Zomato To Shut Down Its Own Cloud Kitchen Operations Under ZIS; Invests $15 Mn In Loyal Hospitality

Zomato, in its push towards cloud kitchen, has now committed to investing $15 Mn in Bengaluru-based Loyal Hospitality, reports ET. The first tranche of $5 Mn has already been invested in Loyal Hospitality which will help its team to expand operations and outlets further through a shadow kitchen model.

Launched in 2015, Loyal Hospitality aims to bridge the gap between organised and unorganised sectors in the Indian food industry. It offers a platform to resto partners for planned exponential expansions without investments. It’s Shadow Kitchen Model is based on the concept of bringing all the best brands of the country to gather to serve the customers through Home Delivery and Takeaway.

As mentioned on the company’s website, “It will be under one umbrella all the themes and cuisines will be available. The primary objective of the Shadow kitchen is to expand the best of the brands across the cities and untouched territories. Massive expansions for the Resto’s is possible under the shadow kitchen concept.”

Zomato confirmed the investment to ET and further iterated that it is shutting down its own cloud kitchen operations under Zomato Infrastructure Services (ZIS). “The purpose of ZIS was to bridge the supply and demand gaps in various micro localities across the country. We only had one pilot kitchen in Dwarka and we are in the process of winding it down,” said Naina Sahni, VP-Public Relations at Zomato.

Deepinder Goyal, founder and CEO at Zomato laid the foundation of ZIS in November 2016, when it launched the pilot kitchen in Dwarka, Delhi.

Under ZIS, each delivery location is said to have four or more restaurant brands co-located with each other, leading to shared (and, thus, lower) costs; plus each restaurant brand will reportedly have its own space of roughly 300 sq ft.

Zomato is now looking to work in the cloud kitchen segment with captive units. As part of this investment, Zomato will be the sole delivery partner for the kitchens to be covered under this programme for the near term.

For now, as quoted by an ET source, the deal with Loyal Hospitality will give Zomato access to deliveries from 200-220 kitchens across 10 restaurants in Bengaluru followed by an expansion to seven more cities by the end of the year.

“Loyal Hospitality is looking to set up 8,000-10,000 kitchens across India over the next three years and will enable cross-city launches of restaurants through this model. In its first phase, the platform will enable Zomato to get delivery access to some high order frequency restaurants in Bengaluru such as Empire Restaurants, Adigas, Hyderabadi Biryani House, Al Bake amongst others,” he added.

Since its entry into the cloud kitchen space, Zomato has not been able to aggressively move ahead due to close competition offered by Swiggy and Uber EATS. Now Swiggy is also looking to function its cloud kitchen model through strategic investments, as well as looking to expand its Access Programme in more cities soon, as per the media reports.

The investment in Loyal Hospitality may bring a boost for Zomato’s delivery volume which is currently around 7 Mn per month behind Swiggy’s 10 Mn monthly orders. However, overall Zomato is growing its revenues at fast pace. As Inc42 reported earlier this year, Zomato hit 5.5 Mn monthly food orders in March 2018.

In a recent blog post, Zomato shared a 45% Y-O-Y growth, generating $74 Mn revenues in FY18(unaudited results), compared to $51 Mn in FY17. This comes on the heels of 26.66% reduction in its operating cash burn rate. The unicorn recorded $11 Mn operating burn in FY18, in comparison to $15 Mn in FY17. 

UberEATS and Ola-owned Foodpanda clock about 25,000 and 40,000 orders per day as per industry sources. The industry experts further believe that online ordering and deliveries form about 40-50% of restaurants’ revenues currently and is likely to go upto 70% over the next three years.