Cloud kitchen business faces Covid heat as order volumes dive

The cloud kitchen business is facing the heat of the pandemic — volume of orders has more than halved for most companies and firms are cutting salaries and pruning certain job profiles to preserve cash. As consumers are now betting on safety rather than affordable pricing and quicker deliveries, companies are scrambling to position their business strategy around hygiene. While for bigger brands, recovery may be possible in the next two quarters, smaller brands’ survival may be at stake as most of them have temporarily shut operations, losing customer visibility in the process.

Kallol Banerjee, co-founder at Sequoia Capital-backed Rebel Foods that owns brands like Faasos and Behrouz Biryani, said order volumes are down by as much as 30% compared to regular days. Banerjee said customers are increasingly opting for bigger brands and have dropped the idea of experimenting with new brands and cuisine. The firm’s brand Mandarian Oak has particularly been hit as customers shun Chinese food in India. To sustain operations, Rebel Foods has halted all expansion plans for the year and the firm’s executive management is taking salary cuts for the interim period. “Marketing will no longer be about discounts but giving assurance to consumers about safety. It will take at least six months for delivery to swing back to normalcy,” Banerjee said. The brand which has 316 kitchens pan-India manages to run fewer kitchens at any given point throughout the day due to operational restrictions.

Rajiv Kumar, who co-founded SmartKitchen.Co that houses 36 cloud kitchen brands, said only 6-7 brands are functional at the moment. One of its Pizza brands that made Rs 15,000 in sales everyday in normal times has struggled to make Rs 4,000 a day since the news of a delivery person contracting the infection surfaced. The brands saw almost 80% drop in orders — there are no takers for Indian thalis although in categories like pizzas and biryani, there is occasional demand. Smaller brands are going for up to 50% pay cuts and reducing staff strength. “Existing employees are being delegated more work. No one is deploying house-keeping staff. Everyone is looking at P&L,” Kumar said.

Going ahead, the challenge for cloud kitchens will be to win trust for consumers as they are not visible. Food aggregators like Swiggy and Zomato, which service the bulk of the orders for cloud kitchen brands, will give precedence to hygiene and will be very careful in selecting brands, Kumar said.

Parixit Pai Fondekar, who runs two Goa-based cloud kitchen brands, said after the news of the infected delivery staffer, the firm saw a massive slowdown in orders via Swiggy and Zomato. New-Delhi based Cross Border Kitchens saw an about 40% dip in orders following the incident. “Food aggregators have reduced discounts and hygiene has taken precedence in their communication. Orders have fallen industry-wide and concurrently through aggregators,” said co-founders Ahsan Ali Qureshi and Ishita Yashvi.

Vishal Jindal, founder at Biryani By Kilo, said demand has contracted by 10%-15%. Expansion has been delayed by four months for the company. The sector will see consolidation but delivery should get back on track post July 20 for big brands. The firm has 40 kitchens across 20 cities in the country.

Shrijith Ravindran, CEO at Pune-based Chiranjeev Restaurant and Foods, said the firm started home delivery for its cloud kitchen brand Won China in the first week of April. Sales are at about 50% of what it used to be before the lockdown, Ravindran said. The company is looking to downsize its operations as adherence to social distancing norms will necessitate deploying fewer people.

Ankit Mehrotra, CEO at restaurant tech platform DineOut, said cloud kitchens will have a hard time as the cost structures will increase on the marketing front, maintenance of hygiene as well as on technology. “Smaller kitchens will face challenges for the next six-eight months as consumers will trust larger brands to have better SOP’s.”

Gurgaon-based Mom’s Kitchen is planning to launch its own app post the lockdown that will cater to corporates. “The app will help us digitise the corporate cafeterias and allow the end-users to book their meals in advance,” said founder Deepti Nanda. As of now, the company is operating at barely 10% of its total capacity.

Bhopal-based Violet Hour said business losses are anywhere between 25% and 30% as doorstep deliveries have been stalled. The firm is also finding it difficult to procure raw materials as inter-state transportation has been restricted. “We are buying the material locally which is costing us much higher than usual,” the company said.

For cloud kitchen brand Krua Thai, owned by Thailand-based CP Avant Group, business has observed a 50% decline.