Eateries turn to cloud kitchens to survive

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June 27, 2021 10:09 AM

Federation of Hotel and Restaurant Associations of India (FHRAI) estimates that in FY 2020-21, approximately 75% of the industry’s revenues were wiped off

Pivoting to cloud kitchens has helped some stay afloat, but this is not a silver bullet for the industryPivoting to cloud kitchens has helped some stay afloat, but this is not a silver bullet for the industry

The second wave of the pandemic has dealt a heavy blow to hotels and restaurant owners in India. Local lockdowns and a phased reopening, with several restrictions on both capacity and timing, have impaired the quick recovery of this sector. Currently, in some cities, restaurants can operate at 50% capacity, only until 4 pm, and only on weekdays.

Federation of Hotel and Restaurant Associations of India (FHRAI) estimates that in FY 2020-21, approximately 75% of the industry’s revenues were wiped off. India’s organised restaurant industry was estimated to be worth `4.2 lakh crore in FY19, according to a Crisil report. Dine-ins account for 75% of the organised restaurant business.

Gurbaxish Singh Kohli, vice-president, FHRAI, says that in early 2021, the industry was operating at 15-20% of pre-pandemic levels. “Since April 2021, this number has dropped below 5%,” he adds.

Several restaurants have had to shut shop, and some are yet to reopen. Kohli says almost 40% of India’s restaurants have shut since 2020, while 20% of businesses that closed temporarily in 2020 have not yet begun operations. “Conservatively, the industry will take at least another five years to return to pre-pandemic levels,” he says.

In Mumbai, for instance, restaurants can operate only on weekdays until 4 pm. In Bengaluru, the cut-off is at 5 pm. This drastically impacts business, say hoteliers. “Almost 60% of our business across outlets comes from during dinner time, which usually starts around 9 pm. Also, alcohol was a major draw,” says Riyaaz Amlani, CEO and MD, Impresario Handmade Restaurants. Hotel and restaurant owners are urging the government to allow restaurants to stay operational in the evenings too, and serve alcohol.

Some hoteliers have shifted to operating cloud kitchens to save operational costs. Speciality Restaurants, the company that operates brands like Mainland China and Oh! Calcutta, is one such. “We have launched 32 ‘kitchen within kitchen’ outlets and are introducing affordable sub brands too. We are sweating our assets and seeing results on our bottom line after right-sizing by almost 50%,” says Anjan Chatterjee, founder, Speciality Restaurants. Hypothetically, this allows an Oh! Calcutta kitchen to make and serve food from any of the other brands operated by the company. The company’s sales declined 13.25% year-on-year for the January-March 2021 quarter to `65.42 crore.

Pivoting to cloud kitchens has helped some stay afloat, but this is not a silver bullet for the industry. “Delivery and cloud kitchens will in no shape or form help restaurants survive another lockdown. The costs involved in running such operations at scale are quite prohibitive, and this is going to impact us even further,” says Amlani.

High commissions charged by food delivery apps is another impediment restaurants are facing. Aggregators like Swiggy and Zomato charge 25-30% commission, which, Kohli says, eats into the profits of restaurant owners. As a result, restaurateurs like Amlani are seeking alternatives to eliminate third-party aggregators. Impresario Handmade Restaurants, which owns brands such as SOCIAL, Smoke House Deli and BOSS Burger, launched its own D2C (direct to consumer) platform to take orders from customers directly. In Mumbai, it has also partnered with Dabbawallahs to deliver food.

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