"Three are 28 meal occasions in a week. You cannot expect one brand to be fulfilling every customer’s needs on all occasions.”
With that thought, Ankit Nagori found the key ingredient in the recipe for his next venture. Curefit, the health and fitness startup Nagori co-founded in 2016 with Mukesh Bansal, hived off its cloud kitchen vertical, EatFit, in October last year. Nagori swapped his stake in Curefit for majority ownership of EatFit. And EatFit became the first and the largest brand in Curefoods, the parent entity he created in 2020 to roll up popular food brands. Today, Curefoods owns and operates 10 brands from 90 kitchens across 10 cities.
“Food is very diverse. Within every category, there could be different flavours and price points. We feel if we have to do justice to a full-fledged customer base, we need as many brands as possible,” says Nagori.
The consolidation of food brands is the newest business model promising to spice up the cloud kitchen party, similar to how e-commerce was redefined by Thrasio—the US-based start-up, valued at $10 billion, which rolls up popular brands on Amazon’s marketplace. What was a private party comprising a handful of internet-first restaurant players a few years ago is now the new growth frontier that almost everyone in the food services business wants to have a stab at.
And it is a beast of a market, with enormous headroom for growth as people increasingly prefer ordering online to cooking or visiting restaurants, especially since the pandemic. India’s online food ordering market will be worth an estimated $7.5-8 billion by 2022, according to a 2020 report by Google and Boston Consulting Group. The cloud kitchen industry alone is expected to be worth $2-3 billion by 2025, according to research and consulting firm RedSeer Consulting. Food is one of the largest internet business opportunities today and, therefore, there are going to be multiple business models, companies and brands.
In fact, most cloud kitchen pioneers, including Rebel Foods, BOX8 and FreshMenu, began their cloud kitchen journey as single-brand platforms and functioned on a full-stack model. Rebel Foods, which pivoted from a quick-service restaurant (QSR) chain to a pure-play cloud kitchen model in 2016, was among the first to capitalise on the multi-brand strategy.
“We have gone through this journey ourselves,” says Ankur Sharma, Co-founder, Rebel Foods. “What we have seen is that the more you spread out your assets, the better it is. Many of our initiatives were born out of that, right from creating multi-brand cloud kitchens. It helped us not only serve many customer-first missions but also ensure the economics make much more sense for us.”
Today, the Mumbai-based company is valued at $1.4 billion and operates more than 45 brands—including its own such as Faasos, Behrouz Biryani and Ovenstory—across 350 kitchens in 10 countries. BOX8 turned to multi-brand much later, while FreshMenu stuck on to its single brand, losing some of its sheen, with both revenue and profits taking a hit. On the other hand, QSRs such as Wow! Momo Foods and Biryani By Kilo have also boarded the cloud kitchen bandwagon. Their low operating expenses and high optimisation allow them to easily convert their offline presence to online orders.
Today, it seems like a no-brainer to build a house of brands to capture a higher share of the wallet across different days of the week, different seasons, and different occasions. It also offers substantial operating leverage at a per kitchen level.
“We are seeing a lot more cuisine diversification through separate brands. In full-stack models, they are trying to do multiple brands in a single kitchen, thus better utilising their kitchens. Given the value-conscious market, a lot of cloud kitchens are launching affordable brands, especially meals. Use cases are thus diversifying from a weekend kind of brand to daily meals, which is the larger market,” says Rohan Agarwal, Associate Partner, RedSeer Consulting. And there’s more than one way to whip up the next big brand.
All in one
“Other than the international fast-food brands, how many Indian brands can you think of that have a pan-India presence?” asks Junaiz Kizhakkayil, who has over 30 years of experience in the F&B industry.
“Not many, because, in India, the taste palate differs in each state, community and religion. Building brands in India is not easy. It’s not a technology business at all. It is operation intensive. You need to have the knowledge and know-how. You start 10, two may survive,” says Kizhakkayil, who is also the Founder and Group CEO of cloud kitchen aggregator Loyal Hospitality.
That’s why many are happy to go the franchise route, besides acquiring brands. Of the 45-odd brands in Rebel Foods’ stable, 30 are in a pure-play commercial partnership. The company, which also offers commission- and rental-based infrastructure and services, inked a partnership with US burger chain Wendy’s to run its cloud kitchens in India. Sharma says they are in talks with at least five international brands to franchise their online operations in India and abroad. It has also invested in three of its partner brands—SLAY Coffee, Biryani Blues and Zomoz.
“From Rebel’s perspective, our idea is that in every micro-locality, we should be able to serve 20-30 top customer missions in multiple shapes and forms. This can be a Rebel-owned brand or partner brand such as Naturals Ice Cream,” says Sharma.
Nagori has charted out a similar brand acquisition-cum-franchisee route for Curefoods as well, except for Indian brands. He wants it to expand to 50 brands across 300 kitchens in three years. Meanwhile, Hygiene BigBites, which had just one cloud kitchen pre-Covid-19, runs 60 kitchens and 10 brands today. The Bengaluru-based company is adding 8-10 kitchens every month.
But merely rolling up brands isn’t enough. “Knowing your customers and building for them is super important,” says Kiran Prasad, Founder and CEO, Hygiene BigBites. He lays out the blueprint: “Use data to understand local nuances, position the right set of brands for that set of customers, be as close to the customer as possible, and build an efficient process internally so that the prep time is less, and deliver it to the customer without losing the charm of the food.”
But it takes a lot of fine-tuning and optimisation before the flywheel spins seamlessly. And once it does, it builds a healthy average order value, or AOV, which is closely tied to a brand’s ability to create economic value. A cloud kitchen brand, say analysts, should target an AOV of at least Rs 350 because they will have to burn at least 25 per cent on discounts, while food costs account for about 25-30 per cent.
And another hefty 25 per cent, on an average, goes to food delivery companies.
The new breed of cloud kitchen entrepreneurs understands that brand recall and distribution are the play, that building a brand is a long-term game, and that they need to have demand on their side. They, therefore, acknowledge that food tech aggregators are a necessary evil and are making efforts to understand the dynamics of working with them.
Placing an order in a customer’s hands within 25-35 minutes of an order, which is key for repeat orders, requires mastering both the art of preparing food and delivering it. Therefore, it is becoming increasingly evident to cloud kitchen brands that they should focus solely on their speciality—cook good food quickly—and leave the rest to specialists that have a platform for ordering and the infrastructure to deliver food.
“The trend is changing,” says Ashish Tulsian, Co-founder and CEO of cloud-based restaurant management software firm POSist Technologies. “Just like how retail brands work with e-commerce marketplaces, food brands are also employing professionals to manage aggregators. They make sure pricing is uniform across aggregators, negotiate hard on commission, and manage promotions. They see bargaining power as a function of brand pull.”
Food tech companies such as Swiggy and Zomato charge their cloud kitchen partners anywhere between 15 per cent and 30 per cent of the order value as commission to host the brand on their platform and deliver an order. Of course, in-demand brands command the lowest commission rates since their customer acquisition cost, for aggregators, is minimal.
But aiming for a bigger pie of the cloud kitchen market, both Swiggy and Zomato had tried their hands at running their own brands. However, after a period of trial and error, they are no longer a priority. In a duopoly, where one wouldn’t host the other’s private label, it became tough for their brands to thrive on a single platform. Any cloud kitchen brand would need both aggregators to survive.
In fact, Zomato also abandoned its venture into the infrastructure space. “We experimented with cloud kitchen infrastructure a couple of years ago, but discontinued it in fiscal 2021. We do not have our own cloud kitchens or restaurant brands because we do not want to compete with our restaurant partners. They are the foundation of our business and their success is critical to our success,” a Zomato spokesperson says. But why aim for the infrastructure side of the market?
That’s because cloud kitchen infrastructure providers, who offer plug-and-play stations with end-to-end services, are expected to grow faster than brands. In fact, pre-Covid-19, they were anticipated to grow at double the rate of the classic full-stack firms, according to RedSeer Consulting.
“Infrastructure service providers have faster growth ahead because scaling up responsibilities are distributed. A platform provider who knows how to build kitchens and has integrations with aggregators is able to open up new spaces faster without worrying about getting brands or building brands,” says RedSeer’s Agarwal.
But that does not necessarily always work out as Swiggy’s and Zomato’s lukewarm success in building brands shows. Even partnering, rather than building, may not find success, as Zomato found out. The company put seed capital in Loyal Hospitality for an exclusive partnership in 2018, but exited the deal within two years.
“Both of us realised that running a cloud kitchen in an exclusivity model doesn’t create a winning situation for either of the parties. Therefore, we decided to part ways mutually. We bought back the shares and became platform agnostic in the market where we do not have exclusivity with Zomato, but they remain a strong partner for us,” says Kizhakkayil.
He says the mantra for kitchen infrastructure services is to ensure occupancy and effective utilisation of kitchen capacity while selectively accepting brands so that both kitchens and brands are profitable.
Loyal Hospitality’s aggregator brand Kitchens@ works with 80 domestic and international brands, including Mainland China, Empire, Chai Point, A2B, Domino’s, Taco Bell, and Dunkin’ Donuts. About 90 per cent of its profit comes from 22 brands and there was zero churn in the past year, Kizhakkayil claims.
Food is a very large and high-frequency use category. But while brands crave repetitiveness, familiarity and stickiness, it’s not as easy for food as it is in retail. Taste is subjective and cannot be standardised or quantified. People crave variety in their food. That means there is space for multiple players and bands.
“We think about food at least 90 times a month. If you get your food quality and taste right, you have a chance to win,” says K. Ganesh, a serial entrepreneur and investor, who has funded Hygiene BigBites. “Each brand requires only a small slice of the 90 opportunities. The right to win for a food aggregator is based on how one is able to give you value, either by discount or by the best choices. For food brands, they don’t need to do that as long as a user returns to them about five out of 90 times a month. When you create more brands, five becomes 10, but it’s not going to be 70, 80 or 90 ever.”
Whether 28 meal occasions a week or 90 food thoughts a month, there is clearly much more than a silver lining for cloud kitchens. In fact, it seems they may be able to have their cake and eat it, too.
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