Kitchens@ calls off merger deal with Kitchen Centre

The deal between Kitchens@ and Kitchen Centre did not involve a cash component. The two firms had agreed on a revenue-share model and the deal involved a share swap as well.

The deal between Kitchens@ and Kitchen Centre did not involve a cash component.

Cloud kitchen operators Kitchens@ and Kitchen Centre have called off their merger deal, which was announced in March 2022, and will instead scale operations as two separate companies. Prolonged due diligence, which flagged other compliance issues, was among the top reasons that resulted in the merger talks falling through.

The deal was of particular importance because the combined entity would have been one of the largest players in the cloud kitchen space, together having presence in over 100 locations, across 20 cities, and running more than 1,000 kitchens as March 2022. Curefoods, which merged with rival Maverix, Rebel Foods are the other key industry players.

The deal between Kitchens@ and Kitchen Centre did not involve a cash component. The two firms had agreed on a revenue-share model and the deal involved a share swap as well. “In December last year, we realised that the due diligence would not be cleared because of compliance issues. We also noticed that Kitchen Centre was not performing as well as it was expected, so thought it was best not to proceed with the merger,” Junaiz Kizhakkayil, founder and chairman, Kitchens@, told FE.

But as Kitchens@ — the bigger player in terms of the number of kitchens and brands it operated — looked to expand beyond Bengaluru, it hoped a merger with Delhi-based Kitchen Centre’s would help the company reach farther, especially north India. According to reports, Kitchen Centre has now turned non-operational after it received several complaints from real estate partners over unpaid dues/fees. Kitchen Centre could not be immediately reached for comments.

While the deal did not progress, Kitchens@ was still keen to grow. This month, the company bought Swiggy Access, Swiggy’s cloud kitchen business, to keep its expansion plans on track and grow its revenues to around $65 million, from about $20 million currently in 12 months. While it expected its gross merchandise value (GMV) to jump from $65 million to around $100 million in six months from now, thanks to its growing partnership base.

As part of the transaction, Swiggy now owns just under 20% of Kitchens@. Not just Swiggy, but Kitchens@ also had Zomato as a stakeholder between 2018 and 2020, when the Gurugram-based company infused capital into the Bengaluru-based startup.

That was after shuttering Zomato Infrastructure Services (ZIS), its own cloud kitchen business. Zomato, however, sold its entire stake back to Kizhakkayil in 2020 and is no longer a shareholder. Kizhakkayil expressed plans of considering a buyback from Swiggy as well, over the years, at an opportune time. Kitchens@’s business can be divided into two broad categories: Brand-operated kitchen and company-operated kitchen. Under the brand operated model, Kitchens@ rents out space to giants like Barbeque Nation for their own chefs to prepare food and sell to more locations, without requiring physical or dine-in presence. But under the company-operated kitchen arrangement, it would take a franchise of a restaurant and pay them royalty on every sale. 

 About 70% of the Kitchens@ revenues come from the company-operated model, while the rest comes from the brand operated arrangement, where it has a take rate of 10-15%. Kitchens@ says it works with most major food brands, like Domino’s, ITC, Mainland China, Theobroma, among several others.

As it expands to Tier 2 cities like Ahmedabad, Kochi and more regions in the NCR over the coming months, Kizhakkayil said he would also explore a fundraise to the tune of $40 million after he has established company-wide profitability in FY24. Kitchens@ has so far raised around $20 in debt and equity from a clutch of angel and institutional investors. Cloud kitchens became a popular trend during the pandemic when physical dine-in options were limited or inaccessible to most. The model also yields better returns for owners, when compared to physical restaurants, Redseer analysts had said.

The capex for a typical dine-in restaurant is 2-3X that of cloud kitchens, they highlighted. Cloud kitchens, as an industry, was forecast to grow 5-6X in gross merchandise value (GMV) to reach around $3 billion by 2025, up sharply from $440 million in 2019. 


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First published on: 23-03-2023 at 04:15 IST