Food aggregators pivot to cloud kitchens as online orders surge

Food delivery aggregators Swiggy and Zomato are renewing focus on their cloud kitchen strategies as restaurants start to open up amid the covid-19 pandemic.

Many restaurants are also exploring expansion through cloud kitchens with the dine-in business capped at 50% seating capacity and expect online orders to see a surge as consumers remain wary of stepping out.

The cloud kitchen business was deeply impacted by the covid-led lockdown, resulting in a sharp dip in order volumes.

Compared to pre-covid levels, Zomato witnessed only 50% of its restaurant partners starting to deliver food on its platform, while rival Swiggy saw around 25-40%, with more restaurants being operational in tier-1 cities.

These food-tech unicorns are now working with restaurants to help them resume operations by offering their cloud kitchen facilities.

“As the economy opens up on account of Unlock 1.0 and restaurants resolve teething issues around manpower, we expect the majority of our restaurant partners to be live on the platform. Some of them are even looking to expand and take up more kitchens. We are focusing on helping them resume operations and making sure that our kitchens are fully equipped and follow all safety and hygiene protocol,” said a Zomato spokesperson.

Zomato said it is also evaluating targeted investments around kitchen space in areas of supply gaps, while looking to optimise its current kitchen footprint to suit the evolving customer demands.

Swiggy, which has shut and relocated many of its non-profitable cloud kitchens in May, is also taking a relook at its cloud kitchen strategy to solve supply gaps in various geographies of operations.

“Although dine-in operations are set to resume, it is likely to take some time for consumers to get comfortable with the notion of dining at restaurants. Our strategic investments in cloud kitchens are proving to be crucial in assisting restaurant partners to get their businesses rolling and adapt to the evolving consumer landscape,” said a Swiggy spokesperson.

In February, Swiggy had launched ‘BrandWorks’ to co-create delivery-only brands with restaurant partners by leveraging existing kitchen space at their dine-in facilities.

It is now leveraging the BrandWorks platform to work with restaurants and create newer delivery-only brands and menus, which is tailor-made to the food demand in a specific geography. BrandWorks will also continue to assist restaurant partners in maximising profitability at their dine-in units. Swiggy has also invested 250 crore into Swiggy Access, its cloud kitchen brand.

Rajesh Sawhney, founder GSF Accelerator and Healthie said, “This is the darkest hour for the restaurant and cloud kitchen industry. There is a huge demand compression as offices aren’t operating and condos have put lots of restrictions on home ordering. Most restaurants may either remain shut for the next few months or do limited delivery business. Similarly most cloud kitchens are either shut or are operating at 25-30% capacity. It will be a slow grind back to normal over a year.”

Aggregators have caused the biggest problem for restaurants because they diverted the demand to their cloud kitchens business while charging 25-50% commissions to others, said a person familiar with the business.

“…Aggregators shouldn’t charge more than 10% and customers should pay for the delivery. If this doesn’t happen, it will be game over for restaurants,” he said, asking not to be named.

While several restaurants could use their own existing kitchen infrastructure to fulfil delivery orders, others are exploring third-party cloud kitchens.

Zorawar Kalra, founder, Massive Restaurants, that runs Farzi Café and Pa Pa Ya, said the company is in talks with a large aggregator for an association over their cloud kitchen. Massive Restaurants could take up space in a ready-made cloud-kitchen in any city, and launch new online-only food delivery concepts as well as host the company’s existing brands on it.

The move, said Kalra, will help its popular restaurant brands gain scale at a fraction of a cost required to set up a full restaurant.

“We are definitely looking at cloud kitchens as we are working on some very cool delivery-only models. We might look at ready-made kitchens, in which we can plug-and-play our brands. It is better to not build your own kitchen because there are so many people now that have readymade kitchens for a fraction of your running cost, with no capex, and that will give you nation-wide network.”

The article was first published on livemint.com

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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

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  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.