Cloud Kitchens: Food and Beverage sectors' new cost recipe to beat the heat of high rentals

High real estate costs have already kick-started concepts like coworking and co-living in the office and residential spaces. It was just a matter of time before the Food and Beverage (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 per cent to 30 per cent of a restauranteur’s total monthly revenue. This profit-devouring range is significant if we consider the average global trend of 15 per cent to 20 per cent. It holds true for many non-prime areas of cities like Mumbai as well.

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.

Speaking on the developing trend in the cloud kitchen segment Anuj Kejriwal, MD & CEO – ANAROCK Retail said, "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 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."

"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," added Anuj Kejriwal of ANAROCK.

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.