How cloud kitchens are gaining prominence

By: |
October 12, 2020 6:56 AM

QSR chains look to scale up deliveries through cloud kitchens

Dining out, zomato reportAccording to a Zomato report released in August, dining was yet to bounce back and was operating at 8-10% of the pre-Covid levels.

The organised food services industry, which garnered the lion’s share of its revenue from dine-ins before the pandemic — almost 75% according to Crisil Research — is now dependent on takeaways and deliveries, as consumers prefer to stay indoors. To lessen the losses owing to the abysmally low footfall in restaurants, several new companies are adopting the cloud kitchen model to quickly scale up deliveries.

Quick service restaurant (QSR) chain Mad Over Donuts has adopted the cloud kitchen model in Bengaluru; Malaysian QSR chain Momo King, too, is operating through cloud kitchens in Delhi-NCR. In June this year, multiplex chain Carnival Cinemas launched its cloud kitchen brand Purple Foods & Beverages.

According to a Zomato report released in August, dining was yet to bounce back and was operating at 8-10% of the pre-Covid levels. The food delivery side of the business, meanwhile, was clocking 75-80% of pre-Covid GMV.

Cheaper kitchens

To scale up in a cost-efficient manner, QSRs are tying up with cloud kitchen providers, who provide the basic infrastructure required for preparing the food and packaging it for deliveries.

For instance, Momo King has partnered with Smart Kitchen Company to operate 11 kitchens in Delhi-NCR. According to Shyam Thakur, founder of Momo King, while it requires an investment of Rs 12-15 lakh to set up a QSR outlet, a cloud kitchen can be started with only 40% of this capital.

The company plans to extend its cloud kitchen model to Chandigarh and Dehradun, and launch an app for deliveries. Its kitchens in Delhi-NCR, spread over 150-200 sq ft, service 60-70 orders a day.

Mad Over Donuts has taken a similar route, and tied up with Loyal Hospitality in Bengaluru and Rebel Foods in New Delhi for cloud kitchens. “We can service areas where we don’t have our outlets through this model,” says Tarak Bhattacharya, CEO, Mad Over Donuts.

Cloud kitchens contribute 10-12% to Mad Over Donuts’ overall sales. The company shares 25% of its revenues with the cloud kitchen companies.

Carnival Cinemas, meanwhile, has a different reason to foray into cloud kitchens — to make better use of its infrastructure. “Our premises have a lot of unoccupied space. We are using it to create a retail model and generate more F&B revenue,” says Sony Ravindranath, director and CEO, F&B, Carnival Group.

The multiplex chain has opened 15 cloud kitchens, each measuring 150-200 sq ft, with an investment of Rs 8-10 lakh per unit. It claims to be servicing about 50-55 orders a day through these kitchens, and has launched its app and delivery fleet besides tie-ups with food aggregators.

Marginal benefit

The cloud kitchen model helps companies save on infrastructure costs, but reduces their margins drastically. It is a known fact that dine-in margins are much higher than deliveries, as companies don’t have to split them with food aggregators or infrastructure providers.

Thakur of Momo King corroborates this. He says that while the company makes a profit margin of 40% from dine-in orders, deliveries from the cloud kitchen model reduces it by more than half. Additional costs like late delivery fees, penalties or return orders also make cloud kitchen deliveries an expensive proposition, especially when its average minimum order value is much lower than that of dine-in orders.

Amarjeet Singh, partner, tax regulatory and internet business, KPMG India, says that getting customers aboard will be a challenge for brands operating in this segment, as they are solely dependent on promotions by food aggregators.

Some of these companies hope to tide over this by launching their own apps. However, experts say consumers would rather download a single app where they can find several options.

Read Also: How the pandemic has shaped the future of e-gaming in India

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