Afternoon D & C Dedicated To Mumbai
Home > Property > Cloud Kitchens: F&B Sector Cooks up a New Recipe to Beat High Rental Costs

Cloud Kitchens: F&B Sector Cooks up a New Recipe to Beat High Rental Costs

Saturday, June 29, 2019

By Anuj Kejriwal

High real estate costs have already kick-started concepts like co-working and co-living in the office and residential spaces. It was just a matter of time before the F&B sector came up with its own real estate cost-saving recipe.

Real estate rentals have risen significantly in major cities like MMR on the back of the increasing shortage of quality supply. This factor alone often leads to thousands of restaurants across Indian metros shutting shop each year. Rentals in some prime locations in Mumbai can 'consume' 25-30% of a restauranteur’s total monthly revenue.

This profit-devouring range is significant if we consider the average global trend of 15-20%. It holds true for many non-prime areas of cities like Mumbai as well. However, prime locations are obviously the lodestone of success for F&B, especially when it comes to full-fledged restaurants. Even a small food counter drawing much lower rentals can do good business as long as the brand and its offering is right for the location and its clientele.

Because they can afford the high rentals, many organised domestic and global F&B brands survive while smaller, unorganised players often have to pull out. Besides cutting down on profit margins, high rental costs also limit F&B players' business scalability, since renting the right space requires high working capital and upfront deposits.
Cloud Kitchens to the Rescue
Given these challenges, the new concept of 'cloud kitchens' - which involve low operating costs and high profit margins - is gaining increasing traction among F&B players.

A cloud kitchen - usually situated in a remote (read cost-effective) area - is essentially space where food is prepared for delivery only and has no dine-in or takeaway facilities. In many cases, small eateries come together to share a kitchen facility from where deliveries can be made easily.

Cloud kitchens reduce real estate costs as they do not require prime locations. Also, because of the fact that kitchen space is shared by many players and the production costs are much lower, the opportunity to scale up remains high.
Aggregators Bet on Cloud Kitchens
According to the Statista Online Food Delivery report for India, revenue in the online food delivery segment is likely to cross $7 bn in 2019. Food delivery majors such as Swiggy and Zomato are constantly looking to scale up, and cloud kitchens provide the ideal opportunity to do just that.

Leveraging their core strength in technology, delivery and discount distribution, these food aggregators provide the requisite infrastructure and logistics to local F&B enterprises by way of cloud kitchens.  For example, Swiggy Access helps restaurants to set up kitchen spaces along with full infrastructure and logistics assistance, to serve food in the areas where they lack presence.

The trend of cloud kitchens does not benefit only food delivery aggregators. Restaurant owners and caterers are now also getting on this bandwagon, with cloud kitchen models varying from company to company.

Significant Cost Advantages
Cloud kitchens offer a substantial cost advantage over traditional restaurants - they require much less space and only basic interiors, and can operate out of low-visibility areas. Given this model’s inherent benefits, many F&B brands have seen their revenues soar over the years, while losses and cash burns have dipped significantly.

For instance, Faasos forecast its net revenue to rise to INR 300 crore in FY 2019 (from INR 147 crore in FY2018) while its losses were almost halved in FY18. With nine in-house brands under its umbrella, Faasos currently operates out of nearly 175 cloud kitchens across 12 cities and targets to cross the 200 mark by 2020.

Cloud kitchens have proved to be a gamechanger for many such brands,  saving them from the tyranny of high rentals in prime locations. The cost of setting up a restaurant in a major city starts at a minimum of Rs 10 lakh to hundreds of crores, depending on size and exact location and considering that a traditional restaurant must also offer adequate parking to be viable. 25-30% of this outlay goes towards rentals alone.
In comparison, a cloud kitchen can be set up with a basic cost of Rs 2 lakh and comparatively lower rentals.

No Comments Posted
I am 21 years old married woman. I have been marr
Dr. Rajan B. Bhonsle, M.D. (Bom)
Consulting Sex Therapist & Counsellor
Dr. (Mrs.) Minnu R. Bhonsle, Ph.D.
Consulting Psychotherapist & Counsellor
Select Sun sign:
Aries (Mar 21 - Apr 20)
Aries (Mar 21 - Apr 20)You are likely to remain careful and watchful today, foretells Ganesha. And because you'll be invited to parties and other social events, your enthusiasm will remain buoyant. You will also strike the right balance between business and pleasure, says Ganesha.
- Advertising -
Like RERA, the Model Tenancy Act, 2019 may lose i
It's common knowledge by now that the internet ha
Startup accelerators are becoming the need of hou
Read More