltd.

Explaining it further, Kabir Jeet Singh, CEO and Founder, Burger Singh and says, “Cloud kitchen is basically a kitchen space with the capacity to house one or more than one restaurant. There is no dine-in space, making it essentially a delivery and take-away outlet. These kitchens work amazingly well for brands looking for an asset-light model for scaling up their delivery presence. In most cases, a cloud kitchen will be
shared by multiple restaurants thereby substantially reducing infrastructure and overhead costs, staff expenses and various initial operational challenges.”

“There are multiple models within the cloud kitchen format that brands are opting for these days. One could choose a single-brand cloud kitchen which is usually setup by and for a single restaurant. Second model is a multi-brand cloud kitchen where several restaurants operate under different brand names. There are also several shell cloud kitchens that delivery apps offer to new restaurants. These are essentially like coworking spaces – but in kitchen-format,” Singh further adds.

Online food platforms such as Swiggy, Zomato and foodpanda have contributed to this growing market and making food available at the convenience of the customer.

“Cloud kitchens are gaining momentum in the market as they brings the convenience of a ready meal at an affordable price delivered to where the customer is. This has created a huge demand from users in India who have high disposable incomes, lesser time to cook and who prefer enjoying dining experiences in the comfort of their homes or in their offices. The Indian food industry which was traditionally dominated by brick-and-mortar restaurants until recently are now experiencing the benefits offered by a delivery only model such as broader reach, low setup costs, multi-channel sales prospects and rising market appeal due to the convenience driven market,” says Vicky Singh, Founder and CEO, Smart Co-Kitchens.

The concept of cloud kitchen has disrupted the food industry from the front door, and they have grown tremendously all over the world and especially in India. They have also caught the fancy of venture capital firms who are investing large amounts to support cloud kitchen start-ups.

“They are gaining momentum in the Indian foodservice scenario in recent years as consumers are pro-actively ordering food at home, in office or wherever they are. They are accessible, convenient and make life easy. Given the hyper-competitive restaurant environment, cloud kitchens have a low operational cost, a lower entry barrier and are a safer bet in the food space,” explains Sumit Gulati, Founder, Call Chotu.

How Cloud Kitchens Operate

The operations of cloud kitchens are based on technology. Orders are received through an online ordering portal (company’s own or a delivery aggregator) or via phone calls. The order is prepared by the kitchen staff and handed over to a delivery agent. In most cases, the delivery agent is either provided by the online ordering portal or through tie-ups with various logistics partners.

In some cases, however, the restaurant might choose to have its own fleet of delivery executives as well.Cloud kitchens do not have a storefront and function as a production unit where
orders are relayed through a unified POS (Point of Sale) and delivered through single or multi-channels. Amongst the
many advantages of cloud kitchens is, operators/ restaurateurs can roll out their brand across new/ multiple geographies immediately, experiment with multiple brands/ products, without the CAPEX and without down time a traditional fully compliant brick-and-mortar restaurant requires. This allows operators to focus on achieving greater operational efficiencies while maximizing orders per day and decreasing the overall production, packaging and dispatch time,” says Vicky Singh.

“Overall, all the ancillary expenses at cloud kitchens are saved apart from food cost, staffing, and logistics. Additionally, the capital expense required for it is very little compared to the restaurant, which is why many players are jumping into it,” adds Sohrab Sitaram, Co-Founder, & Keventers.

As cloud kitchens are restaurant kitchens that only accept orders through online ordering systems or personal calls to the kitchen, the workflow is always B2C.

“Today, most online portals have teamed up with existing restaurants to ease the ordering process and expand profits,” says Gulati.

Starting a Cloud Kitchen

The key ingredients for operating a successful cloud kitchen are location, product and understanding of digital landscape. Operationally, it is no different from running a dine-in restaurant. It has all elements of a restaurant except seating or personal interaction with customers.

“You need to have your homework on point to be able to successfully setup a cloud kitchen. The most important factor is selection of right locations to ensure high orders, the second most important factor is to have manpower (kitchen and delivery), tech support, logistics and supply chain in place. Needless to say, you need to ensure visibility on all the relevant food ordering platforms,” says Kabir Jeet Singh.

“Cloud kitchens should ideally be present in an area where both offices and residential colonies can be serviced within 30-45 minutes. The average size of kitchen ranges from 150-300 sq. ft. and dishes out approximately 200-300 orders a day,” adds Rajiv Kumar, .

Capital: The Game Changer

The amount of capital required to run a cloud kitchen is significantly less as brands do not have to invest in high CAPEX and bear rentals.

“A basic 50-seater restaurant in an above-average area will cost you anywhere between Rs 50 lakh and Rs 1 crore and adding liquor to the menu will set you back by an additional Rs 50 lakh to a crore. On the other hand, a cloud kitchen can be set up at almost half that cost, at Rs 20-25 lakh,” says Mayank Singh Negi, CoFounder, Cross Border Kitchens.

“A dine-in restaurant requires lighting, service, quality food, decor, etc. to be in the competition, which can cost a massive
amount of money, but in the cloud kitchen, the set up can be done far cheaper. Ideally, the cost is also based on the length of the menu and the equipment required to create those dishes,” adds Sitaram.

Target Audience

The TG for cloud kitchens is corporate professionals, nuclear families with high disposable incomes and students. These are the clusters that shape demand in terms of both cuisines they are looking for and the convenience of getting it delivered.

“With an increasing shift towards ordering non-home-cooked food across most cities, practically anyone who orders their food using an online app is your target customer. Since the customer is not walking into a restaurant anymore, interacting with your staff or experiencing the service; the biggest challenge here is to deliver that experience inside a small delivery box,” says Kabir Jeet Singh.

“75 percent of the TG is in the age group of 18 to 45, balance comes from families and groups,” adds Katra.

It is important for cloud kitchen operators to come up with relevant menu and items that are in demand.

“Today, every person who is a foodie and knows technology is our TG,” says Gulati.

Marketing Strategies

A traditional restaurant enjoys various advantages – the biggest being branding space. Most footfalls can come from a strategically chosen location where people would walk-in after seeing the signage. Additionally, you also get to interact with your customer, describe menu options and cross sell or upsell various items.

“In the absence of these, a cloud kitchen’s biggest strength could be a well-defined online menu, irresistible looking food pictures and properly thought through prices and product descriptions. Various ATL and BTL tools of marketing need to be explored – extensive social media advertising, out-of-home (OOH) branding, flyer distribution and extensive visibility through every other touch-point available to your target customer,” Kabir Jeet Singh states.

“The key difference between the marketing of online only brands vs traditional restaurants is that the frequency of marketing activities for online brands is far higher as delivery only brands operate virtually without a physical storefront and do not have the benefit of brand visibility, in-store promotions etc.,” says Vicky Singh.

Delivery only brands require a comprehensive online focused marketing strategy mixed in with a bit of traditional media. It must be focused around keeping the brand relevant on social media and to constantly engage with the TG. Delivery only brands need to also tie up with various food delivery platforms in the market as their market reach is wide and they are a good boost to order flow on a continued basis. Online brands also need to invest in a creative website, along with running offers such as discounts, contests etc.

“Starting point for marketing is understanding of the targeted audience. In a crowded market with several discovery platforms, strategies have to be sharp and narrow-focussed,” says Katra.

“The pitch of marketing for cloud kitchens is more about convincing and less about the gourmet appeal of the food. A cloud kitchen is based on value for money, where discounts are highlighted, whereas in traditional restaurants it is more about appreciating food, its flavours, texture and be seen in a social environment,” explains Sitaram.

Cross Border Kitchens is spearheading the trend of experiential marketing for its cloud kitchen brands – which means that the marketing teams have different PR rules of engagement and hyper local offline marketing activities defined for each brand as per its positioning and TG. The company has also introduced a successful influencer engagement program. The marketing team has also recognised and is working closely with loyal customer base. Additionally, each brand has its own program which works on retention marketing.

“There are a lot of in-app marketing tools that one can use but besides that, you can send a call-out with your packaging, do a lot of social media marketing and depending on the growth and margins, one should focus on marketing. Marketing strategies really need to be thought through, plus, the margins in cloud-kitchen business do not give you the liberty of spending as much as you want to. You have to be very thoughtful and you need to constantly monitor the return on investment,” states Karan Tanna, Founder, Ghost Kitchens.

Leveraging Technology

Since over 95 percent of cloud kitchen business comes from tech-driven delivery platforms, it is imperative for the brand to have seamless back-end tech support.

“Cloud kitchens operate virtually, technology plays an important role for such operations. We provide end-to-end support for online brands – from tying up with various platforms to having a proprietary unified platform for order flow to creating an app for our brand partners which enables them to directly order supplies from vendors, and we also use technology to help forecast demand and plan supply accordingly,” says Vicky Singh.

Efficient cloud kitchens need to rely heavily on technology even in the food prep process to constantly deliver a consistent product. Technology streamlines processes in terms of preparation time, assembly and dispatch – which not only influences delivery time but also quality and consistency of the end product.

“Technology is disrupting the cloud kitchen business globally from customer aggregation to customising food preferences, from distribution to logistics, from subscription to predictive mechanism, from standardisation to robotics, technology touches almost all aspects of food business these days. Cloud kitchens are leading adopters of these technologies,” says Kumar.

“From the food business we are now getting into food-tech business. Technology is not only about being an e-commerce player but how well we are using data, analytics and app to position ourself better,” adds Sagar Daryani, Co-founder and CEO,

Resonating the same thoughts, Sitaram says, “We are focussing on using IOT, geo-fencing, AI, and beacon technology apart from big data analysis that helps us make very logical decisions.”

Technology also plays a key role in making the operations better, smarter and more efficient – be it kitchen display systems, rider management app, brand websites and apps.

“Technology is foremost in creating a successful cloud kitchen. Right from integrating your POS with Zomato/ Swiggy so that the order is pushed directly in the kitchen, exactly how a customer has placed it with no lag time to printing food labels, to interacting with the riders and eventually tracking the customer feedback,” Gulati states.

Cloud Kitchen V/s Experiential Dining: Who Will Be the Winner and Why?

The change is coming from a shift in consumer behaviour. People are moving from malls to Amazon, cinemas to Netfl ix and eating out to home-delivered food. This evolving lifestyle and growth of delivery as a format, is letting people enjoy their favourite cuisines in the comfort of their homes. A proportionate dip in dinein businesses of QSRs, if any, would only be a by-product of this culture change.

“Cloud kitchens are not substituting or competing with experiential dining. Eating out habits are changing, acceptability to wider variety of cuisines, healthy eating, newer segments such as organic, vegan, plant-based diets are expanding the market for dine-in and delivery. The industry is growing,” says Katra.

Sitaram sharing his thoughts says, “They are two completely different segments. The experience and the taste and socializing one gets in the experiential dining is an entirely different experience which cannot be achieved in a cloud kitchen, furthermore, the money spent per person is far higher in a regular experiential space. Hence, there should not be any impact on the revenues of regular dining. The two are very different experiences.”

Talking on the same lines, Negi says, “Both will co-exist. Customers are looking for better experiences – be it in aphysical
outlet or while ordering in.”

Big Players Betting Big on Cloud Kitchens

, Chaayos, Keventers and Saravana Bhawan are a few eateries, which have set up these ‘dark’ kitchens in partnership with food delivery app Zomato.

Jubilant FoodWorks, which operates Domino’s Pizza and Dunkin Donuts in India, is scouting for space to start its cloud kitchen business for not only Domino’s Pizza but also for Chinese cuisine. Kishore Biyani’s Future Group is planning to roll out its own cloud kitchen to sell meals for Rs 40 on Swiggy and Zomato, to tap the growing online fooddelivery business.

“Even the best of the chains are planning to open their dark kitchens as the investment is not very high, I do not say that the returns are very high, but growth is high, so one can open multiple outlets in a very short span,” says Chef Harpal Singh Sokhi.

Impresario Entertainment and Hospitality, that runs popular restaurant chains such as Social, Smoke House Deli
and Salt Water Café, is also ‘piloting’ into cloud kitchen space.
In December last year, Tipping entered the space with its venture Bowl Hub by simultaneously launching 17 cloud kitchens in Delhi, Noida and Gurgaon.

Highlighting the reason, Kabir Jeet Singh says, “With the shift in customers’ purchase patterns, all players – big or small – are trying to ensure that they don’t miss out on the massively growing food ordering market. Cloud kitchens happen
to be the newest and one of the most costeffective models for the same.”

Other players entering the Cloud Kitchens business include Azure Hospitality’s Rollmaal and Speedy Chow, deGustibus with , Indigo Burger Project and the soon-to-belaunched Mandarin Monkey, along with ’s .

“Since big players have data based around demand and supply gaps in the market, they see entering into Cloud Kitchen business as another source of revenue and given that the food delivery market is still untapped in comparison with countries such as China and UK,” says Vicky Singh.

“Real estate cost has been a perpetual cause for concern, mitigating dine-in business leveraging Cloud Kitchen has become the obvious choice. Consumers are happy with wide variety of choices, price points, convenience and getting used to 30-minute delivery. The tide in favour of cloud kitchens is visible,” adds Katra.

Restaurateurs are turning towards cloud kitchens because of the low-risk factor. A cloud kitchen doesn’t require the kind of investment a restaurant would need. Also, nowadays, consumers prefer ordering food online instead of going out as it saves a lot of time and traveling.

“Cloud kitchens are a great way for established brands to reach out to their customers when they can’t reach out to their favorite brands. Brands with existing customer demand can generate
incremental sales while creating more bandwidth for the dine-in experience;” explains Kumar.

Negi adds to this saying, “Big players and aggregators have entered this space because they already are a significant
part of the value chain – with expertise in online delivery and deep customer data. With cloud kitchens they can dynamically
change their menus to cater to new consumer trends. Also, because, of its low input cost, ease and the options that these services provide, rising consumer base, secured profit margin and a hassle-free business process.”

“Cloud kitchen industry has exploded in the last 3 years and shall continue to grow exponentially for the next few years which is why every big player wants a piece of the pie. Going forward, it is likely that there is some kind of consolidation of brands and operators as it is a low margin industry and small operators may find it hard to compete simply due to high operational costs and lower marketing spend,” says Gulati.

A Bright Future for Dark Kitchens

At this point, there is tremendous potential in the format. There is significant demand for value-for-money home delivered food and a growing supply of different kinds of cloud kitchens available to both new and established restaurants.

“With a growing workforce and more and more people getting exposed to technology – the cloud kitchen is here is stay and will only keep growing as a business. It will take away a significant share in the F&B business. It will become a formidable force in the food and beverages industry, and every F&B player’s presence will need to be a must for increasing their SSSG (same-store sales growth),” says Sitaram.

“Cloud kitchens are growing at exponential rate. As far as my knowledge is concerned, I have not seen any other foodservice vertical that grown so exponentially in last few years,” adds Tanna.

However, Daryani is of different opinion. He says, “If any brand has to succeed then there has to be a hybrid version where cloud kitchen and physical restaurants coexist. There has to be healthy ratio which comprises of 70 percent physical stores and 30 percent cloud kitchens. Earlier, it was about brick-and-mortar but now it is about click-and-mortar.”

“Going ahead, only quality players in the segment will survive. Lot of brands which have opened thinking that it is a low-capital business will have to pave the way for the quality players. It is not an easy business. It is a top-line driven business and your funnel are the aggregators primarily. It is a highly competitive business which is low on capital and low on risk but to be successful brands need to draw big volumes which depends on the product and business relationship with the aggregators,” concludes Katriar.