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Increasing prominence & emergence of cloud kitchens in post-Covid era
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Thursday, 14 October, 2021, 12 : 00 PM [IST]
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Rupal Sinha
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The last year saw a series of upheavals in what we knew as ‘normal life', with the lockdown leading to the shuttering of offices and other places of work, the closure of restaurants, and the large scale shift to work from home.
These factors, coupled with the fatigue of remote work, and the shortage of domestic help due to Covid-19 restrictions, brought much popularity to takeaways and the home delivery model that helped bring food much closer to diners in the safety of their own homes. Indeed, technology in the food business came to the rescue of restaurant business in cities.
A recent report by Red Seer Management Consulting highlighted that cloud kitchens are set to be a $2 billion industry in India by 2024, up from $400 million in 2019. In line with this, technology-driven delivery platforms have fuelled the demand for cloud kitchens - commercial kitchens that only cater to delivery orders using either their own app or through third party platforms like Swiggy and Zomato.
These third-party apps have in fact further accelerated the growth of food delivery services in Tier 2 and Tier 3 cities, making it easy for restaurateurs to deliver food right at the customer’s doorstep. Restaurant owners have jumped onto this bandwagon, taking advantage of the high growth of app-based food discovery and delivery to reach a wider base of clientele.
The dynamic model of cloud kitchens, often known as virtual restaurants, is gaining popularity due to low capital investment, quick turnaround time, low overheads, targeted customer conversion, and low marketing costs, becoming an attractive business model for private equity investors too.
However, in order to achieve a sustainable food service model, a cloud kitchen business requires high order volumes in order to be profitable, which may not come easy and requires focussed marketing to attract targeted diners. Further, it is important that the service provider devise their strategy for a targeted audience, and curate a menu selection in accordance, while ensuring that food quality and presentation are strictly maintained. Above all, customer experience and complaints if any, should be monitored and addressed.
Cloud kitchen operators on third party application platforms work initially on wafer thin margins due to high royalties charged by the technology aggregator, which makes scaling the business inevitable for sustenance. Building brand loyalty and customer retention are key business priorities as the model of operation is primarily D2C.
Third party applications that aggregate food service providers, be it for physical dining or home deliveries, are currently limiting their scope to providing technical platforms. There is a pressing need to raise awareness among diners to ensure that they order from kitchens or restaurants that meet basic food safety and hygiene requirements, along with their food product USP, and have the necessary certifications and standard operating procedures in place.
(The author is CEO at IFMS, Quess Corp)
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