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Mayank Singh Negi

The author is Co-Founder, Cross Border Kitchens

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Cloud Kitchens: Emerging As Safe Bet In Times Of Coronavirus 

A pivot to a cloud kitchen model has been championed by some as a panacea to the industry’s current woes.

As the nation limps back into a new normal there are significant changes that cannot be overlooked. Enthusiastic high-fives have turned into social and physical distancing practices, a projected 5 trillion economy has gone into contraction and once-booming industries have come to a stand-still in the space of 60 days. The Food & Beverage industry has not been spared, with most restaurants shut and delivery aggregators reporting up to a significant decline in order volume. Amidst all this, a pivot to a cloud kitchen model has been championed by some as a panacea to the industry’s current woes. A few large hotel chains and some restaurant chains are already experimenting with this. However, before cloud kitchen models start jumping out of the woodworks, there are a few important points to consider. 

Have tempered revenue expectations, at least initially

COVID has significantly altered consumer behaviour. Typically, consumers’ grocery shopping habits are slow to change. When people do dramatically change their behaviour around buying food and beverages, it’s usually driven by a major life event such as parenthood, moving cites, or job change. As of today, grocery purchases show an increase and restaurant sales a significant drop. People are sheltering to safety and many are preferring to cook at home rather than buying cooked from outside. The significant decline in orders on aggregator platforms is a testament to this. The online food delivery market may be alive but has surely shrunk (albeit temporarily). Increasing work from home practices has also allowed people the time to cook at home. Hygiene has replaced discounting and is the new key deciding factor for most food purchasing decisions. Larger more established brands that have regularly displayed cleanliness as a core value are now listed in the top of the mind awareness for customers who are purchasing food online.  

If you are a restauranteur looking to make comparable revenue from a cloud kitchen model, there needs to be the recognition that revenue per point of sale (POS) at a cloud kitchen is typically much lower than the revenue generated by one 50 seater premium restaurant. It may take about 4 or 5 successful cloud kitchen POS to attain a similar topline as that of one premium restaurant POS. Even if you run a multi-brand format from one cloud kitchen, the revenue generated from those individual POS will not be comparable to the revenue of one premium restaurant POS. 

Understand the need for expertise and specialization

Large and specialized cloud kitchens companies typically display expertise beyond just the ability to cook food. In addition to cooking consistent quality food, a large and scalable cloud kitchen network must be tech-enabled if not a full tech company in itself writing codes and developing algorithms to manage its processes. Without a strong tech backbone, it is difficult to make complicated nationwide supply chain & procurement decisions, as an example. Similarly, it is important for every national or regional chain to develop a strong MarCom strategy, which allows them to amplify and communicate with their patrons. Unlike a physical restaurant, the customer interface in a cloud kitchen is extremely limited. You get a small window to wow your customers and retain them. Popular categories like biryani are heavily competitive, therefore an additional understanding of SEM & SEO functions plays a major role in building any new online brand.  

Building scale takes time and patience 

A large successful cloud kitchen company is often a chain of small kitchens that are held together with one or multiple processing units that partially or fully service the smaller kitchens. It takes time to develop a chain of kitchens pieced together to adequately cover an entire city. Hiring the right staff at the right locations, building adequate cold-chain networks, placing the right size kitchen in the right location are important considerations and are time-consuming. 

Never let a good crisis go to waste 

In the mid-1940s, approaching the end of the world war, Churchill famously said, “Never let a good crisis go to waste.” He was referring, of course, to an alliance between himself, Stalin, and Roosevelt, an unlikely trio that would lead to the formation of the United Nations. COVID unfortunately, is a terrible crisis, but there are opportunities in its wake. The F&B industry will eventually emerge out of this crisis. Cafes and restaurants will start getting customers much before the world gets vaccinated. Possibly as soon as countries achieve herd immunity. In the interim, there will be opportunities that will be created. Some restaurants might make a successful pivot into cloud kitchen-based organizations. New cloud kitchen-based organizations may launch during this period. How well they understand and tackle the challenges will be essential for them to survive and eventually thrive. Simply listing on aggregators and starting deliveries will not be sufficient. Instead of trying to preserve legacy strategies and business models F&B players will have to learn new competencies. Do that, and a cloud kitchen model may just turn out to be a safe bet in the times of Coronavirus.   

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house



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