Building a successful cloud kitchen business in India – Reaping the opportunities and battling the challenges

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Among the many things that the Covid-19 pandemic hit this year, is India’s food industry. With people locked up indoors and dine-out options ruled out, food delivery became the nation’s go-to option. The cloud kitchen businesses find themselves at acute advantage in the current scenario. Here’s taking a look at the opportunities and challenges this business model faces.

India’s demographics: Opportunity to strike gold for cloud kitchens

With a large youth population, India is an opportune consumer market. Away from their homes for education or employment, the millennials are highly dependent on online food ordering.

The changing lifestyle patterns of urban India – high disposable incomes and busy schedules – further add to the demand.

Smartphone users in India have grown past 500 million boosting the popularity of online food ordering.

Cloud kitchens: Economically more profitable than dine-outs

Cloud kitchens save big on real estate costs like rents and interiors, unlike dine-in restaurants which need a prime location and comfortable interiors for seating to attract customers. Cloud kitchens can also operate multiple brands utilising the same kitchen and resources. This means more market share and revenue at minimal added costs.

Highly fragmented and unorganised restaurant market in India

India only has three restaurant chains with 500+ locations, while China and the US have 25+ and 75+ respectively. About two-thirds of India’s restaurant industry is still unorganised. This is a huge opportunity for organised chains to scale over the next decade, more so for cloud kitchens operating at a fraction of dine-in restaurants’ cost.

Pandemic accelerated shift in market

The concept of cloud kitchens is still very nascent. The pandemic has accelerated the shift towards delivery-only model for small and large scale restaurants in India.

This paves the way for a growing popularity of cloud kitchens as a business model, drifting away from retail-driven QSR brands.

Emerging market in tier 2/3 cities

With urbanisation spreading beyond the metros, the underserved tier 2 and tier 3 cities have a great potential for cloud kitchen businesses. The ball is already rolling; India’s top 100 cities contribute a good share to the food delivery business, and the proportion is only set to increase in the coming times.

Not all is rosy and challenges are indispensable. This industry is no exception.

Consistency in quality of food and service

The food delivered by cloud kitchens has to be prepared and packed keeping in mind that it will be in transit for another 15-30 minutes.

The food packaging is carefully designed to avoid spillage and food going cold. Regardless of difficult delivery locations, peak hours, late nights, weather challenges, or festive rush, the food orders have to be delivered on time for the best customer experience.

Logistics costs

While saving on the real estate costs, the model has an additional logistics cost. The cost of last mile delivery has to be carefully managed. It becomes further challenging since the demand tends to peak during lunch and dinner hours only, thus further increasing delivery costs.

The key to solving this challenge is to have a good menu/brand selection so that order distribution is uniform throughout the day, using technology extensively to make logistics efficient and to look at ways to club orders together. It is also important to reach a high number of orders per kitchen so that logistics become efficient.

People-driven operations

The cloud kitchen business is operationally intensive and highly dependent on humans, both on the kitchen side and the last mile delivery side. This makes processes dependent on human decision-making, prone to errors and inconsistency.

The attrition levels are also very high, leading to further investments in training a large new workforce over and over again. To scale successfully, cloud kitchens have to put in immense efforts into building proprietary technology platforms that substitute human judgement.

With high-end equipment and Ml-driven technology models, cloud kitchens can ensure seamless operations across functions: food preparation, inventory forecast, last-mile logistics and more.

Winning customer loyalty in a discount-driven market

The Indian audience is spoilt for discounts provided by deep-pocketed players in almost every industry. Customer loyalty and business economics cannot be sustained with it.

As newer brands enter the food delivery space every day, one needs to identify the unique value proposition and live up to it to win loyal customers. Solving a real customer pain point results in much better loyalty than discounts.

Running a cloud kitchen business, thus, has both its opportunities and pitfalls and any brand in this domain is bound to face both in equal measure. The key is to simply navigate through them with clear business goals, unique value proposition, prudent use of capital and technology, and unmatched customer experience.

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)

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