Why Cloud Kitchen Is the Future Of the Food Industry

Years before COVID-19 hit India's shores, and long before there was even the hint of a country-wide lockdown, demographic and technological changes were already afoot that helped lay down the foundation for what is today the cloud kitchen industry. Demographic changes such as a continued increase in the number of nuclear families and the rising number of working women created a demand for on-call food delivery formats. Technological developments further led to fundamental shifts in how food got ordered and was consumed. With time online ordering became the norm, as the convenience of one-click order placement, reliable delivery, and integrated digital payments became more common. These tectonic shifts led to the birth of aggregator platforms such as Swiggy and Zomato. These aggregators in turn further accelerated the growth of delivery and cloud kitchen formats.

Data provided by Statista indicates that the "platform to consumer (cloud kitchen/delivery only)' format is expected to grow at a 12 per cent CAGR through 2024. This format will overtake the "restaurant to consumer (R2C)' format in market size by 2024. Pre-COVID, the restaurant to consumer business was projected to grow at 7.1 per cent CAGR. Since the restaurant business has been almost entirely shut for the past 120 days, it can be further conjectured that the delivery format overtaking the restaurant format could happen earlier.

In this new COVID-19-impacted world cloud/ghost/virtual/dark kitchens have taken an even more prominent role. These terms are often misunderstood. How are they different from a traditional sit-down restaurant? While there can be multiple types of cloud kitchens, in the simplest terms a cloud kitchen is an Internet-enabled restaurant kitchen that accepts orders only through phone-in or online ordering systems. It offers no dine-in facility. It is a base kitchen that delivers food to the customers' doorstep. There are some cloud kitchen backed brands that may have small physical outlets but essentially are backed by a base kitchen or a chain of cloud kitchens. Chief among the advantages a cloud kitchen model provides is a low rent to revenue ratio. Characteristically, these kitchens are based in non-premium locations that do not command a high rental. Since there is no dine-in facility, the space required to operate is reduced by 75-80 per cent compared with a traditional premium restaurant. Cloud kitchens also save on front of the house expenses. They are not limited by seats and do not have to turn back customers due to restaurant running on full capacity. They also have the opportunity to potentially expand at a faster rate as a result of low capex requirements.

While many cloud kitchens have been able to weather the COVID-19 storm, the restaurant industry has suffered significantly with the initial 120-day shutdown and followed now by demand failure as patrons continue to stay home. It's a grim reality that many restaurants will go out of business. Every restaurant is currently in survival mode. In the short term, it will become critical for traditional restaurants to pivot to delivery for survival. Even if they do make the pivot, many still will not make it. In the current environment and with the continued uncertainty of the COVID-19 pandemic, cloud kitchens or food and beverages outlets backed by a cloud kitchen network have a better chance of survival and are likely the future of the food industry.