Will Swiggy's Cloud Kitchen Model Transform Dining?

 

When food delivery startup Swiggy started cloud kitchens three years ago, it was a sideshow in its food delivery business. The concept caught on as restaurant brands that had a following in one area could expand easily into new localities or even other cities. Investment in real estate was reduced because these kitchens could be smaller and didn’t need premium locations, apart from doing away with seating and the staff for serving.

Various models arose. Some introduced cloud kitchens in addition to restaurants for expansion, like Chennai’s Buhari becoming available in Coimbatore. Others like Rebel Foods created fully virtual brands that only came from dark kitchens. This became a new real estate and services play as restaurants only had to provide cooking staff while everything else, including cleaning and maintenance, could be outsourced.

Cloud kitchens caught a new impetus after the covid pandemic struck this year. Now even high-end restaurants in luxury hotels resorted to those as eating out took a nosedive and is yet to return to anywhere near the pre-covid levels. For example, Swiggy rolled out a Marriott-on-wheels with menus and prices tailored for delivery at home. Marriott could launch online-only brands whose specs varied from those of its on-premise dining.

“We help create new brands out of the existing kitchens of fine-dining restaurants," says Vishal Bhatia, CEO, Swiggy New Supply. “For example, a premium restaurant for Chinese cuisine can use the same infrastructure to produce mass Chinese brands. We can help with the catalogue, pricing and discounting for it."

This helps restaurants find new consumers and partially offset the under-utilization of kitchen facilities and culinary staff. “Everyone’s volumes have dropped and they’re looking for new revenue avenues," says Bhatia.

Swiggy has co-created nearly 200 brands since the launch of this model using existing kitchens of restaurants in February. It’s too early to say how many restaurants will persist with these if they’re able to restore dining on premises, which gives them far higher margins. What started as a stopgap arrangement could get entrenched as a parallel business.

Plenty of challenges remain. Data analytics is one of the levers of online food delivery catering to mass consumers. “We can match cuisines to gaps in delivery. Then we can plug restaurants to those locations to fill the cuisine gap," says Bhatia.

But this is still an imperfect science because consumer tastes, behaviours and cultures vary. Besides, the huge number of brands jostling for attention on a food delivery app creates a problem of visibility for all but the best-known brands.

Hygiene is another issue that cloud kitchens will have to address increasingly. The mass consumer may have been blase about this before the pandemic, but covid has raised awareness of cleanliness and what goes into food.

“We have food safety rankings and a checklist for a food safety audit of cloud kitchens. During the pandemic, because the safety team wasn’t able to visit the kitchens, we installed cameras to ensure safety protocols were followed. If the protocol isn’t followed, the kitchen is shut down and reopened again only after the staff is trained," says Bhatia.

It’s unclear to what extent self-regulation by a food delivery service convinces consumers that hygiene is maintained and safe ingredients are used. Last year, Food Safety and Standards Authority of India made it mandatory for restaurants and hotels to display their hygiene ratings given by certified food inspectors. But cloud kitchens fall into a regulatory grey area for now.

Their business model is also unproven, as food delivery unicorns chase market share with discounts. Raghu Bhupati, who exited his cloud kitchen chain Hello Curry two years ago, says it’s inherently unsustainable.

“Firstly Indian food has too many variables which involves storing multiple SKUs. Then you don’t have stickiness like you get for a McDonald burger and French fries or a KFC chicken or a Subway sandwich which meet specific and clear expectations," says Bhupati. “With an average ticket size of around ₹200, you can serve pedestrian Indian food that you can get in roadside eateries. Even then, two-thirds of the cost goes into making the food and packing it. On top of that comes delivery costs and commissions."

Hello Curry’s average ticket size was over ₹250 but even then Bhupati felt it could not be turned into a profitable entity with acceptable quality standards. He sold his stake to a Dubai food chain and started a new business, Troo Good, that makes millet-based snacks. He has no regrets abandoning the cloud kitchen business after pioneering it in 2013.

Sandip Ginodia , CEO

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