Cloud Kitchen – A great Business?

  • Cloud Kitchen also called as ‘Ghost Kitchen’ is a Kitchen which works on a Virtual space only available online for Ordering Food. Therefore a customer cannot see a physical presence of the kitchen. Hearing the noise around it really looks like a great Business India Although there are mixed reactions around it and I guess a ‘Broader Level’ discussion looks farce.

Let’s looks at a difference between Actual Restaurant/Kitchen with a Cloud Kitchen – A cloud kitchen has some advantages as follows:

  1. Smaller & Less Expensive Real Estate – Less Capex
  2. Lesser Overheads & Utilities – Less Opex
  3. Ease of Operations, Can operate with bare minimum Manpower – Less Opex

Disadvantages are as follows :

  1. No physical presence – No Physical Identity, No Customer Connect, Building Loyalty is very-very difficult. That’s an absolute disadvantage. How do one talk to it’s customers, actually we do not even know who is the customer?
  2. No sales control is in Highly Competitive Online Market – Customers are only looking for deals, primarily driven by offers given by App Aggregators like swiggy. Zomato etc. Cloud Kitchen need to pay for the visibility on Apps. Just like Google search the customers buys what they get through with convenience.

The Economics of Operations would look something like this –

Food & Packaging Cost (Approx 35% ), Agreegators Fee + GST + TDS (Approximately 28%), Salary (12%), Rent (12-15%), Utilities (7-8%), Misc (5%)

There could be a debate on the numbers illustrated above saying the increase of Topline would have % benefits. Of Course yes, but with the same – saving would remains insignificant. Barring exceptions there may not be many Brands making money out of Cloud Kitchens. Having said that the online business projections are high as it should be.

As per the estimations of IMARC groups the online business in India is looking at a CAGR growth of 30.01% from 2021 to 2026. In 2020 India online food business has reached to a market cap of USD 4.35 Billion. Looking at these numbers the Business looks lucrative.

Let’s do not forget that the Revenues of Swiggy and Zomato for 2020 stood at USD 3.7 Million & 2.8 Million respectively, which is a remarkable growth over 2019. And in coming years also it’s going to grow multiple folds. Those revenues look huge, isn’t it? The irony is there business model is also heavily flawed as they are losing money per order. This means the more revenue they do more losses they make. This is purely riding on Investors Money, not sure for how long though..

To make the matter worse ‘Riding on investors money‘ App Agreegators are opening Cloud Kitchens of their own making the cloud kitchen business even more difficult for the other restaurants and cloud kitchens business to excel. This is a bubble created and would be busted and small players would continue to loose.

Barring some exceptions Cloud Kitchens are also ‘A bubble’, which would burst after burning Investors money. The sentiments of Cloud Kitchens have been kept alive to burn Investors Money and keep the confidence in the Business. The Restaurant/Food Business as it it tough one, as people jump into Business without getting into nitigrities and complexities of it and become ‘me too’ failure. There is enough and more money being burnt by companies biggies like Eat Fit, Fresh Menu, Ola Foods/Food Panda etc in the same race.

Let’s Start the fair discussion towards goodness as follows:

  1. Create a good concept – Food, Service, Branding. At the end this is what matters not only with any food but any business.
  2. Have a small Store with a physical face for ‘Takeaways’ and very small informal standing/sitdown Kitchen. This would also ensure that too much money is not going into real estate and utilities also. This ensures that the customers has a face to name. Customers also can check at hygiene level and connect with you directly at times. Since most of the customers would be from a closeby (A complete hyper Local Scenario) they may also can drive/walk. This way they can also connect with the restaurant directly in case of a feedback.
  3. Invest in Right Packaging – Since a lot of food would be going to customers home . Poor Packaging Spoils the Experience of Customer
  4. Have a customer Outreach Program – Engage with customers asking for direct Feedback and incentivise for Feedback & regular orders. No Discount !!
  5. Local Marketing – Connect with neighbourhood with activities
  6. Digital Marketing – Work on small website for your direct ordering. Bring the Kitchen with other ordering and delivering platforms. Like Dot pe, My dokaan, Dokaan etc and work on alternate delivery options by dunzo/yourself etc. These new start ups re giving more power and outreach to the brand.
  7. Be online with all the Agreegators – Be online with all the App Agreegators and do not start with only one. Some time needs to be spend on understanding the rating system of the App Aggregators and keep a close watch on the customers ratings and order taking time, packing time. The Speed of service would be the key here. This also ensures that the brand has a better visibility as a default.
  8. Open more than one brand under the same umbrella – This ensures that the dishing out of the food can happen from the same real estate. Some cloud Kitchens like Rebel Foods has many brands under one like Fasoos, Behrouz Biryani, Oven Story, Mandarin Oak, Lunch Box etc and after years of struggle and burning money are a acceptable brand now.

For inspiration – Domino’s success in India needs to be followed. The brand has understood the pulse of the Indian Market and have conveniently penetrated through Indian delivery market really well. They have not delivered Pizza but they have delivered ‘The experience of Convenience’ with everything right about then like Good Product, Constant Innovation, Affordable, Ease of Ordering, great customer connect. A brand worth a watch and follow.

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