Cloud kitchens – How pandemic transformed the food industry !

cloud kitchens

My Grandma often used to say “If you want to save money, eat at home!” And I have found it true for most of my life till now. It’s not just about frugality, it is more about health and habits. It’s easy to go out, order the food of your choice and relish it. However, doing so on a routine basis, not only turns out pricey for your pocket but also your health. That’s why the elderly prefer home-cooked food – it is healthy, available at your comfort, accomodating your eating preferences and allergies, cooked as per your choice (on most occasions) and most importantly, economical in the long run. Most people only consider the cost difference between home-cooked food and the price as per the restaurant’s menu, however, the amount saved in probable medical treatments is huge and thus, the result of this analysis is pretty clear – cook food at home!

While this mindset is beneficial to your life, it’s a huge roadblock for the food industry and also the health industry – “People eating at home and staying healthy? That’s disastrous!” Look around, they sell you food that makes you unhealthy, and then and then medicines to (try to) bring you back to normal. However, we are living in an era ruled by technology and the internet is at the helm of everything. Things are changing and the food industry in India has transformed over the past few years, special thanks to the disastrous pandemic which shook everyone’s life, and most importantly – their mindset!

Background

There’s a silver lining to everything – it’s just that not everyone can see the same. Those who saw it and made an attempt, turned their lives downside-up, from being upside-down during lockdowns. Throwback to those national lockdowns when we almost lived in exile! The COVID-19 pandemic shocked our human ecosystem, and at once, everything came to halt. The pandemic brought two major changes to our lifestyle – 1) It restricted us to home – stay at home, work from home, eat at home, and enjoy at home; 2) Priorities changed along with low salaries and losses, and entertainment and outdoor recreation were out of the question, as life took the centre stage. However, businesses have to keep running as they don’t have the option to work from home. Customer is the epicentre, and if he chooses to stay at home, either you do something or wait for the end to come. Well, the food industry did something – they switched on their ghost mode and went on the cloud!

With the pandemic extending to over months and expected to extend for more, it was pretty clear that customers were not going to visit the restaurant and the restaurant owners are completely out of business. However, the food industry took a different move – “the customers cannot reach us, but our food can reach customers, right?” Yeah, damn right! Thus, the food business which was already online to quite an extent expanded further and a new segment emerged out of it – ‘Cloud Kitchens’.

What are Cloud Kitchens?

Restaurant owners spend a huge amount of money to set up their restaurant, especially the location, the dine-in area and the ambience. However, dining out is an optional recreational activity, most restaurants don’t achieve even 50% capacity utilisation on a majority of the days in the year – the weekdays! Thus, often restaurants run into losses. With the pandemic, the situation worsened until they started delivering online which helped many to survive. Earlier, most restaurants operated on the ‘dine-in as a priority and online delivery an option’ model. However, owing to the pandemic, after being forced to run the online delivery system, they eventually realised that they could be in a super profit zone if they continue this model in long run.

Cloud kitchens, alternatively known as Ghost kitchens or Dark kitchens refers to places where food is prepared for delivering the same to the customers at their doorstep – no dine-in. These restaurants rely completely on third-party delivery platforms such as Swiggy and Zomato. Biryani by Kilo, Oven Story Pizza, Faasos, Box8, Mojo Pizza, Behrouz Biryani, Sweet Truth, etc. is some of the most famous names who operate on the Cloud Kitchen model. Serving customers online and delivering them food at their doorstep would mean no visitors – thus, no extravagant expenditure on ambience and dine in. This saves rent as well as the furnishing expenses – the upfront fixed costs. Besides, the additional staff for serving who for the most time had no work, if no customer, would no longer be required. Now all they need is a kitchen, their good chefs and the cooking materials. That’s almost a cakewalk!

The model quickly led to the emergence of larger cloud kitchens allowing other restaurants to join and share the kitchen space. Thus, the cloud kitchens started acting as large kitchens where multiple restaurants could prepare their food and keep it ready for pickup by the delivery boys maintained by the food platforms. They can either operate from the same facility or break the space into separate areas. It’s all about saving space, as ambience doesn’t matter anymore!

Why is Cloud kitchen a smarter choice?

The benefits are straightforward.

Operating costs are drastically lower as fewer employees would be required. Only cooking staff would be required, the ones working in the kitchen.

The restaurants can focus on quality food rather than washing-serving-setting dishes.

Restaurant owners can choose to operate the kitchen from a non-premium location and save rent, while already saving on the space required, as kitchens are usually set up in only 15-20% of the total restaurant space.

New entrepreneurs can easily start with small investments, and thereby, reducing the overall risk of running the business.

The restaurants can simultaneously target multiple segments of the market. They could run multiple brands out of the same kitchen, serving different cuisines and demographics.

The food prices can be lowered and yet, the profits would be higher, as the customer would perceive the pricing in comparison to the ones earlier when the restaurants worked on brick mortar model.

With online platforms like Zomato and Swiggy already maturing in the sector and other few joining the league, the ecosystem for collecting orders, payments, and delivering the food already exists and can be leveraged easily.

The onus of delivering the food is on the food delivery platform, thus, the restaurant owners only need to focus on preparing and packaging.

Is Cloud Kitchen a fad or the future?

Kabir Suri, Chief of the National Restaurant Association of India (NRAI) recently reported to Business Today that income from the food delivery business currently stands at 40%. It was between 5%-6% in the pre-pandemic era. The profit margins are higher and honestly, now fairer to the restaurant owners. They could easily even pass on some benefits to the customers. Besides, the demand for cloud kitchens is on the rise. Firms like ‘Book your Kitchen’ and ‘Speciality Group of Kitchens’ have started providing ‘Plug and Play’ kitchens. Entrepreneurs can simply rent the spaces, bring their tools, hire the manpower, and their business is up and running. On the other hand, the segment has developed so fast that India’s already has a cloud kitchen fund and incubator ‘Ghost Kitchens’. Karan Tanna who launched the company in 2019 invests in companies that focus only on home delivery. Thus, if you have the cooking skills, creativity and entrepreneurship skills, you can easily start your restaurant with plug and play kitchens and funding from incubators in the future. This is going to be a big segment in the food industry and a report published by RedSeer already predicts that India’s cloud kitchen industry could grow to USD 2 billion by 2024.

The bottom line

Cloud Kitchens present a strong case, especially with the rising demand for food delivery and digitalisation of the economy – everything is available online and preferred as well. However, the future of the entire industry is based on one single thing – consumer preference. Currently, the pandemic has changed our habits and we prefer food right next to our screens, however, how long are we going to continue liking the same? Outside food isn’t great for health – though there are already brands who specifically promise to provide highly nutritious foods delivered home, however, they haven’t been much successful. At the end of the day, you got to remember, this is India where most western countries failed to deploy their magic that worked well in other parts of the world. So will the cloud kitchens be able to create a space of their own? Can they survive against the ‘Ghar ki dal roti? The question remains, and only time will tell.

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