Cloud kitchens and the future ahead

In the last five years, the foodservice delivery market in India has seen unprecedented change as new entrants have completely transformed the market dynamics and innovative models, exemplified by cloud kitchens, have been created and been successful. Today, the foodservice delivery market has a variety of players and business models. The key categories are aggregator deliverers, cloud kitchens, hyper-local services for foodservice delivery and restaurant partners.

The Indian Food Delivery Report 2021, co-authored by Jasper Reid, Peter Backman and the author, is the first comprehensive report that defines the current and future foodservice delivery market. The report estimates the Indian food service delivery market size at Rs 37,440 crore (US$ 5.2 billion) in GMV in 2019-20, with a CAGR of 33 per cent over the previous three years and expected to grow to Rs 93,600 crore (US$ 13 billion) by 2022-23.

Quick Service Restaurants (QSRs) have the highest share of the delivery market at 45 per cent, followed by casual dining restaurants at 34 per cent and cloud kitchens at 12 per cent. Cloud kitchens have seen significant growth over the recent years, taking a larger share of the delivery market.

Cloud kitchens are operated on several different models as follows:

* Single-brand cloud kitchen: Single brand, single kitchen and no storefront

* Multi-brand cloud kitchen: Multiple brands and cuisines, a single kitchen and no storefront

* The hybrid cloud kitchen: Single brand, single kitchen and multiple outlets with a storefront

* Delivery app owned ‘shell kitchen’: Aggregator owned, multiple restaurant brands, rented co-working kitchens, no storefront

* Delivery app owned fully stacked cloud kitchen: Aggregator owned, multiple restaurant brands, rented kitchens, with a storefront

* Fully outsourced cloud kitchen: Cooking and delivery are fully outsourced

The challenge to profitability in such a competitive space which has seen the entry of many new players during Covid-19 including luxury and premium hotel chains, fine dining restaurants and others. This has led to a significant increase in supply and in turn fragmentation of the market.

These delivery and cloud kitchen concepts have had to adapt to the “new normal” post Covid-19 in terms of customer ordering trends and expectations. They have started to aggressively promote direct ordering on their brand platforms to gain control of their customers and have also re-negotiated terms with aggregators to reduce commissions.

Some tips for running a successful cloud kitchen are:

1. Effective digital marketing with a strong focus on customer push and pull strategies.  The overall digital marketing budget should be between 5-10 per cent of the brand revenues.
2. Personalised marketing which is led by the brand founder, friendly and authentic.
3. Sustainable, convenient and effective packaging that retains customer attention.
4. Using technology to drive customer acquisition and frequency and for improved productivity in kitchens.

The importance of digital marketing and packaging are crucial for cloud kitchens as these are the only areas in addition to the food quality that will differentiate brands.  

An example of a successful cloud kitchen brand is Rebel Foods. They have been able to build a new platform to drive demand, solving the scaling challenge and delivering superior site-level economics. Rebel Foods has recently become a unicorn and raised a total amount of US$ 1.5 billion from investors such as Sequoia Capital, Lightbox Ventures, Go-Jek and Goldman Sachs. In late 2020, Rebel Foods also announced partnerships with third party brands including Slay Coffee and Wendy’s across their 300 plus cloud kitchen facilities.  

At the launch of the Indian Food Delivery Report 2021, Jaydeep Barman, co-founder and CEO, Rebel Foods spoke about how cloud kitchens are leaning towards technology adoption. He said technology aligns very well with customer experience, growth and profitability. Technology delivers reliable and consistent service for which the customer comes back and ensures positive word of mouth. 

Barman said that Rebel Foods is using technology to improve their food products. He mentioned the “Smart Fryer” which works automatically with a fixed temperature, time and direction of heat – thereby ensuring a perfectly consistent product each time. 

There are interesting growth opportunities for cloud kitchens as the overall food delivery market grows over the next few years. Some parameters to succeed will include offering good quality differentiated food, effective digital marketing, sustainable packaging and effective use of technology.