Ankush Mahtoo & Abhishek Bansal, Co-Founders, KitchenXS

Ankush has 6+ years of experience in the hospitality industry. Before starting Kitchen XS, he had a successful stint at entrepreneurship in Dubai, where he started two restaurants in Dubai and scaled them to reach profitability in the shortest amount of time. He was the Head of F&B Operations at Jumeriah group, where he operated several F&B brands and played an integral role in launching Dubai’s most exquisite restaurants. His dedication to the industry led him to win various accolades and coverage across the Dubai hospitality industry & was recognized as one of the youngest restaurant managers in the Dubai hospitality industry. 

Having a Bachelor’s degree in Commerce from Delhi University, Abhishek Bansal is a Co-Founder of KitchenXS.  He comes with a deep financial & business understanding across different sectors. He has worked with Merisis Advisors as an Investment Banking Analyst and he is a CFA Charter holder. He has worked with Let’s Transport and has helped various early-age startups in their fundraising.

 

Cloud kitchens have taken the food services industry globally by storm. For anyone, who is still not privy to cloud kitchens, Cloud kitchens are delivery-only restaurants that sell via online channels without any dine-in presence.

To give you a sense of how perverse this concept is, almost 600 outlets are delivery-only out of the total 3000 restaurants listed on Zomato, approx. 20% of the listings in Chandigarh on Zomato, a statistic that continues to rise as the food services industry further embrace this trend, accentuated by the fall in retail business due to lockdown and the consumer’s shifting preference towards convenience consumption over experiential.

Growth and widespread acceptance of cloud kitchens have been a boon for entrepreneurs looking to enter and make a mark in a food services space. The cloud kitchen model has significantly reduced the barriers to entry & has offered a perfect platform for food entrepreneur to validate their product and product-market fit in a comparatively capital-efficient way. Such reduced barriers have fostered risk-taking and food innovation among the food enthusiasts, who leveraged cloud kitchens to experiment with cuisines or launch specialized gourmet products in a particular cuisine. Brands such as Homely & EatFit came and offer good quality home-cooked food meals at an affordable rate to the working millennials in the metros, a rarity in terms of cuisines to find earlier. 

Similarly, brands experimenting with trending cuisines such as Poki bowls, bubble tea or artisanal products in mass cuisine categories such as Burger & Pizza, launched as delivery-only, gained significant consumer recognition. It certainly benefitted the entire ecosystem as consumers got access to new and gourmet cuisines at an affordable price, and F&B entrepreneurs got a platform to launch and build their brand, and many later on pivoted to establish retail outlets such as Biryani by Kilo & Nomad Pizza. As we see the cloud kitchen model become a driving force in Food services, so, let’s evaluate the rise of cloud kitchens

A) The emergence of Food Aggregators or Food logistics players

Swiggy, Zomato and other food aggregators such as Uber Eats, Food panda were at the forefront of building and disrupting the status quo. Over the years, these startups raised massive external capital from institutional investors and inculcated the habit of ordering and consuming food at home, fueled by aggressive discounting and marketing push. This is the first inflexion point in the food services ecosystem that marks the transition towards off-premise dining becoming a significant portion of a restaurant’s business or revenue.

B) The transition of a retail food outlet to a delivery-only outlet

Fasoos was at the forefront of the shift in consumer preference from dining at the outlet or restaurant to off-premise dining (home or office). After realizing that majorly its consumers are ordering online and have not visited the physical outlet, Fasoos decided to pivot from a high footfall high rental retail places to under-utilized real estate in a populated neighbourhood in delivery the only format. This shift allowed Fasoos to reduce its overheads and improve its profitability. This shift was the second biggest inflexion point in the Food services ecosystem and marked the trend of running cloud kitchen restaurants. Seeing the comparatively scalable & capital-light operating model and renewed VC interest, many new delivery-only brands such as Box8, Freshmenu and Innerchef, were launched to capture the growing off-premise food consumption market.

C) The emergence of Multi-brand cloud kitchen 

Fasoos post its success as a delivery-only restaurant, launched a specialized delivery-only Biryani brand under Behrouz, and Behrouz was an instant hit across all its locations. Fasoos then launched a Chinese brand under “Mandarin oak”, a pizza brand under “Ovenstory” and multiple other specialized cuisine brands. This trend was adopted by multiple other food services startups such as Box8, inner chef, who launched an umbrella of delivery only specialized brands, catering to a particular cuisine, while utilizing the same real estate and labour.

D) The emergence of Kitchen Infrastructure as a service

So, as the phenomenon of operating delivery only restaurants spread across the globe, and both new and established food ventures contemplated starting delivery-only restaurants, the demand for industrial kitchens shot up significantly. This shift marked the emergence of offering Kitchen Infrastructure as a service in the cloud kitchen ecosystem, first initiated by Travis Kalenick, Founder of Uber, where a sub-unit in a big industrial kitchen is sub-let to food brands to operate.

A similar concept was embraced in India by Food aggregators such as Zomato & Swiggy, and new-age startups such as Kitchen Centre, Kitchens@, who were offering furnished kitchen space in populated neighbourhoods to the food brands to establish and operate. This shift made starting a delivery-only restaurant, even cheaper and more attractive as a food brand can rent a pre-built kitchen at a slight rental premium over renting a place and spending INR 3-5 lakhs in building a basic kitchen infrastructure.

E) The emergence of 3rd Party Fulfilment models

But again, renting a pre-built kitchen, fitting in the desired equipment and hiring staff to manage the operations is still a laborious and capital intensive task. So cloud kitchen operators are partnering up with 3rd party food brands are doing end level fulfilment for the brands. For that matter, we at KitchenXS have partnered with brands, catering across different cuisines and are offering them distribution to new neighbourhoods, in delivery only mode by opening our kitchen and operating infrastructure to them and acting as their fulfilment partner.

The same ideology has been adopted by Rebel foods (Fasoos) as well, as they partnered with Wendy’s, Natural Ice creams, Mad Over Donuts and many others and launched them pan-India across the locations Rebel Foods is operating. This marks the latest shift in the cloud kitchen ecosystem, probably the most exciting, and has similarities to the emergence of warehousing and e-commerce fulfilment services such as Amazon Fulfilment or Delhivery, which democratised scalability & reach for D2C and consumer brands.

What lies ahead?

The food delivery market in India is still at quite a nascent stage as compared to developed countries or China. As the disposable income across the country rises, and more people get access to smartphones and connectivity, we see the trend towards food delivery further rise, thus further fuelling the demand for food delivery services.

Launching a delivery only brand has not only benefitted new entrants, but also existing restaurants, who are struggling with the business. By Leveraging their current outlets, many existing restaurants or food brands have launched successful delivery only food brands that significantly improved the business economics of their outlet.

As the ecosystem evolves, we will see majorly all food brands exploring an omnichannel presence, i.e. the existing retail brands, operating a mix of both delivery only and retail outlets, where the delivery only outlets will offer them reach and ability to offer convenience to the consumer, and the retail outlets will be more experiential oriented. Although what we have observed is running and building a consumer food brand is very different to running cloud kitchen operations. 

So going forward, we will see a chasm between cloud kitchen operators emerge, one will be those, who are focused on building and growing their consumer-focused food brands and to achieve their delivery scale and presence, may partner up with other segments of cloud kitchen operators, who primarily excel in cloud kitchen operations, and request the kitchen operators to do the order fulfilment on behalf of the food brands, something that we at KitchenXS and Rebel Foods are currently doing

Yet this is just a beginning of a new ecosystem, and we may see many more innovations and new business model innovations like the cloud kitchen and food delivery ecosystem evolves.

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