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Virtual Restaurants - A New Industry in the Making

The concept of virtual restaurant is still at a nascent stage in India but is evolving slowly and gradually in the right direction. Because of the relative ease of scaling up, a whole new breed of young entrepreneurs are venturing into this space of food service business armed with funding. Kathryn B K writes.

Wednesday, March 8, 2017, 17:41 Hrs  [IST]

You just entered your house after a prolonged day at work, you are too tired to prepare supper and too exhausted to leave the house to fetch for food. You are hungry and wish to have a cosy dinner in the warmth of your house while watching your favourite TV show or making an assignment in your laptop. What would you do? Not to fret, because you have virtual restaurants as your saviour.

Virtual restaurants work on delivery-only concept; it only exists online and not physically. You have to place an order whenever you want and it will be delivered at your doorstep. Pan of Asia, Pao & Bao, Kadhai House, Box8, and Curry Me Up are among the few virtual restaurants that exist in India.

Inception of virtual restaurants concept transpired few years back, but it came into the lime light recently with most of the working professionals, who stay away from home and wish to have their meals in the comfort of their home or office preferring virtual restaurants as an alternate to dining out.

An evolving trend
The concept of virtual restaurant is still at a nascent stage in India and is evolving slowly but gradually in the right direction. But virtual restaurants still have a very long way to go to get established and come into the foray of an organised sector.

Amit Raj, Co-founder, Box8 agrees that the baby steps taken so far are certainly in the right direction for virtual restaurants to become an organised industry. More standardisation and consistency over the years will fortify its position.

“Virtual restaurants have no physical presence and operate mostly from home kitchens or smaller garages, providing specialised cuisine to a smaller target audience. Most of them are unregistered and unlicensed, and unless they take the next step, I don’t see them ever coming into the fray of the organised sector,” says Pranav Rungta, Director, Curry Me Up Pvt. Ltd.

The recent decision by our Prime Minister, Narendra Modi to demonetise INR 500 and 1000 notes and yearning to transact digitally worked in favour of the virtual restaurants as most of the plebeians chose to order food home over dressing up and going out to dine as they found it to be an added expenditure.

Deb Mukherjee, Director, Ceres Hospitality Pvt. Ltd., who runs Pan of Asia, Pao & Bao, Kadhai House says, “Our operations are highly technology driven in order to control costs while providing the customer with a top quality satisfying experience every time they order. Being virtual helps us to control our fixed costs and leverage on economies of scale thus creating a sustainable business model in the long term. Customers enjoy the no-nonsense approach of selecting what they want and when they want at a price point which is comfortable for them.”

Challenges & opportunities
Choose any industry or sector and you will find few pros and cons in every business and virtual restaurants are no exception. It too has its own challenges and opportunities.

Virtual restaurants are not sit-down restaurants where one can go and experience the food and ambience, and this is one of the major challenges that virtual restaurants face. Mukherjee emphasises that since virtual restaurants are by definition non sit-down restaurants and so it requires more marketing in the initial stages of launch. However once established it will be stable in terms of repeat customers as it is solely playing on the quality of food and delivery rather than ambience and location.

But he adds that they also enjoy a massive cost advantage in terms of 50% lower opex and 70% lower capex compared to a sit-down, which allows us to serve high end restaurant quality food at a great price point. Virtual restaurants target an addressable catchment area rather than being dependent on location specific footfalls and are much more scalable, due to flexibility of location and thus lower capital requirement.

It is arduous to built trust and credibility when it comes to virtual restaurants unlike sit-down restaurants, but not impossible. “It is humanely difficult to trust something that you can’t see or touch before buying and this is the biggest challenge. But there is no easy way around it, the only way one is going to establish trust & credibility is by consistently offering excellent product and service and finally the word catches on,” explains Anshul Gupta, Co-founder, Box8.

Online ratings and reviews are another challenge which not just virtual restaurants face but all other sectors too. Every industry has to go through this scrutiny. Rungta says, customers think they can make or break the particular entities business by writing a good/bad review. For a virtual restaurant this virtual rating is the only thing people look at while ordering since there is no physical presence. If by chance there is a mistake by the restaurant, rectification is more difficult because the transaction is over. In a physical restaurant the guest can still be appeased by offering a discount or complimentary dessert. Many guests take advantage of this too and pass off lame excuses and threats of bad rating just to get freebies and discounts, which the virtual players have to bow down to.

However despite this there is great opportunity in this space because as indisposable income in the middle class is increasing in India, there is a drastic increase in business. Primarily now the mainstream restaurant industry in urban cities is becoming more of an outing rather than a necessity. The virtual restaurant space is slowly becoming requisite where a person comes home tired from work and orders in two – three times a week, adds Rungta.

Amit Raj
Co-founder, Box8
Pranav Rungta
Director, Curry Me Up Pvt. Ltd.
Deb Mukherjee
Director, Ceres Hospitality Pvt. Ltd.
Anshul Gupta
Co-founder, Box8

Funding & market size
Startups provide great opportunities for private equities and venture capitals as they are in the growth phase of their lifecycle and can multiply wealth very fast. The availability of risk capital for early stage startups has resulted in more and more qualified and experienced professions take up the entrepreneurial plunge, says Mukherjee.

On the contrary, Rungta feels that food-tech sector is not looking very lucrative to private equities and venture capitals. There was a huge boom in predominantly the non-food part of food tech which got huge funding and eventually went bust (non-food means – delivery, order aggregation which had nothing to do with the core basic which is manufacturing food).

“It is clear today more than ever that only the assets that have the capability to perform and deliver on a long term scale are worth the efforts, and that’s how the investors are also looking at it. The corrections and consolidations in the early stage has further fortified the refining scenario for them but the signs show they are still willing to back up the firm with a right balance of operational execution and unit economics,” thinks Raj.

Throwing light on the market size of virtual restaurants in India, Mukherjee says that the organised food services industry is stated to cross INR 2 trillion by 2020 according to various industry reports while the unorganised sector is estimated to be double of that. This points to a CAGR of 20% across the organised industry. The base of growth for virtual restaurants will be way higher than that given the relative ease of scaling up compared to standalone sit-down places.

Food hygiene
Food safety and hygiene is one of the prime essentials for virtual restaurants to survive and sustain in the long run. Since customers cannot physically experience virtual restaurants like sit-down restaurants, food hygiene and safety becomes utmost important for its success and hence virtual restaurateurs must take critical measures to assure customers about the foods safety and cleanliness provided by them.

maintain strict hygiene standards. The trick to ensuring hygiene and food safety lies in the training provided to all our staff starting from the kitchen to delivery personnel. Our packaging is secure and stable ensuring no spillage of food during delivery thus removing the chance of contamination and arrives at the customer location hot and ready to dig into,” assures Mukherjee.

Following certain hygiene standards at the kitchen as well as buying fresh and clean products from the vendors is crucial. Also training the staff and promoting hygiene standards should be mandatory.

Rungta says, “We promote personal hygiene standards of our employees since in the end they will be making and packing the food so they are the potential source of contamination. We have a reliable

set of vendors who provide us with fresh supplies as this is the base of our food. Besides that storage and preservation of food is very important to us, as majority of food-related mishaps are because of stale food being served.”

There is no margin of error while running a virtual restaurant as we want the customers to have faith in us. At the outset, we have chosen a set of highly trusted partners (suppliers) after multiple stages of checks and from them we receive fresh stock of produce everyday which again is refined and checked. All our kitchens and stores are maintained at highest standards of cleanliness and hygiene. Chefs and support staff are trained well to work with food. Our packaging mechanism helps us deliver hot and fresh food right to your doorstep, informs Raj.

There is no margin of error while running a virtual restaurant as we want the customers to have faith in us. At the outset, we have chosen a set of highly trusted partners (suppliers) after multiple stages of checks and from them we receive fresh stock of produce everyday which again is refined and checked. All our kitchens and stores are maintained at highest standards of cleanliness and hygiene. Chefs and support staff are trained well to work with food. Our packaging mechanism helps us deliver hot and fresh food right to your doorstep, informs Raj.

The future
With changing times and changing lifestyle of the consumer, buying behaviour too is changing. Virtual restaurants are gradually growing in India and are here to stay for a very long time. This does not mean that virtual restaurants will replace the sit-down and standalone restaurants. Both will co-exist.

Virtual Restaurants focuses only on the delivery part of the business which traditional sit-down restaurants don’t really specialise in. Virtual restaurants will slowly take over the delivery part of the business from traditional sit-down restaurants over time. People who want to eat out and enjoy the ambience of a sit-down restaurant will continue doing so, but people who want the same quality food at a much more affordable price point delivered to their home or office will pick virtual restaurants, says Mukherjee.

Rungta is of the opinion that virtual restaurants have a very limited reach primarily to the urban population who are tech savvy. It is not a billion dollar market. However with a growing middle class and the creation of new smart cities envisaged by the current government, we will see a large influx of people from rural to semi urban which could open up a huge opportunity for virtual restaurants.

Technology too plays an important role when it comes to virtual restaurants. With the government promoting digitisation, it is an added advantage for virtual restaurants as more and more people will opt to book food online.

Technology is helping us manage multiple brands running out of a single kitchen much more easily and seamlessly. With the growth in digitisation of India, we are a major beneficiary, concludes Mukherjee.

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