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The economics of cloud kitchens

Thursday, August 19, 2021, 14:00 Hrs  [IST]
Asmita Mukherjee | Hyderabad

Cloud kitchens are reshaping the Indian food industry. The concept has enabled food entrepreneurs to start and expand their food businesses at a minimal cost, reshaping and diversifying the market.  Following rapid capital infusion in food tech start-ups, cloud kitchens have gained immense popularity due to their core pillars of low rent, low labour cost, and low capital investment. Asmita Mukherjee spoke with cloud kitchen entrepreneurs to understand the economics of the business.

According to Chef Vikas Seth, Culinary Director, Embassy Leisure, cloud kitchens gained popularity among F&B entrepreneurs due to the ability to curb costs on real estate and an overall consumer behaviour shift to a more digitally conducive experience.

Kartik Juneja, Founder, Chickeera shared his thoughts on the expenses of a cloud kitchen, by saying, “There is a very common perception among people that opening a cloud kitchen demands less investment and running costs. However, when you're building a brand like we are doing here at Chickeera, the expenses are quite similar to a QSR. Other than that, the popularity of aggregators like Zomato and Swiggy have also promoted cloud kitchens in recent years as these companies spend huge funds on marketing. Moreover, cloud kitchens allow for good returns in a decent business time frame. All these reasons contribute to their growing popularity among F&B entrepreneurs.”

Seth stated that the savings are minimal in comparison, as primarily the aggregator commission cost needs to be considered and are dissipated either by a competitive partnership or increased sales.

Seth shared his thoughts on the profitability factors of a cloud kitchen by stating, “Models will vary based on cuisine concept, menu engineering, and various other factors. Profitability will be achieved when the kitchen sees a steady influx of orders throughout the week, during various meal periods consistently. The number of orders should support one’s cost of production.”

Cloud kitchens can easily attract investments due to the nature of the business which offers low-risk. Initially, the investments seem lower, however, after gaining popularity, the restaurateurs need to invest in technology for customer acquisition, repeat clientele attraction, and customised offers to gain more traction.

Juneja added, “A repeat clientele is of utmost importance if you want your cloud kitchen to sustain itself in the long run. You cannot provide low-quality food and a bad experience to any of your customers and then expect to keep on making and enjoying profits. For some companies, 50 orders per day are sufficient while for others even 500 orders could be less. In a nutshell, all of it comes down to the quality of the food, your branding, marketing, and customer service.”

While informing about the break-even timeframe of a cloud kitchen, Seth commented, “With cloud kitchens one has to play the long game and understand changing consumer behaviour to cater to demand in areas closing a cuisine gap, constantly adapting their product to an ever-changing consumer mindsight. It could take anywhere between 8-15 months provided adequate attention is given to solidifying a consumer base.”

According to Juneja, the break even totally depends on what the mission and vision of the brand are, as the expenses of two different brands, even if they're in the same industry, can never be the same.

“Under normal circumstances and a good business model, you can expect to make profits after 2-3 years of being in operation. However, if a person believes in constantly looking for more ways to improve the brand, they will always wait to break even on their business as a proper brand is not established overnight,” he added.

Seth believes that before starting a cloud kitchen, setting a foundation is important, while focusing on a concept that works, in addition to doing a gap analysis. Also, starting the kitchen in an area with demand, and not just because of optimal real estate is a crucial factor.

Echoing similar thoughts, Juneja said, “The F&B industry demands constant efforts, especially, in the beginning, since you have multiple things to take care of. Choosing a good location is very important to target the right kind of customers and clientele base.”

Juneja also laid down some of the key tenets of a successful cloud kitchen business, by saying, “Spending a decent amount of funds from your sales on your brand's marketing is very important and not doing this is one of the biggest mistakes that an entrepreneur can make. It is essential to have proper and seamless operations in the kitchen, as apart from the food quality, customers seek on-time delivery and good service. You have to bring something new to the table with your business; otherwise, you'll be out of the competition even before starting the race.”

Although the economics of cloud kitchens are still being tweaked by industry experts to achieve optimum returns, what remains constant is the unfettered attention given to them by both established and aspiring foodpreneurs, who see the cloud kitchen segment as the next big bet in the market.

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