Cloud kitchens, which have attracted the attention of delivery giants UberEats and Zomato, are the hot new flavour in foodtech as they offer better margins
A lot is cooking in the foodtech segment in India, which is now ripe for further innovation. For foodtech start-ups, delivery is no longer the bread and butter. Cloud kitchens are gathering much steam with entrepreneurs and investors alike as millennials not only seek instant gratification, but also innovative recipes curated around special diets.
Budget hotels aggregator OYO has just started 20 cloud kitchens and is said to be in talks to acquire cloud kitchen start-up FreshMenu for $50-60 million. Last year, Zomato invested in cloud kitchen platform Loyal Hospitality, while UberEats entered into a partnership with Café Coffee Day to start virtual restaurants. In January this year, cloud kitchen players Box8 and InnerChef raised $15 million and $6.17 million, respectively.
Rajesh Sawhney, founder and CEO, InnerChef, says, “The food delivery space is crowded and exhausted. Cloud kitchen is the next big bet providing scope for growth and innovation.”
Another factor is the dearth of quality restaurants. “There are 3,00,000 restaurants in Beijing, compared to only 7,000-8,000 in the National Capital Region (NCR). Hence, food delivery ventures want to create food supply by expanding into cloud kitchens and also increase margins by doing backward integration,” says Vishal Jindal, co-founder and director, Biryani By Kilo, which has raised $1 million in the recent past.
Margins from cloud kitchens are 45-55%, compared to 15-20% in food delivery. Moreover, cloud kitchens provide niche, gourmet offerings. “We are focused around taste and nutrition. Our menus consist of freshly-made salads, healthy snacks and beverages. We also have items based on dietary needs like keto, paleo, vegan and gluten-free,” says Sunjay Ghai, founder and CEO, Hello Green.
Cloud kitchen is a more profitable business compared to dine-in restaurants as less rental cost and capex is required, says Jindal. “Entrepreneurs mainly need to take care of the kitchen space and maintain standardisation of food without worrying too much about look and feel. It is easier to experiment with cloud kitchens and change menus easily.''
“Cloud kitchens provide an efficient alternative minus the real estate burden. This lowers the prices, attracts more customers and drives up sales,'' says Anirudh Damani, managing partner, Artha Venture Fund, adding that not having to cover long distances between the food pick-up point (restaurant) and the drop point (customer location) allows riders to deliver fast and adhere to a hub and spoke model.
Says Sawhney, “Cloud kitchens are priced better than restaurants, offer innovation, convenience and speed of delivery to a customer.”
Thus, food delivery start-ups like Swiggy that operate their own cloud kitchens gain a leg up over the competition. “It gives them exclusivity over certain delivery brands. This is a sure advantage as compared to a scenario where Swiggy, Zomato and UberEats are all competing to service the same restaurant,” says Damani.
With advantages galore, clout kitchen platforms are looking to innovate and scale up.
Ghai says the future scale-up of Hello Green will be driven by a brick-and-click push. “Click will be driven by our new app. The brick will be driven by our hub-and-spoke model where the hub is our cloud kitchen and the spoke will be innovation around formats. The formats we are exploring are retail shelves, shop-in-shop formats, corporate sales and smart fridges which will all be serviced by the neighbourhood kitchen. This ensures quick turnaround time, less wastage, and better food quality,” says Ghai, adding that they have grown over 300% in the year and will continue the momentum.
InnerChef aims to build multiple food brands centred around delivery. They have a healthy foods brand called Healthie.in, a thali brand called Thalis of India and another brand, Bombay Sandwich Company. “Last year, we grew by over 100%. We will start newer brands that will have a delivery focus. We will expand our cloud kitchens to nearly a 1,000 across 100 cities in the near future,” says Sawhney.
According to Jindal, Biryani By Kilo has 20 operational cloud kitchens and will increase this count to over 100 pan-India in the next few years, which will fetch annual revenues of Rs 400 crore.
CLOUD DINE
- 15-20% – Margins in food delivery
- 45-55% – Margins from cloud kitchens
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