Are Cloud Kitchens the Definitive Future?

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Cloud Kitchen
Are Cloud Kitchens the definitive future? How can they leverage Automation to beat the real heat?
Has the online delivery industry given wings to cloud kitchens? Is the F&B industry missing a fin? Will cloud kitchens push capital-intensive restaurants out of business?

Popular folklore dictates that farmers in the yesteryears believed that food came from the heavens. They weren’t too wrong, for food these days does comes from the ‘cloud’.

The concept of cloud kitchens is perhaps as monumental in the food industry as the very discovery of fire.  Our food consumption has witnessed a drastic change, leading to a flourishing food service industry. We have gone from wholesome home cooked meals to dining out on special occasions. That paved way for dining out once a week to ordering in thrice a week. Convenience trumped at every level.

Cloud kitchen
Facts: Indian Food Services Industry in a Nutshell (Source: Inc42)

The food ordering market of India is expanding at a CAGR of 16% to reach $17 billion by 2023 as per DataLabs by Inc42. The projected market size of cloud kitchens is expected to reach $1.05 billion by 2023. It is no wonder that with one foot firmly in the food delivery business, food aggregators are aggressively moving towards cloud kitchens to cash in on the frenzy.

Food delivery market

Enlisting your restaurant with food aggregators is a double-edged sword. You might gain visibility and see a steep rise in sales but the biggest irritant is the steep discounting game which will eventually start to hurt margins. If that model sounds familiar, you just have to recall the relationship between taxi aggregators Uber and Ola with its drivers, and hotel aggregator Oyo with member hotels. Cloud Kitchens came up as the most natural offshoot to the aforementioned dilemma.

According to Datalabs by Inc42Swiggy and Zomato make up 63% of the total market share in food delivery as per app installs. These two major food aggregators in India entered the cloud kitchen market in 2017 to take on the likes of Rebel FoodsBox8, Freshmenu, and Eat.fit among others. Some of the new trends in the food industry are as follows:

 Kitchen Infrastructure Providers

The largest category in Cloud kitchens right now- Kitchen Infrastructure Providers-can be likened to cloud computing providers. They rent companies the space and tools that are needed to run a business, either as a flat-fee model or on a pay-as-you-go basis.

In a span of just two years, Swiggy Access has invested in over a million square feet of real estate space. This is across 14 cities to help restaurant partners expand to more locations- within their city and across through cloud kitchens. By creating over a thousand partner cloud kitchens, it has become the largest enabler of this model for restaurants not just in India but potentially across the world.

Normally, these facilities are large, warehouse-like buildings that hold multiple “restaurants” under a single roof. For large restaurant operators with multiple chains, looking to fulfil extra demand brought on by delivery or to test out new concepts without incurring too much risk- these are ideal.

Multi-unit chains can also use these spaces to reach customers in areas where they might not have a brick-and-mortar store. Meghna Foods, Keventers, Biryani Blues are already using this opportunity and making the most of it.

Restaurant-operated Kitchens

For some restaurants, running a ghost kitchen operation themselves makes more sense than teaming up with a third-party kitchen provider. The ‘ghost’ kitchen might consist of nothing more than an area of the restaurant’s existing location(s) dedicated to fulfilling off-premises orders. It might also apply to multi-unit chains who simply want to expand to new areas and don’t have the capital or an inclination to deal with the burden of a full-service restaurant. Globally, the Colombian chain Muy is one such company. It started as a dine-in restaurant before expanding its ghost kitchens to serve more areas in Latin America.

The most notable of all the companies in this category right now is Starbucks. In addition to building out “to-go” stores that exist solely for the purpose of fulfilling off-premises orders, the company has also partnered with Alibaba to turn parts of the latter’s Hema supermarkets into ghost kitchens in China.

The boundaries of this category is very fluid. In other words, just because you operate your own ghost kitchen in one part of the country doesn’t mean you can’t team up with a third-party provider in another, as The Halal Guys and Chick-fil-A have done. All the permutations and combinations work like a charm here.

Virtual Restaurant Providers

This is where the lines really start to blur between restaurants, kitchen providers, and the delivery companies. Literally, any complementary industry is in good shape to open a virtual restaurant. Whole30, for example, is a diet concept better known for its cookbooks than its dealings in the restaurant industry. The folks behind that brand teamed up with Grubhub and restaurant company Lettuce Entertain You to create a virtual restaurant offering meals with Whole30-approved foods.

On the other hand, a company like Keatz runs a network of virtual restaurants it houses beneath the roof of its own ghost kitchens. Taster, based out of France, creates native restaurant brands for food delivery companies like Uber Eats and Deliveroo. The sky truly is the limit now.

Mobile Kitchens

Companies like Ono Food Co. and Zume are creating robotic, self-contained kitchens on wheels that offer restaurant experiences that can be tailored to specific neighbourhoods in a city and which can also plug into third-party delivery services with equal ease.

Restaurants can also partner with these kitchens on wheels to expand their reach into new markets, as &Pizza has done by teaming up with Zume.

A few years earlier, the biggest problem was “discovery” of restaurants. People faced problem in figuring out restaurants that were available nearby and how good they really were. Companies like Zomato absorbed this pain by building a simple platform to address the problem of the Indian foodies.

Once the discovery problem was sorted, the problem of booking and ordering food arose. Zomato again saved the day as an aggregator. The next level in the value chain was reliability in delivery and that’s what Swiggy, Zomato & UberEats is looking to solve.

All said and done, none of these have touched the pinnacle of the value chain which is food itself. They are food discovery and delivery platforms meeting the market needs.

Automation and Cloud Kitchens: What the F&B industry looks like in 2020
Automation in food industry

If one does a quick analysis, the four fins of the F&B business are Man, Material, Method and Machine. The most crucial fin is Man (read chef) as there is an extensive skill required for preparing the food. Materials or real estate stands as the most expensive element for a dine-in restaurant business.

The Method of cooking has not changed much in term of technology, which brings us to the missing fin i.e. Machine. In 1902 the grinder was invented and in 1946 the microwave was invented, post which there has hardly been any real invention.

The missing fin Machine, has started pinching hard to the industry. Machine or Kitchen Automation can help food businesses reduce the time taken to prepare food, reduce operational costs, aid faster delivery, and bring higher profitability.

By Dibyananda Brahma

DB