The silver lining: Will Cloud kitchens help restaurants industry revive?

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Published: June 14, 2020 12:45 AM

Even as restaurants have opened, uncertainty looms large over the future of the dining business. Cloud kitchens, a concept reinforced by the pandemic, seem a safe and viable option. Will it help the industry revive?

Mass closure of restaurants has thrown millions of workers and their local suppliers out of work, and also plunged restaurant revenues to zero.

It hasn’t been an easy run for the food and beverage industry in India recently. The outbreak of the virus and the resultant nationwide lockdown has left many restaurants and hotels in dire straits, forcing them to cut staff, close operations in some cities or shut shop completely. Mass closure of restaurants has thrown millions of workers and their local suppliers out of work, and also plunged restaurant revenues to zero.

The National Restaurant Association of India (NRAI), in its report India Food Services Report 2019, had estimated the Indian food service industry to grow at a CAGR of 9% to reach Rs 5,99,782 crore by 2022-23. The restaurant industry employed 7.3 million people in 2018-19. The organised food service sector, which accounted for 35% of the total market, contributed a whopping Rs 18,000 crore as way of taxes in 2018-19. Clearly, the figures will all change.
What will also change is the way the F&B industry looks at cloud kitchens.

In a world where uncertainty looms large over the future of the dining business, the cloud kitchen seems the most viable way forward for restaurants, especially as government directives also encourage takeaways over dining in at restaurants. To be sure, cloud kitchens have been popular since before the virus, but the pandemic has reinforced them now as a safe and viable option, with many big brands, too, jumping on to the bandwagon in a bid to survive.

Recipe for success
Despite the lockdown slowly getting lifted from parts of the country, there seems to be a long slog ahead for the F&B industry, especially in big cities. While Delhi and Mumbai are only allowing takeaways and home delivery, Bengaluru has permitted dining out. But since the business depends on human connect and touch, the fear of the virus has left consumers reluctant to eat out. “Social distancing is impossible, so I’d avoid eating out for a few months. I would prefer to order and eat at home using my own cutlery,” says Bengaluru-based Shubhi Mehrotra, who used to be a frequent diner at places like Toit, Salt, Big Pitcher, Burma Burma, The Hole in the Wall Café, etc, before the lockdown. These consumers will trust only those brands now that have better standard operating procedures (SOPs) and mechanisms to manage hygiene and other regulations. “I miss my weekend outings and would prefer to go back to my eateries if I am assured that all the safety parameters are in place,” says Mehrotra, a medical writer employed with Elanco, an American animal healthcare company.

The sentiment is unanimous across cities. On being asked if he would dine out in the present circumstances, Delhi-based sitar player Shubhendra Rao says, “If there’s assurance of safety in dining measures, then why not? If I eat at a less crowded place, there are least chances of infection. One needs to be cautious of what brands to eat from and where to dine though.”

Understanding that it will take some time for consumer confidence to return fully, the industry is focusing now on adopting the cloud kitchen model. “If Plan A doesn’t work, there’s always Plan B. Take-away joints, cloud catering or self-owned premises fit in Plan B,” says Hyderabad-based Yeshwanth Nag, the co-founder of premium shake brand The ThickShake Factory, which operates via 200 stores (company-owned plus franchises) across 12 Indian cities. Plan B is what Nag and his business partner Ashwin Mocherla opted for when they found their business model gutted in March this year.

They decided to pivot to a multi-brand, delivery-only model, and branch out to food and new beverages to survive. “Innovation and planning are key. A hybrid model of working will breathe new life into unused kitchens. We are converting some outlets on a case-to-case basis into cloud kitchens to open around 200 new kitchens by 2021,” says Nag, who believes that more than 50% of food businesses may not be able to recover in the current scenario.
Not just micro brands, marquee names in the F&B industry are also now turning to cloud kitchens as an immediate solution to mitigate the fall in dine-in sales. Take, for instance, Massive Restaurants, which operates many fine-dining restaurants like Pa Pa Ya, Farzi Café and Made in Punjab. “We intend to build cloud kitchens over the next year, as they are cost-effective and scalable. Food delivery will bolster restaurant sales to an extent and we expect delivery share to range between 15% and 30%. As cloud kitchens gain prominence, there will be a rationalisation: only those with the perception of food safety will survive,” says Zorawar Kalra, CEO and MD, Massive Restaurants.

“Delivering safe food, as per FSSAI norms, will be key and this is going to be the key differentiating factor in the future for businesses to prosper. We are going to convert our restaurants and retrofit them with the ability to do delivery of multiple brands in a hub-and-spoke manner. Since this is the need of the hour and we expect a decline in dine-in sales, it is good to consider delivery as an integral aspect of the restaurant,” says Kalra, even as he cautions: “Food costs will go up, as sanitisation requirements will change, also sourcing of materials will change. For instance, our vendors will get regular visits from the food safety and hygiene team to ensure the team is handling the food correctly. All this will add to production costs.”

In such a scenario, cloud kitchens bear less risk to restaurant owners, especially when there is shortage of revenue. “The operator can handle multiple brands coming out of a single kitchen. It will save money and one can utilise funds or use staff for delivery service and compensate their wages. Their operational cost will be deducted and they can use it in generating more orders by providing fast deliveries,” says chef Karann Talwar, MD, Kitchen Kraft Luxury Catering, a Delhi-based outdoor catering company.

Apart from reduced footfall, another major issue has been the interrupted supply chain. Restaurants serving international menus like Tres in Lodhi Colony, Delhi, have been facing the unavailability of imported ingredients. “We substitute them with local, seasonal produce and have introduced short menus for limited use of resources. We have redefined our SOPs for smooth functioning. Kitchens are disinfected every day and new business norms have been introduced. It is like starting afresh,” says owner and chef Jatin Mallick, who is wary of restaurants competing with existing players ruling the home delivery and takeout space. “High operating costs with rental, payroll, licenses and other administrative costs have started to squeeze us. Revenue source is reduced to negligible. But restaurant loyalty is important and a lot depends on the past performance. Restaurants with strong following will always see support from patrons,” says Mallick.

A cloud kitchen works best in such a scenario, as it doesn’t incur huge rentals. “Startups can gain from minimum risk appetite owing to low upfront expenses. Cloud kitchens are apt for smaller enterprises like food trucks, sweetshops, for home chefs, etc, where the base kitchen can be acquired for as low as Rs 25,000 per month for 600-700 sq ft… this can go up to Rs 40,000-Rs 50,000 in a prime location in a city like Delhi,” says Delhi-based Ashish Tulsian, CEO and co-founder, POSist Technologies, a cloud-based restaurant technology platform. “Ensuring quality standards is easier in cloud kitchens as opposed to dining where surface exposure is high due to seating and customer walk-ins,” adds Tulsian, who services 8,000 restaurants in 20 countries across India, the Middle East and south-east Asia.
Table reservation app Dineout has also launched ‘Takeaway’ as a new category. “We are preparing to enable cloud kitchens both on B2C (business-to-consumer) and B2B (business-to-business) fronts, as it builds a new revenue stream along with home deliveries. We will tag kitchens based on their hygiene audit scores to build incremental consumer confidence,” says Ankit Mehrotra, CEO and co-founder, Dineout.

Tech matters
Rising internet penetration, increasing ordering frequency and favourable consumer disposition are some of the factors that have driven the growth of the Indian food tech industry, which is poised to grow at a CAGR of 25-30% to reach $8 billion from the current $4 billion by the end of 2022, a 2020 report by Google and Boston Consulting Group said. It said funding in the food-tech space has grown by 35 times in the past five years.

That’s not the only area, however, where tech has made in-roads into the F&B industry. Digital menus, QR code scanners and mobile orders have all redefined the culture of dining out, ensuring end-to-end contactless dining experience in current times. “QR contactless menu ordering, for instance, enables better display of menu items and cuts overall costs and inconvenience of physical menus and ordering,” says Neeren Tiwari, director, My Menu, a specialised international digital tablet menu service provider, which recently announced a complimentary QR ordering solution to restaurants (a customer scans a QR code on his mobile, sees the menu and places the order via the mobile without downloading any app, enabling a contactless, self-ordering system). “Worldwide trends show most dine-in brands have diversified into delivery models. I would say ‘dine at home services’ will see more innovation,” he adds.

NRAI, too, has tied-up with Gurugram-based online-to-offline platform Dotpe for digital ordering and billing solutions for member restaurants and cloud kitchens. Committed to take better control of business and customer data, Anurag Katriar, president, NRAI, says, “This will benefit the fraternity and free them of the clutches of modern-day digital landlords.” The QR-based digital commerce and payments solution will help restaurant partners to connect to customers over WhatsApp and help restaurants build their own omni-channel digital platform.

Likewise, Karan Tanna, founder, Ghost Kitchens (an investment and incubation venture for startups in the cloud kitchen segment), and Mumbai-based restaurateur Pawan Shahri (founder, One Hospitality) recently launched in partnership BroEat!, a WhatsApp-based menu discovery platform for restaurants, home chefs and small businesses. It enables contactless delivery for over 1,000 brands with no charge on transactions for restaurants for the first 100 days of operation (till August 30, 2020). Post that, a minor fee, starting at `5, will be charged on every order.

Eating out platform EazyDiner has also launched Safe+ Dining, a safety programme for restaurants and diners for real-time feedback on hygiene standards. “It is ideal for restaurants adhering to strict guidelines, ensuring health and safety of both diners and employees. We are launching an additional feature of delivery and takeaway with select restaurants at a commission of 5%. Restaurants will benefit from access to data, knowing who is ordering from their restaurants and service their customers better,” says Kapil Chopra, chairman of the board for EazyDiner.

Moving into a completely contactless delivery and takeaway approach, KFC India has introduced ‘Contactless Takeaway’ on the app and website, wherein one can walk in to pick the order at a pre-decided time. Then there is Amazon, which has launched its online food delivery service called Amazon Food in select pin codes of Bengaluru.
It’s clear that technology-enabled home delivery-based solutions can enable responsible consumption and win back consumer confidence. Cloud kitchen startup Instapizza, based in Delhi-NCR, in fact, has started live-streaming of kitchens (on ‘Crustflix by Instapizza’ platform), where chefs can be seen preparing food.

Dineout has also collaborated with India’s largest video AI implementation firm, Staqu, to assist partner restaurants in maintaining social distancing norms. Staqu’s proprietary video analytics platform JARVIS (Joint AI Research for Video Instances and Streams) will be integrated with cameras installed at partner kitchens of Dineout. This will help exercise the necessary supervision over the safety regulations undertaken and ensure that all measures are being implemented by the staff. Violations will be duly notified, prompting the management to take immediate action by tracking the suspect.

Backed by such innovative tech, cloud kitchens will see an increase in the future, say experts. “A steady growth can be seen in the number of cloud kitchens in the industry going forward, approximately 10-15% quarter-on-quarter. Times are uncertain and cloud kitchens are adapting fast to the situation by adopting technology suites,” says Mehrotra of Dineout.

Today’s special
Many restaurants have added their unique take to the delivery-only model. Impresario Handmade Restaurants’ Smoke House Deli, for instance, offers DIY Deli, a range of packages filled with fresh ingredients and recipes to relish at home. Its Junior DIY Deli has a set of kid-friendly kits, with recipes like onion pizza, chocolate chip pancake, etc. Similarly, its ‘social mixers’ are pre-made mixers to make signature cocktails at home. All these are delivered at home from select outposts in Mumbai, Delhi and Bengaluru through Zomato, Swiggy and Scootsy.

Other players are also paying special attention to home-delivered meals. “Home delivery-exclusive dishes focus on affordable combo meals like thalis and lunch trays, so one can have a bit of everything in one meal,” says Kabir Suri of Delhi-based Azure Hospitality, which runs Mamagoto, Sly Granny, Foxtrot, etc. They offer multi-brand online deliveries from their base kitchen in Delhi, where they have made six feet distancing mandatory and have provided hazmat suits, gloves and masks to the staff. They also offer DIY meal kits.

Hotel chains are also following suit. Marriott International, in partnership with Zomato, has introduced Marriott on Wheels across 20-plus hotels in various cities. “For convenient and safe experiences, the deliveries are done by hotel executives under stringent hygiene standards,” says Khushnooma Kapadia, area director of marketing, south Asia, Marriott International.

Taj Hotels, on the other hand, is posting popular and ‘secret’ recipes on its social media platforms with tips on improving immunity. One can also binge on freshly baked breads and confectionaries from Taj’s popular bakeries and F&B services through contactless takeaway from city hotels across Mumbai, Delhi, Bengaluru, Chennai, Hyderabad and Kolkata.

ITC Hotels has partnered with Swiggy to offer fresh and seasonal selections as part of a delivery-only menu. And Pullman & Novotel, New Delhi, is delivering meals via food vans and set menus for house parties.

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