With the cloud kitchen model exhibiting soaring potential, the food service industry is the newest sector to reap the benefits of cloud tech.
According to a RedSeer Management Consulting report, cloud kitchens – also known as dark kitchens or ghost kitchens – are projected to become $2 billion industry in India by 2024, up from just $400 million in 2019. While several sectors have been reaping the benefits of cloud tech for quite some time, the food service industry has been a new albeit late entrant.
With the cloud kitchen model exhibiting such soaring potential, it is hardly surprising that not just new players but also bigger F&B brands have turned to it. The delivery-only kitchens started a couple of years ago but it picked up momentum during the pandemic as governments asked traditional eateries to remain shut. That it decreased operational costs and allowed flexible multi-brand functioning from one outlet came as a boon for restaurateurs.
HERE TO STAY
“As a model, cloud kitchen is here to stay but the way it is structured, it looks a little fragile. If that correction happens, it is a beautiful model and has
a long life moving ahead,” says Anurag Katriar, President, National Restaurants Association of India (NRAI) and Executive Director, deGustibus Hospitality. However, he is quick to add that, contrary to popular perception, in absolute terms, the cloud kitchen business did not grow. “In fact, it was much lesser than the pre-pandemic levels but since the dine-in was totally shut the delivery-only model became the only lifeline for both the operators and the consumers,” he explains. “Overall, it is an interesting model but it is still evolving. During the pandemic, it gained a lot of prominence not because it grew on its own but largely because there was no other source of business in F&B at that point of time.”
Chef Vineet Manocha, Vice-President Culinary, Lite Bite Foods, concurs. “There is no doubt that the food delivery volumes have increased primarily due to the restricted/regulated movement of guests,” he says. “Food delivery has been happening in various forms but the word ‘cloud kitchen’ has now become a buzz word. Any kitchen which is capable of producing food can be termed as cloud kitchen especially because it does not require a face.”
Zorawar Kalra, Founder and MD, Massive Restaurants, opines that cloud kitchens have definitely gained prominence, pointing out that it’s important to have cloud kitchens in the post-Covid era. “We too have been working on cloud kitchen-based concepts and models,” he points out. “We will be extending our existing brands to cloud kitchens so that they can deliver. We are also positioning ourselves to be able to take advantage of cloud kitchens and ensure that a lot of our products are available in a larger geographical area.”
He adds: “As a company, we at Massive Restaurants are going to look at adapting. For example, delivery that has traditionally been less than 10 per cent of our revenue will now play a larger role.”
NEW PLAYERS
While cloud kitchens have many benefits, the model also has its fair share of disadvantages, especially for new players. Experts feel that since the fate of cloud kitchen depends solely on third-party food service aggregators (FSAs), over time, it may prove to be a deterrent. Moreover, because the hygiene factor plays a crucial role today, new entrants in the market, no matter how hygiene compliant they may be, risk losing out to established brands.
“If we look at it very simply, right from generating orders to marketing and to even servicing clients, the whole process for the cloud kitchen is centralised with these food-service aggregators,” explains Anurag. “Hence, the owners are totally dependent on one party, making it a very high-risk model. Also, not having a face under the name is another disadvantage in the current times where hygiene plays a crucial role to make or break a brand.”
“Cloud kitchens work on very low margins and rely heavily on the aggregators to reach out to customers,” says Jaydeep Mukherjee, Brand Head, Smoke House Deli. “As such, during the pandemic, the smaller players have struggled to stay afloat while the bigger players have seen good growth and increased the number of outlets for delivery. Impresario’s delivery-only brand Boss Burgers, for example, thrived during the pandemic and we now stand at 15 cloud kitchen outlets across Mumbai, Delhi and Bengaluru.”
“We too launched a few cloud kitchen brands namely Soul Tadka and Wicked Burgers & Pizzas in Mumbai and Chan’s Chinese Kitchen in Pune to diversify our revenue streams by leveraging our current infrastructure,” adds Rachel Goenka, CEO and Founder, The Chocolate Spoon Company. “Of course, our brand equity and being a trusted name certainly helped. We exceeded pre-Covid delivery revenues across all our brands and the cloud-only brands have seen a great response. In fact, we can cross-sell to our existing database directly without having to depend on aggregators.”
WAY FORWARD
Although the cloud kitchen concept has been a fool-proof model for several F&B businesses helping them stay afloat during the pandemic it is unlikely to be a self-sustaining business model, experts feel.
“Dine out will always be the number one form of social engagement. Delivery cannot be a substitute for dine out, but it will be a good addition,” says Zorawar. Jaydeep agrees. “A delivery kitchen will never replace a restaurant,” he adds
Rachel too believes that for players like them delivery was always meant to be a supplementary business. “What’s interesting is that our delivery numbers have increased as well but it is still a bit early to identify trends,” she says.
“Food delivery business is in a nascent stage currently and is set to increase substantially in volumes,” says Vineet. “Our urban populace is getting used to ordering in and I am sure this will increase the overall market penetration.”
What is clear is that, even after the pandemic, the cloud kitchen business won’t see a downward trend. Once the vaccine is out and people start dining out more business will start showing growth but the cloud kitchen model will co-exist alongside, opine experts. The future, according to them, is bright for dark kitchen.