With the big Brands coming in, Is the future all about cloud kitchens? Alternative Delivery platforms like WhatsApp, Instagram?

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Similarly, Marriott International is running the “Marriott on Wheels” delivery service in partnership with Swiggy. This is the first time when restaurants from five-star chains are looking at food delivery as a source of revenue, and this trend could very well catch on across major cities.

But will restaurants switch to delivery only or cloud kitchens model permanently? Of course, the likes of Hilton and Marriott International might not completely switch to delivery only models as they have invested a lot in the infrastructure. Moreover, for most such restaurants, home delivery is a much smaller revenue channel as compared to dine-in. It’s a myth that food delivery helps restaurants in their businesses. They earn only a fraction of their revenues from food deliveries,

But what about smaller restaurants which haven’t invested much in the infrastructure? Will they switch to the cloud kitchen model? Indeed, there’s a possibility that it is the only option left for their survival.

Starved For Revenue

Of course, switching to a cloud kitchen model for any smaller restaurant is going to be difficult. But restaurants with deep pockets might shift as the cost of running such establishments are comparatively very low as compared to running a restaurant. Restaurants are now eyeing cloud kitchen space seriously. But running a cloud kitchen will need a different expertise.

For most restaurants, switching to cloud kitchen isn’t easy as they need to first understand the unit economics behind it clearly. Factors like the right pricing point is going to be the key here as the costs associated with it are much higher than it appear.

The Covid-19 pandemic has pushed the restaurant industry into adopting more innovation, technology and new priorities to survive the repercussions. As the dine-in services have almost fallen into a despair, the restaurants have no option but to create alternative sources of revenues through online delivery services.

Even as restaurants look at cloud kitchens as a way to retain lost revenue, cloud kitchens themselves are not having the best of moments. Cloud kitchen startup founders said that most consumers that are working from home have had more time and opportunity to cook for themselves. Of course, this is one of the many reasons, such as hygiene issues and lower discounts, which has led to a drop in sales.

The Business Pivoting Being Done by Major Players

Meanwhile, some of the larger cloud kitchen startups have now started to deliver ready to make food packets instead of cooked meals. For instance, Rebel Foods is now selling ready-to-cook kits, meat and packaged snacks.

“In India, people have started cooking at home fearing they would be infected if they go out. Since this trend is likely to last, expansion to adjacent complementary categories was the need of the hour,” cofounder and CEO Barman was quoted as saying.

Besides Rebel Foods, OYO is also looking to enter the ready-to-eat food segment with partnership on a revenue-sharing model with manufacturers. OYO has downsized is cloud kitchen team from over 150 people in the corporate team to around 40-45. Plus, another 150-200 people have been laid off from on-ground operations team or have been given other roles.

OYO had launched over 20 cloud kitchens in Gurugram and Bengaluru in February 2019. Cloud kitchens such as Adraq and O’Biriyani both run by OYO were operational and serving food until recently.

‘Cloud Bars’ On The Horizon?

Meanwhile, the Jharkhand and Odisha governments have recently allowed hyperlocal delivery startups to home deliver alcohol to consumers in the states. As these startups are already delivering food from cloud kitchens and restaurants, they can easily facilitate the delivery of liquor from restaurants and cloud kitchens which have necessary licenses. Will this create a ‘cloud bar’ market in India?

FHRAI restaurant body had reached out to the government to allow establishments to at least full liquor bottles that are about to expire. In response, the excise department told the restaurants to sell liquor bottles to liquor retailers in single transaction.

However, the Karnataka and Maharashtra government allowed restaurants to sell liquor to customers, but only to clear their stocks. An alcohol beverages industry source told that the government isn’t going to allow the delivery of liquor from restaurants as it’ll kill the revenues of many of the state-owned shops.

So Indian consumers looking forward to ordering cocktails and drinks from cloud bars will have to wait several years before this happens. For now, there is plenty of existing opportunity for cloud kitchens given the delivery-first nature of the market. Plus, the Indian restaurant industry’s weak position will make up for some of the deficiencies in the cloud kitchen segment such as building long-term customer loyalty and brand recall.

Now Delivering Food Through Instagram

According to restaurant management platform POSist’s Restaurant Industry and Market Evolutions (PRIME) report, nearly 43% of Indian dine-in only restaurants have started delivery services during the pandemic. These delivery services are majorly conducted though food aggregators like Zomato and Swiggy, while some restaurants have also started their own direct-to-consumer (D2C) services as an add-on.

With both revenue streams set in place, nearly 57% of the orders come in through food aggregators, while the rest 43% come in from direct channels. The report has further noted that WhatsApp has emerged as one of the most popular direct channel for order placement, while Instagram is the top social media platform for marketing and promotions. Notably, the restaurant industry has recorded 3X jump in food orders during the first quarter of FY2021.

With this spike in online ordering, nearly 44% of the restaurants are willing to invest in technology to digitise their restaurant operations. Meanwhile, 53% of the players have placed their bets in setting up a cloud kitchen or delivery-only outlet of their brand. Besides this, opening new locations and hiring more staff is another set of investment, the restaurant industry is willing to make.

The latest report, which is based on a survey of 300 senior executives in the restaurant industry, highlights that nearly 80% of the restaurants believe that technology has become an important fact to run a restaurant business in today’s time. The contactless dining and cloud kitchens to gain momentum during times like this. As India recovers from Covid-19, technology will play a significant role in reviving the restaurant industry

Way Ahead

Popular social media platform Instagram is now facilitating food ordering on its application by redirecting users to Swiggy and Zomato. Instagram, a go-to platform for many food bloggers, is aiming to revive the industry by this initiative.

For supporting restaurants, Instagram has also announced that it was going to roll out a food order sticker. On clicking these stickers, users will be redirected to either Zomato or Swiggy, depending on the landing link. From there, users can complete their purchases.

These stickers can be used by restaurants which have an Instagram business or creator account. They will have to link the sticker to their product page on either Swiggy or Zomato. After creating the ‘Food Order’ stickers, restaurants can share them in their Instagram stories or can also add an ‘Order Food’ button in their profiles.

Besides restaurants, the sticker will also help other small businesses to stay connected with customers. These stickers will also redirect users to a fundraiser built on Facebook’s Fundraisers platform. Instagram has allowed users to reshare the stickers with their followers to increase the reach of the restaurants.

Everyone will have to move to a brand, every restaurant will have to think of their product as their menu and their name as the brand. That brand will have different manifestations, and one of them is going to be cloud kitchens. No restaurant is going to do a dine-in only model again, there will always be a hybrid approach.