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Good Capital: Indian Technology Review #41
 

As discussed in the last issue, the growth of the online food delivery market – especially over the last two years – has made the cloud kitchen industry come into its own, now making it a worthy competitor to traditional restaurants at scale. 
 

Industry Overview 
 

The global cloud kitchen market accounted for $63BN in 2021 and is expected to achieve a market size of $370BN by 2030, growing at a CAGR of 22% between 2022 and 2030. Closer to home in India, this modern form of the restaurant is set to become a $2BN industry in India by 2024 from a $400MN industry in 2019.  Some reasons for this explosive growth include:

  • Overall increase in demand for online food and beverage delivery services

  • Lifestyle habits in Tier 1 cities in India where the corporate culture coupled with longer working hours has enhanced the convenience that ordering-in offers. The urban middle class too has warmed up to the idea of ordering food online due to factors like a wide variety of menus, aggregator-driven discounts, etc.

  • Support from the digital infrastructure in the form of more accessible payment options
     

Understanding Cloud Kitchens
 

A cloud kitchen is a virtual kitchen or ghost kitchen with no physical outlet and dine-in option. It accepts only online delivery demand via apps or calls or online food aggregators. With the advent of digitization in the country, all delivery-only models have seen exponential growth, including food. The utilization of commercial kitchens available locally has been introduced under the term “cloud kitchen” to serve the delivery needs of the consumer. 

Strategically, these are the big business models that emerge in this industry, each with its own differentiation vehicle.
 


 

There are also several advantages that this model offers to restaurant owners as well:

  • Improved profitability: The average profit for a classic restaurant establishment ranges anywhere from 3-6%, whereas, due to significantly lower costs of setting up, cloud kitchens have a 15-20% profit margin. They operate in a fraction of traditional restaurant space, utilizing resources more efficiently through optimized kitchen workflows.

  • Scalability: Since brands can leverage existing commercial kitchens in a variety of locations (even with other brands operating under the same roof several times), they are able to expand across geographies without incurring huge setup costs

  • Ability to innovate and adapt quickly: With technology being the foundation of these business models, it is easier to innovate centrally and roll out precise recipes across locations. This is also incredibly useful in A/B testing different recipes across different locations, allowing the incumbent restaurant industry an experiment-based approach.

  • Streamlined customer data: Since the entire user journey is captured on online platforms, customer data can be collated and analyzed. This creates an opportunity to find and retain returning customers, design a target group-specific loyalty scheme, and understand changing consumer preferences in real-time. 
     

In India
 

This ecosystem is currently dominated by a few large players with several of them finding their footing during the pandemic-led boost to this industry. Rebel Foods leads the market with kitchens that deliver across 18 states in the country, followed closely by Box8 which uses local cuisine as a differentiating factor in the consumer experience. As the industry grows, it is clear that the focus for all these companies will become technology adoption, enabling brands and restaurants to scale as fast as possible without sacrificing on taste and quality. One of our portfolio companies, CloudChef has developed technology that can capture recipes created by chefs which is then converted into a machine-readable format and can easily be replicated anywhere without any difference in taste. Building tech defensibility across both hardware and software will be essential for success in this industry.
 

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Warm regards,

Rohan Malhotra

PS - Find our previous editions here

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