With nearly 40 percent of India’s restaurants still shut because of Covid and people still reluctant to enter those that are open, it’s boom time for these delivery-only joints
Last weekend, Alisha Vora, a Mumbai resident, had food cravings. After days of consuming home-cooked food, she wanted something from outside: “Kuch acha khana hai… kuch bahar ka khana hai.” She decided to place an order with Mojo Pizza as it delivered within 30 minutes. With a few taps on her cellphone the order was placed. Half an hour later, she was happily chomping into a pizza with double the toppings.
It isn’t always pizza, but like Alisha, people across the country are busy tapping their phones ordering breakfast, dinner and everything in between. Despite lockdowns being eased in many parts of India, people are still reluctant to eat in a restaurant over fears of contracting Covid. At the same time, in many States, the authorities have still not allowed dine-in services and about 40 percent of India’s restaurants are still shut.
All this has led to individuals and families dining at home all the time, and had a deleterious effect on the restaurant and F&B industry. According to a report by CRISIL, India's organised restaurant industry will see a 40-50 percent plunge in FY21 revenues.
On the other hand, there has been a bump in orders being placed for home delivery of food. Enter, the cloud kitchen. And this has prompted a slew of start-ups and even restaurant chains, are looking to venture into the space. Lite Bite Foods, which manages more than 30 restaurant brands, including Punjab Grill and YouMee, across India and internationally, has been lured in by the concept, especially with footfalls declining at its restaurants.
Start-ups Yumlane and Cheferd Foods, and pizza delivery outfit Mojo Pizza, among others, are also jostling for space in the cloud kitchen market.
Cost structure advantage
A cloud kitchen is a delivery-only restaurant that has no physical space for dine-in services. It relies entirely on online orders placed through online food aggregators or an online ordering enabled website or mobile app.
One of the main drivers of growth in the cloud kitchen segment is the changing cost structure of the business. Cloud kitchens reorient restaurant cost structures toward delivery rather than in-person dining, and the reduction of employees that comes with a delivery-focussed model can significantly bring down rent and staffing costs and improve margins.
For example, 60 percent of the cost of a Starbucks latte represents the cost of rent and staffing, according to global market research agency Euromonitor, which cited data from Financial Times.
Cloud kitchens could create a $1 trillion global opportunity by 2030, according to a Euromonitor virtual webinar presented by its Global Food and Beverage Lead Michael Schaefer.
Euromonitor predicts cheaper, faster and more reliable delivery will help this segment capture 50 percent of drive-thru service ($75 billion), 50 percent of takeaway food service ($250 billion), 35 percent of ready meals ($40 billion), 30 percent of packaged cooking ingredients ($100 billion), 25 percent of dine-in food service ($450 billion), and 15 percent of packaged snacks ($125 billion).
Jostling for space
Speaking to Moneycontrol, Rohit Aggarwal, Director, Lite Bite Foods, said: “The cost of opening and running a restaurant has inched up, prompting the company to switch focus to a low-overhead, tech-enabled model. To cater to high demand, we have ventured into the cloud kitchen segment, and are investing approximately Rs 25 crore in LBF Cloud Kitchens.”
“Our first kitchen will be live this August, starting with Delhi and followed by Mumbai, with a brand new central commissary of 12,400 sq. ft. We plan to roll out a total of 36 kitchens across Delhi-NCR, Mumbai, Pune, Bangalore and Hyderabad over the course of three years,” said Aggarwal.
Yumlane, a Mumbai-based start-up, has been working all through the lockdown and has been clocking more sales than ever. In fact, it expects to soon match and exceed pre-Covid numbers. The cloud kitchen food platform has already raised $1 million in funding this month from Jetty Ventures for expansion into new cities and hiring. Helmed by Hitesh Ahuja, Yumlane has previously been backed by Binny Bansal (ex-Flipkart), Singapore-based RB Investments and Rehan Yar Khan of Orios Venture.
“We believe the cloud kitchen format will be the flagbearer of the food services industry in the coming years and expect more consumers to order online food delivery vis-à-vis eat-out,” said founder-CEO Ahuja, an ex-Private Equity Executive turned Food Entrepreneur. Yumlane currently has 30 Points of Delivery (PoDs) across Mumbai, Bengaluru and Pune and has plans to expand to Hyderabad and Chennai.
“With stay-home weekends, mundane food cycles and people being deprived of dine-out experiences, ordering in pizzas is the new way to have a good time, making it one of the most-ordered food items. On the business front, we are back to 75-80 percent of the sales at the pre-covid level and are on track to reach 100 percent in 6-8 weeks,” said Anshul Gupta, Co-Founder, Mojo Pizza.
A full-stack cloud kitchen and delivery player across Mumbai, Pune, Bengaluru & Gurugram, Mojo Pizza covers the entire value chain, from procurement of high-quality ingredients to food preparation to last-mile delivery,
Another Delhi-based start-up, Cheferd Foods, which has brands like Pizza On My Plate, Burger in my Box and Deli Salad Company, has been doing roaring business through the lockdown.
“We recorded our highest ever sales in March and are now at 70-75 percent of our pre Covid-19 sales,” said Sehaj Singh Kukreja and Tushar Anand, co-founders of Cheferd Foods.
An opportunity for everyone
Restaurant closures in the wake of the pandemic will drive a change in how physical restaurant formats are used, especially as shuttered businesses leave empty real estate behind. This shift will prime the industry for an acceleration into cloud kitchen development.
While deep-pocketed chains may lead restaurant-driven experimentation in the cloud kitchen space, as millions of small restaurants close permanently, the surviving small players will have the chance to buy up new property and continue to cater to increased delivery demand, thereby levelling the playing field.
Rebel Foods, a cloud kitchen restaurant company that operates Faasos, Oven Story, Firangi Bake, and Behrouz Biryani, did not reveal sales numbers for the past few months but Raghav Joshi, CEO of its India Business Unit, told Moneycontrol that they plan to use kitchen infrastructure to expand beyond cooked meal brands.
“The brand will be diversifying into ready-to-cook kits, meats, packaged snacks, as well as scaling other restaurants by investing in a few brands this year. We are witnessing gradual growth in India week on week,” said Joshi.