Cloud Kitchen is an Online Business – Think better way of demand generation, not reduced costs!
India has more than 100,000 restaurants listed on online aggregators (source: Zomato DRHP). Restaurant businesses have low barriers to entry and yet very high barriers to scale. They tend to be people dependent or chef dependent, have high cost structures and lack the process & technology know-how that enables scaling. Most importantly, they are so dependent on the choice of location and have very few methods of consistently generating demand. Anecdotally, we have learnt that almost 40-50% of footfalls in an average restaurant happen purely by luck or the choice of their location. Of course, large brands are an exception here. The single biggest choice that determines the success or failure of a restaurant is the choice of location and that is irreversible at least for the period of rental agreement one may have signed with a landlord. Inability to systematically drive demand is perhaps the reason for the high mortality rate of restaurants.
Considering the low barriers to entry and the rate at which newer restaurants come up in different neighborhoods, it is very apparent that there has never been a challenge in setting a new location be it an offline restaurant or a cloud kitchen. Yet, most of the popular narrative on the space is anchored around the low upfront investments or cost structures. Setting up locations has never been a challenge in this industry, generating consistent demand always has been!
Our experience of running WarmOven as a standalone brand for the first 5 years or Kouzina as a multi brand Cloud Kitchen in the last couple of years has made us a lot more wiser about this business model. Cloud business model is a digital way of driving demand in this industry. It is about creating digital first food brands powered by a low cost distribution model through a network of cloud kitchens. It is an e-commerce or an online business. And yet this is forgotten often.
In a Cloud Kitchen business, you aren’t ever meeting a customer, but you need to learn how to generate consistent demand. Majority of restaurateurs are great at serving customers who walk in, they are not aware of the digital methods of demand generation or brand building. Building successful “delivery brands” through cloud kitchens requires an understanding of digital marketing, online brand building, influencer marketing, leveraging content, storytelling, social media & many more.
Little wonder that most scaled up Cloud Kitchen companies or Delivery-led food brands are being created by outsiders like us with experience from large internet companies!