Upscale Restaurants Join The Cloud

Found the meal you ordered online delightful? Chances are it didn’t come from a regular restaurant but a tiny kitchen that has no space for people to sit and eat.

Delivery services like Zomato and Swiggy spawned such low-cost, cloud kitchens with no dine-in space, aimed at providing piping hot dal to freezing ice creams at the doorstep. So successful has been the model that now even upscale restaurants plan to expand through the delivery-only format as renting large spaces becomes costlier in prime locations.

Speciality Restaurants Ltd., the operator of outlets like Asia Kitchen, Mainland China, Oh! Calcutta and Sigree, has chosen this route. “In the next two to three months, we will open our first cloud kitchens in Mumbai and Kolkata and then expand it to 20 cities over two years,” Anjan Chatterjee, chairman and managing director at Speciality Restaurants, told BloombergQuint. The revenue contribution from delivery, he said, will rise from 7-8 percent to early teens in two-three years.

Organised cloud kitchens account for less than 1 percent of India’s restaurant market worth nearly Rs 1.48 lakh crore, according to data shared by the National Restaurant Association of India. Their share is higher at 2 percent in the chain-based model. Dine-in remains the dominant model.

Yet, the industry’s delivery-based contribution has grown to 8 percent, underscoring to the scale of the opportunity. Especially when quick service restaurants, which significantly contribute to online ordering, is one of the fastest-growing categories.

Lite Bite Foods Pvt. Ltd., the operator of Punjab Grill, Tres, Zanbar, You Mee, Asia Seven chains of restaurants, has already taken the plunge with two cloud kitchens in Gurgaon.

“The delivery market of India is expanding, and cloud kitchen gives us the opportunity to take our brands closer to people and service them compared to a mall or high street where rentals are very high,” Rohit Aggarwal, director at Lite Bite Foods, told BloombergQuint. “One doesn’t know how successful it will be, but we are giving it a shot.”

Lite Bite Foods plans to open 10-15 cloud kitchens by the end of 2019. It will allocate some part of its restaurant kitchens for delivery-only orders and open some independent no dine-in stores.

That comes as food ordering platforms have seen exponential growth after burning cash to acquire customers in initial years. Even charging a fee for delivery hasn’t deterred users. Zomato gets 21 million orders a month and Swiggy follows with 20 million, according NRAI’s Food Service Report 2019 citing data as of September. The average order size is Rs 300.

The number of orders through delivery platforms rose the most for cloud kitchens and quick service restaurants—both standalone and chains—between 2016 and 2018.

Such no-dine-in outlets now get nearly 91 percent of their revenue from food, 5 percent from beverages and 4 percent from dessert and sweets. About 60 percent of their business comes during weekdays and the rest on the weekends, driven by demand from workplaces.

Rising Rentals

Setting up restaurants in cities is becoming costlier as commercial rentals have surged across large cities, at times making business unviable.

In some prime locations of Mumbai, the rentals eat into 25 to 30 percent of a restaurateur’s monthly revenue, Anuj Kejriwal managing director and chief executive officer at Anarock Retail, told BloombergQuint. That compares with the global trend of 15-20 percent.

“Despite the food and beverage sector seeing unprecedented growth over the last decade, rising real estate costs across cities have been a major dampener,” said Kejriwal. The rentals have risen significantly in places like the Mumbai Metropolitan Region due to the shortage of quality real estate, forcing outlets to shut down.

Cloud kitchens help save on those real estate costs. Even Zomato, Swiggy and UberEats are building such captive cooking hubs, helping restaurants expand.

Since launching the first cloud kitchen with five restaurants in Bengaluru in 2017, Swiggy Access has already brought more than 350 new restaurants to different neighbourhoods across 12 cities, Vishal Bhatia, chief executive officer, new supply at Swiggy, said in an emailed response. Bajaj cited the example of Bengaluru where it has taken the popular Meghana’s Biryani and Truffles to more locations. And he said the company helped Madurai Idly Shop successfully expand from Bengaluru to Pune, and also took Rang De Basanti from Kolkata to Bengaluru.

According to Kejriwal, the food ordering apps are tying up with restaurant owners on a revenue-share model for exclusive home delivery deals. In two-three years, he said, online ordering and delivery may contribute 60 percent to revenues of restaurants.