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To Karan Tanna, it had been clear for a while that the future of hospitality lay in home delivery. “So many more choices are available to customers now than, say, five years ago,” says the Delhi-based entrepreneur. With consumer demand for home-delivered meals booming, venturing into the cloud kitchen business struck Tanna as the smart thing to do, and so, in 2019, he launched Ghost Kitchens, the country’s leading accelerator for delivery-only brands. “Thanks to aggregators like Swiggy and Zomato, the customer experience in home delivery has elevated greatly. Home delivery was always a good market, but people didn’t have that same experience and convenience as they do now. So because of that, the demand and the market have exploded. Where once you had 10-12 options, maybe now, on an average, you have 200-300 options. And it became evident during the lockdown that a lot of businesses would have to shift from dine-in to delivery,” he says.
While one can’t call time of death on dine-in restaurant services, the fact remains that even two months after Unlock 1.0, which began on June 8, business has been slow and, if restaurants are to make up for the loss caused by the COVID-19 pandemic and secure a firmer footing for the future, investing in delivery services is looking like a smart option. Specifically, cloud kitchens – which work with delivery apps and don’t serve food on their premises – are gaining a lot of attention from restaurateurs, because they don’t require the kind of space or staff that a typical restaurant does.
Tanna was an early mover, but even before the pandemic wreaked havoc on the fragile hospitality ecosystem, other entrepreneurs had been looking at launching their own services. For example, Lite Bite Foods, which operates restaurants such as Punjab Grill, Zambar and Tres, is rolling out 36 cloud kitchens across five cities over the next three years. “We began planning eight-nine months ago, but when this (pandemic) happened, it got precedence over other ideas,” he says.
It’s not as if delivery sales haven’t been hit by customers’ fears about the spread of COVID-19. Tanna says, “The only reason there is some positivity is because, first, it’s a part of essential services and, in most places, is the only hospitality service that is open right now. Second, it has the potential to recover faster than any other business, over the next six months to a year. The entire delivery market is only running at 50 per cent of its capacity, so the volumes are low. But the silver lining is that it is on and it will recover quickly.”
And the signs are already there. Aggarwal reports that delivery volumes as well as order values have increased over the last three-four months. “There’s a lot of trust in our brands, so it’s not like we’re setting up a cloud kitchen with no legs. And we did see that orders through Zomato and Swiggy have increased. So instead of putting that kind of capex (capital expenditure) in full-fledged restaurants, a cloud kitchen makes sense. Capital-wise, a cloud kitchen is roughly 30 per cent cheaper to manage than a dine-in space (it could vary depending on size, equipment installed etc). And if you can convince customers about the safety aspect, then you’re good. We’re already doing contactless delivery and payment and customers can get good, hot food in tamper-proof packaging in 30 minutes,” he says. It doesn’t make much of a difference when it comes to pricing the menu, though. “From the brand’s point of view, the preparation cost is the same and even higher, sometimes, as they have to pay a certain percentage to delivery aggregators, invest extra in packaging and licensing fee, etc.,” he says.
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This expansion into cloud kitchens is part of an industry-wide trend of building and consolidating home delivery, making it a more seamless part of hospitality services. Part of this comes from the need to respond to the dominance of food aggregator apps like Swiggy and Zomato which have been criticised by restaurants for the unfavourable financial deals they offer to the latter. But the urgent need for this move became clear early during the COVID lockdown, leading the National Restaurants Association of India (NRAI) to announce its plans to launch a delivery services aggregator that would be “by restaurants, for restaurants”.
The desire to build a direct relationship with their home delivery customers, instead of one mediated by third-party aggregators, is what motivated Momo King to launch its own cloud kitchen services. Being a quick service restaurants (QSR) brand means that Momo King had an advantage in the cloud kitchen space that other restaurants might not have: it already operated a central kitchen which serviced its outlets. “We would send out the raw materials for the momos to the outlets where they would be cooked. There was a lot of human touch involved which, in the current scenario, we wanted to avoid,” says founder Shyam Narayan Thakur, “We’ve now got machines which are making the momos, which will be sent frozen to the outlets. There, they will be steamed and sent for delivery. If we ensure that we have our own delivery service, instead of only relying on Zomato or Swiggy, then the customers get their food hot and fresh.” The brand has already signed on five kitchens and is hoping to have 25-30 by the end of the year, to expand its reach all over NCR.
The future of cloud kitchens looks bright, says Aggarwal. “With lots of brands entering, there’s been a lot of change and innovation, in packaging, contactless options etc. We’re looking for ways in which customers can get the best experience possible in the comforts of their home.” And dine-in services, he assures, will eventually be restored, even if it takes a little bit of time, and will exist comfortably along with cloud kitchens. “It’s like Netflix and cinemas,” he says, “People would still love to go out to watch a movie. This is just a temporary phase we’re in.”
