Ghost Kitchens On Cloud Nine The pandemic has acted as a catalyst for the food delivery business, which has paved way for the rise of cloud kitchens

COVID-19 has pushed the food and beverage (F & B) sector towards cloud kitchens faster than we imagined. Called a new trend some years ago, cloud kitchen is a reality today. For the uninitiated, cloud kitchens are the ones that don't have a dine-in facility and take orders via in-house or Zomato or Swiggy. They either operate as a single brand or multiple food brands under one umbrella brand.

According to a report by RedSeer, the domestic cloud kitchens market is expected to grow from $400 million in 2019 to $2 billion by 2024. While many startups such as Fresh menu, Kitchens@, Kitchens Centre, Ghost Kitchens and Rebel Foods have made a mark in the space, we are also seeing newcomers such as Curefoods, Hygiene BigBites, Nino Foods growing rapidly and aggregator platforms and restaurants ramping up their cloud kitchens business.

"The frequency of online ordering is expected to increase from 4 to 8 times a month among regular customers of food delivery in the next couple years. Ordering food online has been a one-way behavioral change for many and the supply will catch up and match the demand," said Nishant Jhaveri, co-founder of YC-backed Nino Foods.

The pandemic has acted as a catalyst for the food delivery business. However, as things get back to normalcy, will we see stagnation or an upward trajectory in the cloud kitchens business?

Will The Upward Growth Trajectory Continue?

Entrepreneurs betting on the space believe that there is a huge opportunity in the space. "When things get back to normalcy the business of food delivery will only increase. Food delivery has accelerated the adaptability of delivering food from outside and made a lot of customers more comfortable than they ever were. On the supply side, a lot of restaurants that were not doing food delivery have now started curating menus suitable for food delivery and hence the convenience and choices for customers has increased," said Karan Tanna, founder CEO, Ghost Kitchens India.

Tanna added that because of the adaptability of the customer and trust in ordering food from the perspective of safety, convenience and speed, merged with a great evolution from the supply side, the food delivery business will only keep on increasing and will become a mainstay of the industry by the end of this decade.

Rebel Foods, the recently turned unicorn, saw growth in numbers and customers ever since it introduced its first cloud kitchen brand in India. It grew 9X between 2016 and 2019 and has doubled sales every year in pre-covid. Covid has only further pushed the need of ordering online due to the ease of delivery, comfort to enjoy a meal at homes, safety practices and others.

"While talking about Covid, consumer sentiment has remained better than it was last year because last year we were living in the unknown, while today we have an idea of what we are dealing with. The focus is on customer assurance, transparency about the preparation of food, handling, and delivery," said Raghav Joshi, co-founder and CEO India BU, Rebel Foods. The company saw a 25% month-on-month growth in 2021 and achieved pre-COVID levels earlier this year. "We believe cloud kitchens are a reality now and here to stay," Joshi added.

Ankit Mehrotra, CEO and co-founder, Dineout shares more reasons on why cloud kitchens is set on an upward trajectory. "The lack of dining space and physical interaction with customers helps a cloud kitchen be set up in multiple locations with less staff. This means increased service area and decreased overhead cost. Second, the demand for economically priced food delivery has spiked in the post-pandemic era. With many working professionals and students moving back to their hometowns, Tier 1 cities are witnessing an increased demand for takeaway and home delivery services," said Mehrotra.

Gaining Customer Trust

Today, offering safety and hygiene is key to gain customer trust for cloud kitchens and the entire food industry. "Cloud kitchens that will focus on placing importance on customer wants such as safety and offerings, will be successful in the long run. Due to the less space and people used in cloud kitchens, we believe it is easier to maintain safety and hygienic practices as compared to brick and mortar restaurants," said Rebel Foods' Joshi.

For example, to address the safety concern, Rebel Foods has deployed special measures across its Rebel kitchens where food is handled by medically certified staff, following 200+ stringent quality checks, along with multiple safety procedures and 24x7 CCTV monitoring. This has not only helped us gain customer trust but also helped us further enhance its offerings. In 2020 it also launched EatSure, its digital foodcourt on an app with a promise to deliver the "sure' experience from multiple restaurants in one order.

Some restaurants also validate the hygiene levels by streaming kitchens live. However, Pranav Mehra, co-founder, Nino Foods, doesn't think customers have the time or inclination to look at kitchen cameras. "Tamperproof packaging, Using fresh high-quality ingredients, and being honest and authentic with the customer across all channels is the way to build trust. Serving them food that shows up on time tasting the way they expect it to, is also crucial," said Mehra.

Tanna of Ghost Kitchens India thinks that digital-first internet restaurants have a better advantage of quick go-to markets and customers over dine-inns who have ventured into cloud kitchens as having a dine-in restaurant can be a sort of a limitation. This is because the restaurant could be perceived as an experiential place to dine in and hence might not be able to generate organic traction for delivery, he believes. "This is evident from the kind of investments that have flown into only food delivery companies vis-à-vis restaurant companies especially after COVID-19, when it was evident that the next few years food delivery and internet restaurant segment will be the most dominating F&B vertical in India," he added.

The hurdle of not knowing how kitchens look is also being overcome through social media. Social media is today's generation's window into discovering everything that's happening around the world, including conversations with their favorite stars and brands.

"A cloud kitchen kick-starting its journey can create its brand presence on such social media platforms, connect with its audience and promote itself to be discovered by its customers. However, to build trust, it must first build its identity, create awareness, and share behind-the-scenes images and videos of its kitchen in full swing," said Dineout's Ankit Mehrotra.

What's In It For The Customers In The Long Run?

For a business, cloud kitchen means saving infrastructure costs. What are the advantages that cloud kitchens offer to a consumer? "Because the infrastructure setup costs for cloud kitchens is lesser, it can scale up first. In this manner, the favorite brands of consumers can be accessible in more locations. Because of lesser operational expenses, the price at which the products are sold is not burdened with the heavy rental and other overhead costs enabling the consumer to enjoy the best price. Because this brings a huge value to consumers, we are seeing a quick growth of only cloud kitchen segments and it will continue to be so," said Tanna of Ghost Kitchens India.

Since there are no overhead expenses involved in a cloud-kitchen set-up like infrastructure, ambience, music, etc, the cost of meals is relatively cheaper. "Additionally, while ordering from a cloud kitchen, a customer has the option to order from multiple kitchens operating in the same set-up, thus, minimizing the effort of browsing through different platforms," said Mehrotra of Dineout.

Additionally, experts believe that due to great adaptability to the environment, it is easier for cloud kitchens to experiment and try new food trends first. "Over the last few years, we have aimed to address all food missions from single serves to indulgent meals. Due to our business model, it is easier for us to offer multi cuisines on a single platform for a seamless experience," said Joshi of Rebel Foods.