Starters:

The number on which the foodservice industry sits on. As far as the industry size is concerned is much larger than the apple pie that you order. The concerned industry is expected to witness exponential growth to the tune of USD 83 billion by 2023. Interestingly, the organized cloud kitchen or ghost kitchen market in India stands at a whopping USD 1 billion, riding on the back of shifting consumer preferences towards home-delivered food. The ghost kitchen market is expected to grow at a CAGR of 17.25% from the period, 2017-2030.  Let’s address the elephant in the room. What are cloud kitchens?

Cloud kitchens are pure delivery centric food units working at a remote location. These kitchens depend on online aggregation food delivery platforms to reach consumers. They are trend buckers and have gone on to the extent of challenging the very narrative that the restraint industry rests upon. The word ‘cloud’ signifies their non-physical presence, solely having an online footprint. The concept is highly intriguing with few hits and misses. Besides enunciating the positives and negatives, the article will also talk about the ‘new normal’ that the human civilization is eyeing and the precision with which dark kitchens fit into the paradigm.

Cloud kitchen industry overview
The Industry Overview

The hits:

Consumer Preferences:

According to me, the biggest advantage on the part of the dark kitchens is the fast-shifting consumer trends. The naked eye tells one the way ordering in has become the norm for the millenials. The Forbes predicts the food delivery market to grow to a USD 200 billion by 2025, growing to the proximity of 14%. The fast lifestyle and the tight working schedules are making the human race lethargic and irrespective of the age the willingness to go out to eat is on a slippery slope. In 2018, Swiss investment bank and financial services company, UBS came out with a report, ‘Is the Kitchen Dead’, predicting that by 2030 most of the meals will be ordered online. This is where the cloud kitchens are bridging the gap and utilizing the biggest pro.

Slim operational costs:

Yes, you might be waiting for this come first. No doubt that cloud kitchens have a considerable advantage as far as operational costs are concerned, but does not beat consumer preferences. Having said that, cloud kitchens operate at almost half the costs that are required for setting up a physical restaurant. The modest working and the infrastructural capital requirements act as a booster for their profits and help them satisfy the trend. A YourStory article says that the total cost of running a restaurant averages close to INR 1.36 crore and that of a cloud kitchen stands at a benign INR 50 lakhs. The picture seems quite squeaky clean, in terms of the monetary lead that the cloud kitchens enjoy, reflecting in their profits.

Low risk & competitive pricing:

The business of cloud kitchens is probably one of the rare exceptions to the notion of direct proportionality between risk and return. These setups entail low risk but attract high returns. Since the capital demand of the kitchens is amiable, the risk part is subdued and failures can be dealt with more comfortably. The modest spending environment facilitates allows the cushion for these businesses to pursue a robust pricing model and create customer loyalty in this hype competitive market.

Difference between the cost and revenue framework for a restaurant & a cloud kitchen

Difference between the cost and revenue framework for a restaurant & a cloud kitchen

The misses:

Brand visibility:

Brand visibility is imperative in the concerned market and cloud kitchens have to break a sweat, for sure. Since their presence is completely online, it takes a longer time for such ventures to attract traffic. There are speculations apropos to the quality of such setups and therefore it takes a considerable amount of time for them to hold a share of the market. There is a dilemma as to what should be the approach for these kitchens to go ahead with.

Heavy technology driven:

A robust technological nomenclature is required for such ventures to manage their operations. The reliance on technology is extreme and a non-integrated system can create problems. Since cloud kitchens rely on food delivery platforms for the final delivery, the amalgamation of data becomes cumbersome with having different delivery partners. Thus, they miss on ordering trends and pattern because of outsourcing at the last mile.

Expansive marketing spends:

Cloud kitchens are compelled to undertake huge marketing spends, with a benign conversion rate. After all, the drawing board though big is highly competitive. It is a marketing war and more often than not none of the players fighting emerge victorious because the consumers lose track. Gurmeet Kochhar, founder of two successful cloud kitchens claims that marketing spends are close to the levels of INR 1-1.5 lakhs a month.

The risks associated with the cloud kitchens business
The risks associated with the cloud kitchens business

The new normal:

Talking about the new normal is the post coronavirus era. The pandemic in a disguised manner is preparing a world where cloud kitchens will be the king. With social distancing becoming the new norm and social gatherings getting problematic. People are going to heavily bank on dark kitchens to satiate their cravings and cheat days. The current situation of these ventures might not be hunky dory, but the worst is behind them. They should be looking forward to a healthy business environment in the days to come. The ghost kitchens need to be cognizant of the fact that hygiene and quality will be given importance to and they must excel in that front, in order to conduct seamless business. However, industry experts seem to be divided on this proposition. While some expect widespread layoffs and business closures and mergers, some anticipate massive business boost once the dust settles.

My take:

I feel that the trends are in favour of cloud kitchens, provided they are able to pull off supreme execution. One important aspect that one tends to overlook is the cheap availability of internet in the country. Affordable internet is a prime reason for such businesses to thrive. India is also a storehouse of a young employed workforce, whose proclivity is towards consumption of such quick access grub. I’d like to think as a consumer when I make the statement about the positive cues lining up for dark kitchens. Will I be comfortable to eat out? No. Will I be able to pick my food up from an eatery? No. Will I stop consuming outside food? No.

Well, the last answer says it all. According to me, the biggest challenge for the cloud kitchen businesses is to build trust in their customer base, as far as hygiene and quality is concerned. No doubt that people will remain apprehensive of the idea of ordering in, but they do not seem to have an alternative to resort to. All in all, the clouds in the sky can be deceptive, cloud kitchens cannot. The moment that happens, they shall find themselves out of business. Only time and our cravings will determine the fate of these non-visible yummy paradise(s).

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