Rise of Cloud Kitchen Players during COVID-19

As the nation limps back into a new normal, there are significant changes that cannot be overlooked. Enthusiastic high-fives & formal hand-shakes have turned into social and physical distancing practices, a projected 5 trillion economy has gone into contraction and once-booming industries have come to a stand-still in the space of 70 days.

 

The F&B industry has not been spared - with most restaurants shut and delivery aggregators reporting up to a 70% decline in order volume. Amidst all this, a pivot to a cloud kitchen model has been championed by some as a panacea to the industry’s current woes. A few large hotel chains and some restaurant chains have already started experimenting with this.

Never let a good crisis go to waste!

In the mid-1940s, approaching the end of World-War II, Winston Churchill famously said, “Never let a good crisis go to waste.” He was referring, of course, to an alliance between himself, Stalin, and Roosevelt, an unlikely trio that would lead to the formation of the United Nations!

COVID unfortunately, is a terrible crisis, but there is a silver lining in its wake. The F&B industry will eventually emerge out of this crisis. Cafes and restaurants will start getting customers much before the world gets vaccinated, possibly as soon as countries achieve herd immunity. In the interim, there will be opportunities that will be created – a few dine-in / take-out restaurants might make a successful pivot into cloud kitchen-based formats. New cloud kitchen-based concepts are launching their brands during this period. How well they understand and tackle the challenges will be the key differentiator and will be essential for them to survive and eventually thrive. Simply listing on aggregators and starting deliveries is nothing less than welcoming cash burns. Instead of trying to preserve legacy strategies and business models, F&B players, in the current circumstances will have to learn new competencies. Having done that, a cloud kitchen model may just turn out to be a safe bet in the times of Coronavirus.   

Time & Patience = Ingredients to scale!

A large successful cloud kitchen company is often a chain of small kitchens that are held together with one or multiple processing units that partially or fully service the smaller kitchens. It takes time to develop a chain of kitchens pieced together to adequately cover all the pin-codes of a city. Hiring the right crewin the right zones, building adequate supply-chain networks, placing the right-size kitchen in the right zone are important considerations and need to chalked out very carefully.

Revenues of Cloud Kitchen Vs Traditional Restaurant Models

If you are a restauranteur looking to make comparable revenue from a cloud kitchen model, there needs to be the recognition that revenue per store at a cloud kitchen is typically much lower than the revenue generated by one 50 seater dine-in restaurant. It may take about 4 or 5 successful cloud kitchens to attain a similar top-line as that of one dine-in restaurant. Even if you run a multi-brand format from one cloud kitchen, the revenue generated from those individual brands will not be comparable to the revenue of one dine-in restaurant. 

Expertise & Specialisation = Two major ingredients to perfect the playbook!

Large and specialized cloud kitchens companies typically display expertise beyond just the ability to cook food. In addition to cooking consistent quality food, a large and scalable cloud kitchen network must be tech-enabled if not a full tech company in itself writing codes and developing algorithms to manage its processes. Without a strong tech backbone, it is difficult to make perfect nationwide supply-chain & procurement decisions, as an example. Similarly, it is important for every national or city chain to develop a strong MarCom strategy, which allows them to amplify and communicate with their patrons. Unlike a physical restaurant, the customer interface in a cloud kitchen is extremely limited. You get a small window to wow your guests and retain them. Popular categories like biryani are heavily competitive, therefore an additional understanding of SMO& SEO functions plays a major role in building any new online brand.

About the Author

Madhav Kasturia is the Founder, ZFW Hospitality Pvt Ltd has 23 Internet Restaurants across 13 Cloud Kitchens in NCR.