Bright Sunshine for Cloud Kitchens
Food & Beverage Business Review|June - July 2021
The pandemic has created new norms in all walks of life. Restaurateurs, with SOPs like social distancing and allowing only 50 percent accommodation for their dine-in clientele, after adopting drive-ins and takeaways, are now contemplating on cloud kitchens. A cloud kitchen is, basically speaking, a restaurant with no costs on rent, electricity, waiters or any other fixed charge. In the post-Covid world cloud kitchens have become a favourite venture for investors. Ashok Malkani examines why they are gaining so much popularity

Coronavirus, has created massive disruptions in the restaurant industry. Social distancing has resulted in lower footfalls. This has, in turn, encouraged home delivery. As restaurants remain shut for dining, hotels, and restaurants are pivoting to takeaway to stay open, and retain staff. However, with the SOPs in the new norm, for restaurants which have been designed for dine-in, profits from takeaway is often not able to even provide a breakeven.

For those in the F&B industry starting a new restaurant has always been a glamorous ambition. However, with severe restrictions imposed due to the pandemic, they find cloud kitchens easier to launch and keep running.

According to CRISIL, the restaurant footfall, due to the pandemic is at an all-time low. The analytics company states that sales are down by as much as 90% compared to the pre-pandemic period. CRISIL estimates that the recovery of Rs. 1.5 trillion ($ 20 billion) will take at least a year after the lockdown is lifted.

As restaurants remain shut for dining, hotels, and restaurants are pivoting to takeaway to stay open, and retain staff. However, for a restaurant that has been designed for dine-in, profits from takeaway will never be enough to break even. Many of them now believe that cloud kitchens are easier to launch and keep running, thanks to low entry costs, low capital expenditure, and lower rents. Cloud kitchens are becoming a more democratic market space where a new start-up can potentially compete with the biggest players in the business. And brands like SLAY coffee, Keventers, Penang, Burger king only go to prove it.

Today, one finds an increasing number of cloud kitchens, which are also known as Ghost kitchens, Dark Kitchens, Shared Kitchens or Virtual Kitchens. As one scrolls through Swiggy or Zomato apps, one finds new brands being listed almost every month. These brands rely on online orders, usually placed through online food aggregators.

Cloud Kitchen Market

With successive lockdowns since March 2020, several enterprising entrepreneurs have ventured into catering to serve the clientele at their homes. Cloud kitchens have become the new norm. Over the last couple of years, thousands of restaurants have entered cloud space.

According to Valuates Reports, the global Cloud Kitchen Market would reach $ 71.4 billion by 2027, with a CAGR 0f 12% from 2021 to 2027. The major factor that can be attributed to the rapid rise in cloud kitchens is an increasing demand for online food delivery. The thinning profit margins and stiff competition in the restaurant business has also forced several dine-in restaurants to down the shutters and start economically profitable cloud kitchens.

The report states that Asia-Pacific is expected to witness the highest growth rate during the forecast period. This is due to an increase in the number of young people in this area and an increase in demand for online food supplies.

Even online food aggregators, who are the major contributors to the growth of this segment of the F&B industry have tried their hand in this business. Swiggy has launched shared kitchen spaces called Swiggy Access with the help of existing restaurants.

In fact the cloud kitchen business is growing at such a pace that Swiggy and Zomato have decided to expand their business to tier II and tier III cities. This expansion could lead proliferation of restaurants in smaller cities. Deepinder Goyal, CEO of Zomato has gone on record stating that emerging cities were a major growth avenue for the food aggregator. He has declared, “We expect them to constitute more than 50% of our total order volume by the end of the year. We are, therefore, developing Zomato Kitchen (cloud kitchen) hubs in smaller cities in India to drive growth for our restaurant partners.”

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