Preparing Profits in the Clouds
Preparing Profits in the Clouds

While major food aggregators like Swiggy, Zomato and Ola Foodpanda have reshaped the dynamics of the restaurant delivery system, newer concepts like cloud kitchens are further revolutionizing the space. According to Redseer Consulting, online orders worth $1.7 were placed in the country in 2018; the market is set to reach $3 billion by 2020.

Anurag Katriar, Executive Director and CEO, DeGustibus Hospitality, says, “There is a visible shift of consumption from dine-in to delivery at work or home. I would like to believe that even the frequency of consumption of non-home food is growing but the average spend is far lesser.” The average spending of the consumers who order food from the cloud kitchen brands hovers between Rs 200-320.

The founders of PopWonMo, another cloud kitchen franchise, Krunal Shah, Imad Patel, Rajat Ryan and Kenneth Dsouza, feel the consumption pattern is “rapidly changing due to the sudden influx of substantial discounts from food aggregators who are constantly competing for acquiring new users.”

Anurag Katriar of Indigo Burger Project, which is the QSR and cloud kitchen arm of DeGustibus Hospitality, says, “I call it the ‘3C effect.’ Consumers have multiple choices, there is the convenience of ordering over Apps and the cost is also good due to deep discounting being offered by aggregators.”

Also Read: The Cost of Building a Restaurant in Metro Cities in India

New Entrants 

Though Zomato entered the industry in 2008, it was with FreshMenu that it first tested and validated the concept in 2014. Later, players like Faasos and Ola Foodpanda joined the bandwagon. Recently, Oyo Rooms has announced its entry into the cloud kitchen domain. The budget hospitality brand is, currently, doing a pilot of its first cloud kitchen under the Adrak brand. The Future Group is also mulling to enter the cloud kitchen business.

Multiple Benefits

Cloud kitchens work on a hub and spoke model and deliver food at the customers’ doorsteps. The cloud kitchens need low capital expenditure as dine-ins are strict no; that's how restaurants can save money on furniture, rent and miscellaneous services. Many small businesses, initially, take up the route of cloud kitchen formats to enter the restaurant industry.

The cloud kitchen franchise model helps lower the rent-to-sales ratio for a brand; the cost of manpower and rentals decreases. In addition, it also reduces the product price for the consumers. Rebel Foods, which operates 160+ cloud kitchens with brands such as Faasos and Behrouz Biryani, delivered kitchen sales growth of more than 75% in FY18 as compared to the industry average of 10-15% SSG.

Business Model 

To open a QSR (quick-service restaurant), the average area required is 450 sq ft for 20-30 sitting, whereas, one can operate from the cloud kitchen with just an area of 150-300 sq ft. A minimum of 25-30 lakhs is required to start a franchise unit of a cloud kitchen. The start-up investment cost includes lease rent, equipment, interiors, licenses and registration, franchise security deposit, franchise fee and operational expenses like the salary of the manpower and rent. 

The rent for 150-300 sq ft area is Rs 45,000-1 lakh. The lease rent costs Rs 6.5 to 7 lakh per annum. The equipment for cloud kitchen comes at between Rs 3.5-4.5 lakh. The cost of the interiors is around Rs 2.5-3 lakh. The licenses and registration and franchise security deposit are Rs 2 lakh each. The franchise fee is over Rs 3 lakh for a cloud kitchen of 150-300 sq ft area and the franchisee royalty is around 12.5 per cent on gross revenue per month.  

The manpower to run the store is around Rs 1.10 lakh per month; seven to eight staff for each shift is required. 

For Indigo Burger Project, Anurag tells the margin in cloud kitchen business is around 50% and fixed expenses are around 2.50-2.75 lakhs per month. “So if the store sale is 10 lakh per month, a franchisee can make around Rs 2.25-2.50 lakhs per month - 22% to 25%. Very clearly, it is a top-line driven business.”

The ROI for cloud kitchen businesses can be as low as 12 months, depending on the sale of the products.

Why Franchising?

PopWonMo founders find franchising in the cloud kitchen area to be fruitful because “it helps to spread brand awareness and scale up the business.”

Even if someone is new to the food service segment they need not know the technical know-how with cloud kitchen businesses. All they need to do is gather the products together and get them delivered to the consumers. “Your product will be consistent and all you need to do is to push volumes”, says Anurag. This way the brand can have control over the quality and supply of the product.

The franchisors provide their franchisees with supply-chain support, training, backend support, financial management, book-keeping, food costing, marketing, collaterals and activations and even talent acquisitions. The cloud kitchen franchisees get the support on the POS modules and get the training on monitoring the key profit drivers.

Lesser risk is involved in the cloud kitchen franchise model; it requires low expenditure and is the high-profit-margin business.

Expansion Plans

FreshMenu has set up a network of 39 kitchens in its three markets and is also exploring ‘kitchen-as-a-service’ model with food tech giants Swiggy and Zomato. The start-up, currently, operates in Bengaluru, Mumbai and Delhi. FreshMenu has delayed its expansion plans into Pune, Hyderabad and Chennai which was initiated in 2018.

Indigo Burger Project which has a presence of 16 outlets at present is looking for expansion in the west region of the country as well as in Bengaluru; the aim is to reach to 100-outlet mark. While PopWonMo operates two shadow kitchens - one is located in Bandra west and one in Andheri West in Mumbai. It aims to add five more outlets by January 2020; the targeted areas for expansion are Lower Parel, Worli, Malad, Powai, Navi Mumbai.

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