SUMMARY
How we consume our food is the next big thing that technology aims to change
The annual average setup cost for opening a restaurant in India is approximately 3.05x times that of a cloud kitchen
At present only 13% of the total market size has been tapped by the cloud kitchens
As with everything else in our lives, technology has disrupted the way we eat food too, so much so that ordering in on Zomato and Swiggy from cloud kitchens may be killing restaurants in the Indian market.
Till a few years back, eating a meal outside the home was more than just about food. It was a complete experience of a change in environment, a break for the women (usually) from the kitchen and a reason for everyone to share the table together without worrying about the hassles of cooking.
The entry of food aggregators created a massive disruption in the restaurant and food delivery space. In a fast-paced world with 24×7 digital jobs, people prefer staying indoors these days in the comfort of their homes and just call for the food they want to eat. This no-fuss experience has made life difficult for restaurants.
In the place of restaurants, delivery startups have sidled up to cloud kitchens — those restaurants that have expansive menus but no storefronts.
The phenomenon of cloud kitchens vs the restaurant model has been explored in our report “Cloud Kitchen: India Market Opportunity Report 2019.”
DOWNLOAD THE FULL REPORTWhy Are Cloud Kitchens Working In India?
Sreyoshi Maitra, executive director at Ipsos, a global market research firm, said, “We are witnessing fast changes in lifestyle followed by changes in daily routines. Consumers are extremely time-pressed and this further triggers a growing need for easily accessible cooked food that is affordable. Thus consumers have quickly embraced home delivery or take out services to save the time and energy that would otherwise go into tossing up a home-cooked meal.”
The importance of the foodtech sector can be interpreted from the fact that the contribution of foodtech startups to the overall consumer services funding from 2014 – H1 2019 was 56%, whereas in the case of the total count of funded startups this was a 24% contribution.
Swiggy started its cloud kitchen access service called Swiggy Access in 2017. Vishal Bhatia, CEO, of New Supply at Swiggy said the cloud kitchen proposition is a win-win for new restaurant brands as well as consumers.
Zomato has left no stone unturned either. Mohit Sardana, COO of food delivery at the company told Inc42, “With the expansion, while demand has grown exponentially, there are a lot of geographies where restaurant supply has not been able to scale up to the same level primarily due to lack of investment in setting up of new restaurants. We wanted to accelerate the process of investment in kitchen infrastructure in areas facing a supply deficit and created the Zomato Kitchens model.”
Datalabs by Inc42 estimates that the annual average setup cost for opening a restaurant in India is approximately 3.05x times that of a cloud kitchen.
DOWNLOAD THE FULL REPORTSimilarly, the margin of profit in the case of the cloud kitchen is relatively higher than the traditional restaurants. One of the primary reasons for this is the low operational cost associated with the cloud kitchen thanks to the smaller real estate footprint and lower resource requirements.
As seen in the cloud kitchen report from Datalabs by Inc42 projects the market size of cloud kitchens to reach USD 1.05 Bn by 2023 in India with a growth rate of 12%. At present only 13% of the total market size has been tapped, showing a massive potential of growth for this business.
Is There A Dark Cloud To The Silver Lining?
While food aggregators are all about cloud kitchens these days, discovery and deals platforms are focussing on restaurants for growth. Dineout, which is India’s largest end-to-end restaurant reservation and management platform, says it is working to ensure that restaurants are not left out of the tech disruption.
Dineout cofounder Vivek Kapoor believes that not everything so crystal clear for the cloud kitchens market. , “Inventory management is one of the biggest and most common challenges faced by cloud kitchens. Space being a limitation, cloud kitchens typically store stock for two to three days worth of orders. This makes it imperative to have optimum inventory visibility to avoid negative impact in terms of customer orders and food wastage,” Kapoor told Inc42.
He added that cloud kitchens require a single technology mechanism to help streamline each order and amalgamate it with the existing system.
Risks in a cloud kitchen business do exist. The high dependence of cloud kitchen on platforms such as Zomato, Swiggy, and others in the context of food deliveries makes the cloud kitchen segment more vulnerable to lower customer satisfaction due to delayed deliveries or damaged food in transit — in which cloud kitchens themselves have no say. Further, the entry of established online food delivery apps into the cloud kitchen space raises the entry barriers for new ventures, eventually reducing competition in the long run.
Sardana from Zomato believes that the opportunities and benefits heavily outweigh the challenges in a cloud kitchen business as it is a capital-light and cost-effective model with low risk, rentals, and workforce requirements.
Impact Of Market Forces On Food Industry
Market forces that are working in favour of cloud kitchens in India include increased internet penetration, a young employable workforce, changing lifestyles and a rising per capita income. This has have widened the addressable market for the cloud kitchen operators in India in both the rural and urban demographics when one considers that the urban sector is the primary target audience for both cloud kitchen and online food delivery market in India.
Demand is on the rise, but India faces a huge restaurant supply gap. Bhatia believes that innovation and optimisation in delivery will enable quicker and fresher deliveries and streamline the overall operations. In the coming years, through access kitchens or ‘pods’ Swiggy will soon be within 10 minutes of 99% of its consumers, Bhatia claimed.
Zomato’s Sardana is quite clear that as quality improves, cloud kitchens are likely to become first choice options.
He said the four primary factors governing someone’s decision to eat at home or outside the home are what Zomato calls AAAQ — Accessibility, Affordability, Assortment, and Quality.
“As we continue to work towards improving the AAAQ score of the restaurants, we expect more and more people to prefer to non-home cooked food. Of course, cloud kitchens will continue to play a significant role as a cost-effective model for restaurants looking to reach out to more consumers and consumers to have more food choices.”
To get detailed analysis and projections for cloud kitchen market check out “Cloud Kitchen: India Market Opportunity Report 2019” report released by DataLabs.
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