Why cloud kitchen business in India may grow 5 times in 5 years

cloud kitchen business in India may grow

Cloud Kitchen Business In India May Grow

With the coronavirus lockdown keeping restaurants closed and would-be diners at home, takeaway meal options have been booming in India. And there are signs that the shift toward home-delivered food is here to stay.

Cloud kitchens — commercial cooking facilities that have no physical dining space and cater only to deliver orders placed online — are projected to become a $2 billion industry in India by 2024, according to RedSeer Management Consulting. That’s up from $400 million in 2019. In a survey carried out by the company, 21% of the respondents said they were more likely to increase their online ordering of takeaway food after the lockdown, while just 9% said they were more likely to visit restaurants more often.

“An obligation to reduce non-essential outdoor activities and an increased supply of cloud kitchens in both existing brands and new entrants will accelerate the pre-COVID trend of ordering in and takeaways, and become a permanent shift post-crisis,” said Joydeep Bhattacharya, head of Bain India’s Consumer Products and Retail practices.

Rachit Mathur, a managing director, and partner at Boston Consulting Group sees trends such as DIY food kits and shorter menus helping take-out businesses secure their foothold in the market. “The online and takeaway share of most food-service businesses will increase and will also recover faster than dine-in,” he said.

Cloud kitchens are better suited to the needs of socially distanced customers than traditional dine-in restaurants. They’re also able to minimize some costs, such as rent, and without wait staff require fewer people on the payroll.

Meanwhile, with restaurant footfall at an all-time low and sales down as much as 90%, according to CRISIL Research, the takeaway has become a vital source of revenue for many restaurants. CRISIL estimates that the recovery of the 1.5 trillion rupees ($20 billion) sector will take at least a year after lockdown is lifted.

“As people are only ordering online, it has worked in our favor because our entire cost structure is built on that — there’s no restaurant storefront,” said Raghav Joshi, chief executive officer of the India Business Unit at Rebel Foods Pvt., which calls itself the World’s Largest Internet Restaurant Company. “So from a capital and operating expenditure perspective we are in a position to sustain and grow.”

To cope with safety measures, Rebel monitors employees’ temperatures and holds weekly telehealth consultations, in which a doctor uses basic health questions to assess whether employees are fit to work. Joshi estimates average order value has increased by 50% to 60% since the announcement of the lockdown, as most customers order for their families too.

“The shift in the consumer behavior we’re seeing has given us a belief that in the coming two or three quarters we’ll be at a different level if we can capitalize on the change in consumer buying behavior and an evolved market,” said Vikrant Shitole, chief executive officer of home-cooked meals platform Homelynow. The Mumbai-based business has experienced that among all the people ordering during the lockdown, 90% of them have been new retail customers although corporate orders have taken a hit due to office closures across India. Applications to join Homelynow’s team of more than 48 cooks have risen too, Shitole said, as people look for additional or secondary income sources.

But takeaway options won’t entirely replace restaurants, argues Bain’s Bhattacharya. “Cloud kitchens going forward will be substituted for more variety and convenience as opposed to cooking at home, but not a replacement for a social or celebratory occasion for eating out,” he said. “The drivers of economics are quite different for cloud kitchens compared with dine-out operations which entail location, kitchen size, and utilization, multiple versus single cuisine configuration, order aggregation, and delivery.”

Diners who feel under financial pressure in the post-coronavirus world are likely to rely on home cooking rather than pricier takeaway options. According to Redseer’s survey, 49% of respondents said they would be more likely to increase cooking at home using fresh ingredients after the lockdown. “Demand for cloud kitchens will emanate from fatigue with home-cooked food and the need to order once in a while, though frequency will reduce due to income effect,” said Rahul Prithiani, Director of CRISIL Research.

Cloud kitchen customers like Subhankar Bhattacharjee, a program and data manager who orders online as often as five times a week, would agree that the demand is there. “There’s a certain flavor in the food cooked outside that can’t be replicated at home, and as delivery services were making sure the food was safe I immediately switched to online orders,” said the 24-year-old from Kolkata. “It was really difficult for me during the first two weeks [of lockdown] when I couldn’t order food online, I even got sick.”

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