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Cloud Kitchen: The Evolving Indian Foodtech Landscape

Oct 5, 2018 by Avanish Tiwary
Cloud Kitchen: The Evolving Indian Foodtech Landscape

In the last two years the foodtech landscape in India has gone through major changes, so much so, that people in the industry are calling it “a hell of a roller-coaster ride.”

From exploring new revenue models, to resurrecting beleaguered companies by acquiring them and even retracting decisions that proved wrong, the Indian foodetch players are bolder than ever.

These changes look especially bold when seen from the backdrop of a two-year lull in the sector. According to a Tracxn report, 2016 saw a substantial dip in investors’ interest in the foodtech businesses in India. The report said 32 such startups shut shops in 2016, while the VC funding nosedived to USD 3.6 million from USD 5.08 million compared to 2015.

However, things have become better this year as the industry received USD 473 million in just the first half of 2018, compared to USD 134 million raised in 2017. Bangalore-based food aggregator and delivery company Swiggy raised two successive rounds of fund of USD 210 million and USD 100 million from Chinese Meituan-Dianping, Naspers and DST Global.

Although food delivery model continues to drive the sector, the business of cloud kitchen has attracted everyone’s attention and different brands are trying their hand at it.

At this point, it is imperative to describe what a cloud kitchen is. In essence, it is everything that food delivery business is not. Unlike a food delivery business, cloud kitchen businesses own the whole food-supply chain and without having to handle the hassle of hosting diners, they cook their own meal. The freedom of deciding the menu and cooking it, allows cloud kitchen businesses to rake better margins compared to food delivery businesses that run on commissions.

Factoring the benefits and the flexibility it offers, the bug of cloud kitchen has bitten restaurants as well as food delivery behemoths such as Zomato and Swiggy. Pune-based Faaso’s that ran QSR (Quick Service Restaurants), shut down the physical dine-in restaurants and veered to the cloud kitchen model.

“In the case of a cloud kitchen, both the real-estate cost and the kitchen space get slashed significantly. With lower cost of production, the opportunity to scale is really high,” said Jaydeep Barman, founder, Faaso’s.

Barman further explains how unlike the food delivery operators, that earns only a fraction of the order value as a commission, a cloud kitchen gets to keep all of it in the operator’s pocket.

“We don’t work on 10-20% commission on a Rs.300 order. Since cloud kitchen businesses own the whole food-supply chain, we have the freedom to keep the entire Rs.250-350 that we charge for the food. We are eating the whole cake while the delivery businesses are just managing to scoop a small pie,” Barman said.

Treading in carefully

As food delivery businesses such as Zomato, Swiggy and Ola-owned Foodpanda realise the benefit of operating cloud kitchens, they have also begun to test the water.

However, as experts and investors say it’s very difficult to run a cloud kitchen while handling the delivery business, Zomato and Swiggy are therefore treading with care. While trying to ensure they get all the benefits of running a cloud kitchen without having to be directly involved with the food-making process, they are enabling physical restaurants to operate like a cloud kitchen—much like Faaso’s. On the other hand, Foodpanda that was acquired and revived by taxi-hailing behemoth Ola, is in talks to acquire HolaChef, a Mumbai-based cloud kitchen that has been shut down.

The new initiative by Swiggy and Zomato provides infrastructure, logistics and space to restaurants where they could set up their kitchens and start cooking, while the former would take care of deliveries—something that they are already good at.

Although for Zomato, things did not go as well as it had planned. It had to shut down its pilot, christened as ZIS (Zomato Infrastructure Services) in June this year. In the span of 16 months it could not expand beyond just one such central kitchen in Delhi, before deciding it had made a mistake by getting into something it had no experience in.

“The purpose of ZIS was to bridge the supply and demand gaps in various micro localities across the country. We only had one pilot kitchen in Dwarka, and we are in the process of winding it down,” a Zomato spokesperson replied to an email query sent by The Passage. Sandeep Murthy, partner at Lightbox Ventures, an investor in Faaso’s, said, “While they are very good at aggregating restaurants and managing operations around delivery, it’s hard to manage both at once.”

The business isn’t the one in which you could simply bring in a new model (cloud kitchen) and expect it to work alongside your existing one without focussed effort, he added.

In the 16-month pilot, Zomato has very rightly understood this. While it learnt the hard way that it can’t operate a ‘single roof, multiple restaurants’ model on its own, it also knows it can’t walk away from it.

“We definitely see an upward growth graph for cloud kitchens recognising the acceptance they have received from users all around, especially in the areas suffering from major supply gap,” Zomato’s spokesperson said.

In June this year, Zomato invested an undisclosed amount in Bangalore-based cloud kitchen company Loyal Hospitality.

“We learnt that experienced people from the industry should be running operations like this. Hence, we decided to back his (Junaiz K, founder of Loyal Hospitality) ambitions with some capital and a lot of experience and data from what we do best—generating consumer demand for great restaurant brands,” Zomato said.

The ‘single roof, multiple restaurants’ model

While Zomato chose the partnership route to enter the cloud kitchen space, its arch-rival Swiggy has not only been able to operate cloud kitchen that hosts several restaurants under one roof, it has also expanded to four new cities apart from Bangalore.

Launched in November last year, Swiggy Access helps restaurants to set up kitchen space along with all infrastructure and logistical assistance, to serve food in the neighbourhoods where they are not operational.

“With Access, Swiggy will enable existing restaurants to expand to more locations through delivery-only kitchens, quickly and without the hassles of making huge investments in real estate,” a statement from Swiggy said.

Swiggy also claimed that through Access it’s also enabling inter-city expansion for its restaurant partners.

Vasudev Adigas, a flagship South Indian restaurant from Bangalore, will be available to consumers in Delhi through Swiggy Access. It claims, since launching its first Access kitchen with five restaurants in Bangalore last year, Swiggy has expanded to numerous locations in the city with over 30 brands. With its launch in four new cities, Swiggy Access has already brought over 35 new restaurants to different neighbourhoods.

With the help of Zomato’s investment, Loyal Hospitality claimed it will host 160 brands in 120 kitchens in Bangalore in the next two months.

“In our internal research we found even though diners like a restaurant’s food, these restaurants were not able to expand beyond three to four outlets. With our expertise, they will be able to just come and occupy these kitchen spaces and start delivering,” said Junaiz K, founder, Loyal Hospitality.

Faaso’s, on the other hand, is present in 15 cities, where it has expanded from just serving its signature wraps to pizza, biryani, lasagnas, etc. For Faaso’s, the cloud kitchen model gave it the opportunity to cook multiple cuisine from a single kitchen.

“We ran multiple brands from single kitchen. The unit economics of cloud kitchen is better than the delivery model. By running multiple brands from single kitchen our margins have become exponentially good,” Barman said. Faaso’s operates five different brands under different names.

To be sure, cloud kitchen restaurants such as Faaso’s, FreshMenu, InnerChef and Box8, among others are also listed on Swiggy and Zomato.

“Cloud kitchen and delivery business are not mutually competitive. A cloud kitchen is just another restaurant listed on the aggregator’s platform. There will be multiple cloud kitchens in the near future and they are going to be listed on the same platform,” said Ujjwal Chaudhry, engagement manager at the research firm, RedSeer Consulting.

Faaso’s claimed, though it is listed on aggregators such as Zomato, Swiggy and Foodpanda, it receives 60% orders through its own channels.

“We have a good relationship with all the food delivery businesses, but fundamentally I am happier being on the side of food-making business than just delivering,” Murthy said.

Avanish Tiwary

Avanish Tiwary is a Bangalore-based tech journalist. He focuses on emerging Indian startups and unicorns. He can be reached at

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