Why restaurants are increasingly going for a cloud-kitchen model like Swiggy Access
The charm of eating out is unparalleled. Beyond the food itself, a restaurant’s atmospherics—music, lighting, service, décor—comes together to create a dining experience. But creating and maintaining this ambience while ensuring the food quality is superlative does not come cheap.
This is because, beyond all the front-end glamour and charm of the F&B industry, there is a whole lot of sweat, tears, and seemingly unending infusions of capital.
This is why a restaurant, even though a dream for many, is a low-margin business that pushes many restaurateurs to cut corners and, eventually, down the shutters.
Reports suggest that for every 100 restaurants that open across the world, only one survives after two years in the business. Why? Operational cost is the biggest reasons.
There are three areas that causes bleeding of capital for a restaurant: infrastructures, licences, and working capital.
Gurmeet Kochhar, ex-investment banker and founder of two successful cloud kitchens, says, “The working capital and infrastructure expenses needed to run the day-to-day operations itself makes it an expensive proposition to run a restaurant.”
But there is hope yet, in the form of cloud kitchens, which has become a preferred mode of expansion for many restaurant owners.
Gurmeet's food startup, Oye Kiddan, operates 41 cloud kitchens in 12 cities.
So how much do you actually need for running a traditional restaurant versus a cloud kitchen? A basic 50-seater restaurant in an above-average area will cost you anywhere between Rs 50 lakh and Rs 1 crore, and adding liquor to the menu will set you back by an additional Rs 50 lakh to a crore.
On the other hand, a cloud kitchen can be set up at almost half that cost, at Rs 20 lakh-Rs 25 lakh.
Gurmeet juxtaposes the cost of a 50-seater restaurant with that of a cloud kitchen at a location like Bandra, Mumbai*:
* Disclaimer: These are just estimates based on averages, and not the exact costs.
Thus, the total cost for running a restaurant is at an average of Rs 1.36 crore and running a cloud kitchen is approximately Rs 50 lakh.
If you want to open up a restaurant in Bengaluru’s bustling Indiranagar, these costs drop by close to 15 to 20 percent, but is around the same for, say, a restaurant business in Khan Market, Delhi. These numbers work if everything works as planned and don’t include day-to-day maintenance expenses.
Cooking on the cloud
Clearly, running a restaurant is not cheap. “It’s one of the reasons that we chose to keep a few store fronts and look at cloud kitchens and delivery models to reach more consumers,” says a restaurateur on the condition of anonymity.
Cloud kitchens have sprung up as a natural extension of the ever-so-popular food delivery options that people have come to depend on. Vishal Bhatia, New Supply Business, Swiggy, says, “Just in the past two years, delivery-only models have grown 10X.”
But beyond the obvious reduction of costs, what makes the cloud kitchen model like Swiggy Access more attractive is the larger reach that online delivery affords the food business. Swiggy Access works on a plug-and-play model that enables restaurants to set up their cloud kitchens. The company provides kitchen spaces, called pods, to restaurant partners who aren’t present in an area.
On average, one in three partners on Swiggy Access expands to a second kitchen within 90 days, says Vishal.
Last year, Sriharsha Majety, Co-founder and CEO, Swiggy, had announced that the company would be investing significantly in Swiggy Access. Between 2019 and 2020, the foodtech unicorn has already invested Rs 175 crore in the business, and will be investing another Rs 75 crore more in the next few months.
Vishal says that in the next four months they would be adding 12 more cities. “Supply is one of the biggest focuses for most players, not just in India but across the globe. The idea is to bring partners to consumers who do not have the needed access. This year, the focus will be on that,” he adds.
The Swiggy way
As Swiggy has expanded to more cities, there are more consumers across the country who are seeking convenience and great quality. And this is why the startup is now looking beyond the top cities. “We have also seen partners in big cities expanding to smaller cities through Swiggy Access and succeeding there,” adds Vishal.
He explains that tech and data science has powered Swiggy’s cloud kitchen partnership with restaurants.
“We have spent a lot of time in understanding and analysing the demand in particular areas. Thus, we make sure the partners move to the right locations. We also do a lot of due diligence before setting up a Swiggy Access kitchen in a particular area,” Vishal says.
He further details the importance of data for Swiggy Access. “We zero in on the location purely based on hyperlocal demand. So, even if we move the kitchen location by a few kilometres, the entire demand profile shifts. Then we bring in the intelligence in choosing the right partners based on the kind of cuisines that will do well. Once the partner is in the kitchen, we focus on just setting them up for operations. We also invest in IoT to help bring down the partner expenses like fuel and electricity consumption. As we move along, we will invest more to help partner operations,” he explains.
The foodtech unicorn recently also announced the launch of Brandworks, a platform to co-create delivery brands with different delivery partners.
At present, the Bengaluru-based foodtech unicorn has 100 such brands on its platform that were co-created with 95 restaurant partners across 13 cities. Following an asset-light, low investment model, BrandWorks works on Swiggy’s intelligence and insights.
While the cloud kitchen cuts down on setup costs and operational ones too on most fronts, where significant investments may be needed for this model is marketing. “Since you don’t have a store front, the visibility automatically drops, which means you need to spend on marketing. And the costs for that is close to Rs 1 lakh to Rs 1.5 lakh a month,” Gurmeet explains.
Additionally, it is important to be vigilant with customer care and feedback. A restaurant can collect feedback from the patrons right after their meal; a cloud kitchen model requires regular rounds of phones calls to customers to find out if they are happy.
There are manpower challenges too. “The food industry has a big poaching problem; people go away for a two-to-10 percent hike, and recipes are easily copied and stolen,” says Gurmeet, adding that the delivery staff needs to be trained and managed right as well.
But experts still believe that running a cloud kitchen is a far more lucrative and hassle-free option to a traditional restaurant.
So, if a cosy café or a hip restaurant was your post-retirement dream, it may be it time to revisit it, but a cloud kitchen is not a bad alternative if your goal is to serve good food to people.
(Edited by Evelyn Ratnakumar)