Until about 13 years ago, ordering in was limited to calling your favourite neighbourhood restaurant on the phone and asking for dishes you knew from memory - assuming the restaurant did deliveries. Or you could struggle with the pizza delivery app/website of your choice.
The scenario has changed drastically in the last few years, with more food delivery businesses vying for customers' attention (and orders). The pandemic and resulting lockdown (including closure of restaurants) helped grow demand. And though it isn't profitable yet, we saw restaurant aggregator Zomato launch a successful IPO (initial public offering) which was subscribed over 38 times at the end of the final day on July 17, 2021.
Yet, the Zomato IPO is just one (big) milestone in the story of food delivery. This story looks beyond Zomato, at a set of established restauranteurs who are riding the same tailwinds, and adding cloud kitchens to their repertoire.
Also known as ghost kitchens or virtual kitchens, cloud kitchen don't need storefronts or expenditure on dine-in. The delivery-only model is not just low-cost but also allows for several brands to operate from under one roof. A report by RedSeer Management Consulting predicts that cloud kitchens are set to be a $2 billion industry in India by 2024. Anurag Katriar, President, NRAI and Executive Director & CEO, deGustibus Hospitality.
They say necessity is the mother of invention. Over the last year or so, even big players in the F&B space are looking to develop delivery-only brands.
The reason: As Zorawar Kalra, Managing Director, Massive Restaurants Pvt Ltd put it, it is the ability to adapt and innovate that keeps the restaurant business relevant.
Kalra, who entered the cloud kitchen business earlier this year with Butter Delivery has recently launched Louis Burger, another online brand. The gourmet burgers will be delivered in Mumbai in its first phase, followed by other cities.
With restaurants being shut for dining for most part of last year and again for a couple of months during the second wave of Covid in 2021, the only business that remained isolated against the pandemic and lockdown was the delivery business, says Anurag Katriar, Executive Director and CEO, deGustibus Hospitality Pvt Limited and President, National Restaurant Association of India.
“People are still sceptical about stepping out to dine-in and are consuming more at home. That’s the reason we are seeing this spurt, which is triggered by the pandemic and resultant lockdown,” Katriar says.
deGustibus got into the cloud kitchen concept with Neel Ki Biryani and Indigo Burger Project three years ago when Katriar spotted a gap in their portfolio and decided to seize the opportunity.
For Jaydeep Mukherjee, Head - Cloud Kitchens, Impresario Handmade Restaurants, although the pandemic made it apparent that delivery was the only way to keep the business going, they had been thinking of taking the cloud kitchen route for a while.
“We are optimising our resources and running several brands from within our existing kitchen spaces and we are setting up kitchens with dedicated teams that look after only cloud kitchen businesses, so that everything is far more streamlined,” Mukherjee says. The company has virtual kitchens in the form of Boss Burger, Lucknowee and Hung Li. Zorawar Kalra, Founder & Managing Director, Massive Restaurants Pvt. Ltd.
Food that travels well
With so many players entering the field, there is bound to be clutter. However, there are some factors that make certain brands stand out from the crowd.
“Trust and familiarity with a brand really help. Brands that people associate with high quality restaurants and good experiences are going to gain over cloud kitchens that they have never seen before,” says Kalra, who also adds packaging and the product to the mix.
The other things to note, he points out, are making consumers aware of the brand and also adapting the food in such a way that it travels well. “Just a month ago, we launched a Korean Fried Chicken Burger at Pa Pa Ya and now, it constitutes 22 per cent of our sales. We made it especially for delivery and now we are doing it for dine-in as well,” he says.
Profits don’t come easy
The cost of setting up a cloud kitchen might be lower than putting up a brick-and-mortar restaurant but that does not make the former is any less daunting, especially when it comes to making it a profitable venture.
“We could do a lot better if people order directly from us,” says Mukherjee, who believes that customers have begun to understand the predatory behaviour of food aggregators and direct orders are gaining traction.
When asked if the numbers of a delivery-only kitchen can match up to the numbers of a traditional restaurant, Kalra says that had we asked him two months ago, his answer would have been a firm ‘no’. However, he says, the percentage of delivery sales at Pa Pa Ya has grown by 600% in two months starting mid-May, and seeing that he believes it is possible.
“However, one brand alone might not be enough so you might have to cluster 2-3 different brands. One cloud kitchen at 1/50th the rent of a traditional restaurant and 1/100th the investment can generate similar numbers to a stand-alone restaurant. In that sense, it’s a great business model,” Kalra explains.
What lies ahead?
The going seems to be good as long as customers are sceptical of stepping out even to go to their favourite restaurants, but what happens when things do eventually get back to normal? After all, spending an evening out with friends will any day take precedence over bingeing in front of the telly at home.
Katriar admits that there is bound to be a drop in delivery sales once restaurants are fully operational at 100 per cent occupancy. “For Indians, eating out is not just about satisfying hunger. It is a matter of celebration. That is why I feel there will be a drop in consumption once dine-in is in full swing,” he explains.
Having said that, Katriar believes that the other impact will be that the not-so-serious players in the market will drop out, especially considering the current terms of engagement that aggregators have in the market.
“It will be virtually impossible to make money unless you hit very big volumes. Eventually the whole food sector will come out in a healthier manner where both dining in and deliveries will see parallel growth stories with different trajectories. Eventually, quality will start playing a larger role in both spaces,” Katriar says.
If there is one thing everyone agrees upon, it is that cloud kitchens are here to stay. No wonder then that despite the unique challenges that they throw up, delivery-only kitchens are high on the list of restaurateurs.
Kalra says that he is starting three new virtual brands which will also focus on popular mainstream products. Already, Mukherjee is setting up Impresario’s first pilot cloud kitchen in Vikhroli, Mumbai, that will have 6-7 brands operating within a couple of weeks.
On his part, Katriar wants to take out the imagery of dark, dingy kitchens and replace it with bright, hygienic places. He reveals that he is coming up with 5-6 delivery business brands, with the first one at Lower Parel, Mumbai.
“I will be putting up bright signs for potential customers to see and know where their food is coming from," says Katriar. "I want them to see it when they drive by it and know that this is a clean, hygienic place, a place they can even pick up something from if they wish to.”