The growth of cloud kitchens in India

There is a certain distinction in the concept and coinage of the term 'cloud kitchen'; the concept of takeaway or delivery only, without dining, has been around for over half a century globally. While pizza and burger delivery points were prevalent in the West, in India we have the long standing tradition of tiffin/dabba services; these are essentially cloud kitchens and have been around for decades.

However, the term 'cloud kitchen' was coined about a decade and a half ago, and new terms like virtual kitchens, ghost kitchens or invisible kitchens which essentially have the same meaning have been coined later.

Most research and consulting reports on Indian cloud kitchens suggest that market size is expected to be about $1 billion by 2023 with a healthy double-digit growth rate every year, points out Narendra Singh Dahiya, Founder and Director, Homefoodi, a mobile application for home food made by home chefs.

"Earlier, the contribution by cloud kitchens was estimated to be 20 percent of the food delivery market. However, this percentage is changing and will undergo drastic changes in the favour of cloud kitchens," he adds.

The Indian F&B industry is witnessing a major drift from dine in to delivery business and the pandemic has worked as a "catalyst" in the growth story.

The closure of restaurants due to the lockdown has pushed a majority of the population to opt for either home cooked meals or depend on food brought in through deliveries.

Hence, the food delivery industry is witnessing an upward facing graph with a surge in the number of orders and customer awareness around food safety and hygiene is increasing. Increased work-life participation of more members and the resultant paucity of time has made home cooking activity to avoid. The convenience of ordering through apps without the drudgery of going out to eat has driven the demand.

"We recorded our highest ever sales in the month of March (saw peak after the lockdown was announced). Though last two months have been a slightly dull period of the entire industry as people were scared to order in, however, we managed to sail through it owing to our extremely loyal customer base that trusted our level of hygiene. Hygiene is a very important trust-building factor. We are at 70-75 percent of our pre Covid-19 sales and it is growing week on week, but we expect it to pick up as and when the curve flattens," inform Sehaj Singh Kukreja and Tushar Anand, co-founders of Cheferd Foods- parent company of Pizza On My Plate, Burger In My Box and Deli Salad Company.

Considering the fact that setting up a cloud kitchen comes with a low capex as compared to setting up a restaurant, it catches eyes of new players. The set-up cost for a medium-sized cloud kitchen falls around Rs 5 lakh.

"Setting up a cloud kitchen typically requires 1/3rd of the investment required to set up a restaurant on account of lower rental costs. Profit margins are usually in the range of 10-15 percent as opposed to 5-10 percent as compared to restaurants," informs Dahiya.

However, people who want to enter the space should not look at low capex as a motivator, warn Kukreja and Anand.

"They should try and workout the fund requirement and cash burn for at least 5-6 months as that is the usual time that it takes for customers to start noticing a new listing on aggregator apps as compared to a head-on-visibility in a brick and mortar store," they say.

Also, a recent research report called 'Future of Food: Covid-19 Survival Plan' by Indian Federation of Culinary Associations and Tagtaste says that based on the analysis and extrapolation of last available profit and loss statements and balance sheet, and subsequent interactions, an estimated 18 percent single-unit restaurants won't be able to re-start their units. Chain-brands too run the risk of shutting down 12-15 percent of their restaurants by December 2020, it said.

With dine-in being hit badly during the lockdown, delivery is the only way to keep the brand alive for existing players, says Gautam Kumar, co-founder Keystone Solutions, a boutique turnkey contracting company, which also does complete set-up of cloud kitchen.

He reveals: "We have a lot of queries from existing restaurant operators and new players. Competition is tough generally in F&B business which has a high failure rate, however, your product will always be the winner for you."

He adds: "The hospitality industry is at the cusp of a revolution and the fear psychosis and the spike in the cases is motivating the entrepreneurs to adapt to the changes."

But everything comes with its own shares of challenges. The major challenge for newer players will be to create organic demand. There are various checkpoints that players consider before setting up the cloud kitchen which are:

Choosing the right location for the kitchen so that one has access to good demand from customers in the catchment area.

Deciding the right menu and pricing depending on the customer needs and preferences living in the area that one wishes to service.

Hiring trained chef/cook and experienced helpers who will ensure that food cooked is healthy, fresh, and delicious and kitchen has high cleanliness standards.

Selection of good quality and eco-friendly packaging containers so that customers get to appreciate not just the food but packaging standards.

Opting to partner with a trusted food delivery application that charges a fair commission with optimal food orders and a reliable delivery mechanism.

Cost associated with approvals and license