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Strategic Analysis of Cloud Kitchen – A Case Study

Article in Management Today · July 2019

DOI: 10.11127/gmt.2019.09.05

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 MANAGEMENT TODAY
-for a better tomorrow
An International Journal of Management Studies
home page: www.mgmt2day.griet.ac.in
Vol.9, No.3, July-September 2019

Strategic Analysis of Cloud Kitchen – A Case Study

Nita Choudhary
Faculty, International Institute of Hotel Management (Bangalore), Email: [email protected], Mob. No. 9343981150; Postal
address: H. No. 27A, 13th Cross, 2nd Main, Kuvempu Road, Vignan Nagar, New Thipassandra Post, Bangalore, Karnataka, 560075

ARTICLE INFO A B S T R A C T

Article history:
In the era of internet, where generation Y wants most of the facilities ordered on one click, the
Received 03.09.2019 word ‘Cloud kitchen’ gained momentum. Cloud kitchen works on a hub and spoke model. There
Accepted 25.09.2019 is a mega central kitchen (hub) and the food is delivered to the outlets (spokes), from where the
food is distributed to the respective customers. A cloud kitchen is a takeaway outlet that does not
Keywords: provide a dine-in facility. Restaurants like Faasos, Box8, Innerchef, Freshmenu, Kabuliwala and
Holachef are also exploring the concept of ‘Cloud kitchen’ lucratively. This case study will explore
the world of cloud kitchen in terms of business model, marketing strategies and analysis in terms
Cloud kitchen; model; outlets; of customer, competitor, market and environment. However, considering the strategic
segmentation; targeting; positioning. uncertainties, mainly the intensity of competition, cloud kitchen services need to continuously
analyse market position, and adapt to market changes with innovative strategies.
Type of paper: Case study

1. Introduction to Cloud kitchen

Service on
A cloud kitchen is a restaurant that focuses exclusively on
demand
takeaways. These restaurants do not offer dine-in facilities. In
these outlets, only the production of food happens. The orders
are only received online and the food is then sent to the
customer in the form of a takeaway. Yumist, Spoonjoy, Box8, Single point contact
ITiffin, Biryani by Kilo, FreshMenu, Eatlo, Hello Curry, etc.
are some of the popular examples of Cloud Kitchens. to order food from
The concept of cloud kitchen as explained in terms of
demand and supply is given below

--------------------------------------------------------------------------------------------------- Fewer options compared to

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Management Today Vol.9, No.3 July-September 2019

4) Food Quality: Traditional restaurants face a lot of

overhead expenses, due to which they have very little
money left to incorporate good quality food items in
their dishes. This is the sole reason why restaurant food
User friendly has traditionally been considered to be unhealthy.
However, due to the advent of cloud kitchens, more
value is being added to the customers.
5) Increase in Personal Disposal Income: In India, the
personal disposal income is at a descent figure of 11%.
The millennial generation is now health conscious and
Higher profit margins investing a lot on healthy lifestyle. Indians are spending
more on organic food, chocolates, desserts etc.
1.2 Cloud Kitchen Market in India
India’s food delivery market is growing by leaps and
bounds, and is valued at 15 billion dollars. There has been an
Full stack ownership from increase of approximately 150 percent in the online food
production to delivery delivery system in 2017 as compared to 2018. The online food
delivery system is valued at 300 million dollars, out of which
cloud kitchen’s market contributes to 200 million dollars. The
revenue in the online food delivery segment will amount to
On Supply side
US$8,167m in 2019. The Revenue in online delivery market is
1.1 Reasons for the rising popularity of cloud kitchen expected to show an annual growth rate (CAGR 2019-2023) of
9.1%.
1) Stiff Competition: Stiff competition in the industry,
along with decreasing margins result in closing down of 2. Objectives of the Study
many restaurants. The food tech startups - from the big
The study encompasses the following objectives
houses to the mid-sized and small ventures are moving
to cloud kitchen to beat the competition and survive. 1) To study the advantages and challenges faced by
Mast Kalandar has shut down restaurants in two of its cloud kitchen
four cities to cut down the cost. Ammi’s Biryani has
2) To conduct analysis of cloud kitchen in terms of
closed down some outlets and converted to cloud
customers, competitors and STP
kitchen.
3) To study the key performance indicators of cloud
2) Changing Customer Preferences: With increasing
kitchen
time crunch, customers are increasingly opting for home
delivery options. As the number of delivery orders 3. Advantages of Cloud Kitchen
increases, restaurants are now moving towards cloud
kitchen operations. Zomato’s operation is slightly S. Parameters Advantages
different in this aspect. Instead of using its own food in No.
kitchen, it is giving other restaurants its kitchen space to
cook and get the food delivered.  Savings on infrastructure
1. Infrastructure
investment
3) Operational Cost Reduction: The restaurant industry and grocery
 Reductions in service time
is known for having very high operational costs. Real through kitchen automation
estate costs are burgeoning across every city. This is  Better quality control of food
severely impacting the bottom line of restaurants cooked
especially in terms of infrastructure cost. Also, the
 Easy expansion
culture of going to restaurants is slowly fading away.
Cloud kitchen restaurants try to reduce production and  Minimum staff required
2. Chef and staff
packaging cost and maximize number of orders per day.  Higher consistency in food taste
With the increase in customer base, the cost of
production can be reduced. With every 150 orders per  Lower delivery times due to
3. Delivery
day from one Kitchen with $6 Average Order Value distributed cooking
(AOV), Cloud Kitchen business model promises a  Emergence of Logistics
margin on the upwards of 25%. providers

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Strategic Analysis of Cloud Kitchen – A Case Study

 New Trends in the Delivery 35 – 44 20%

Sector 45 - 54 2%
Median Age 27 Years
 Higher customer retention due Male 709 million
4. Customer
to better control of quality and Gender
Acquisition Female 664 million
taste
Cost (CAC) 462 million
 More contextual customer data Internet users Male – 71%
in terms of food preferences Female – 29.55%
 Expanding Variety of Cuisines Occupation
5. Average India’s QWL
Order Value  Competitive pricing strategy due 49 Out of 66
to higher margins Cost of Living Index 23.81
(AOV)
Source: Indian statistics 2019
6. Commission  No commission revenue With nearly 44.6% of Indian population being the
consumers of online food services, the cloud kitchen has ample
4. Challenges Faced by Cloud Kitchen of opportunities to explore in future. The food service market
1) Late Delivery: The staff is not able to keep up to the in India is valued at 48 billion dollars, with revenue in the online
expectations of on time delivery during a busy schedule food delivery segment is growing at an annual growth rate of
or peak seasons. This often results in the late delivery of 9.1%.
food, thereby resulting in uncertain repercussions. 5.2 Segmentation, Targeting and Positioning
2) Dependency on Internet: In the case of an internet Both geographic and demographic segmentation is
outage, restaurants tend to lose the ability to complete important because cloud kitchen needs to know which areas to
basic operations such as taking orders, accepting target for customers. Cloud kitchen concept is foraying mostly
payments and tracking orders. They also tend to lose into urban India.
access to data, thereby losing huge amounts of money in
the system. Table 5.2: Customer Segmentation and Profiling
3) Absence of Human Touch: The cloud kitchen concept Demographic Profile
is devoid of human touch with no personal interactions Segments
between the vendor and the customer. The entire
process, starting from food ordering to delivery of food
PG/ Hostel This group shares the room with 2 to 4
has no face to face interactions.
dwellers people and sometimes lives individually.
4) Hygiene: Many times companies build their kitchens in Cooking is not very high on their agenda,
unhygienic conditions, in order to reduce the operational and skip meals often. Instant food and
costs as much as possible. Customers don’t really want takeaways are their favourite. They always
to be served from prime real estate. However, any hunt for food that is available with less
chosen kitchen needs to be hygienic so that the food is effort.
edible.
Young Not very keen on cooking and prefer to
5. Analysis
married spend quality time with family and friends.
5.1 Customer Analysis couples High on entertainment quotient and
takeaways. Prefer to taste food from
Due to the centralization of the restaurants within major
various outlets on regular basis.
cities, it is feasible for the cloud kitchen players to target the
customers residing in these cities. The cloud kitchen has already
Working With both the partners working, they
targeted approximately 120 million users in urban India,
wives experience time crunch. They earn decently
between age group of 20-30 years. It is going to target 50
and spend a major share of their income on
million users in future. The findings for customer analysis are
food and entertainment. Takeaways are
shown below.
frequent, about 2–4 times in a week.
Table 5.1: Indian Customer Analysis
Students They are mostly in their teens and majorly
1.37 billion
stay in hostels. They do not prefer meals
Population Total (Growth rate –
from college canteens and often skip it.
1.26%)
Ordering food via apps is high on their
18 – 24 34.4%
Age breakup agenda.
25 – 34 44.6%
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Management Today Vol.9, No.3 July-September 2019

are implementing their own branding

Hardcore They are the first to try new restaurants and
makeovers. Social media and health Gurus
foodies love boasting about their food knowledge
have also made the consumers aware of the
to friends and family. They earn a decent
healthy diet.
salary and love to spend a major percentage
on food. In their spare time, Hardcore
Foodies like to attend college food fest, Technological Technological advancement in terms of
packaging, food labels, food brands and
restaurants and cookery channels.
food production, can give a competitive
edge. Technology has helped cloud
Source: Author
kitchens to roll multiple brands from same
User benefit based (In terms of time, parking and cost) and kitchen. E.g. Fassos is using brands
pricing positioning strategy is used by cloud kitchen to attract Behrouz for biryani and Firangi Bake.
customers from different strata of the society. Consumers want Online food delivery segment has
to avoid long waiting and commuting time, and do not mind transformed from local to inventory-led
spending extra for the instant food offered by cloud kitchen. business model. Cloud kitchen are using
their websites to provide information on
5.3 External Environmental Analysis calorie intake, allergy, nutritional value
5.3.1 PESTLE analysis of cloud kitchen and promotions.
Table-5.3: PESTLE Analysis for Cloud Kitchen
Legal Food industry in any country is affected by
laws. Food norms and laws have affected
Political Current trends affect the online food the food quality and nutritional standards.
industry. As public health policies are The food items should be produced in safe,
focusing on fresh food ingredients with clean and healthy environment. In India,
lower sugar and sodium, the food sector consumers will be provided with all the
are adding healthier options in their menus. necessary information, as per the Food
Political regulations such as food quality, Safety and Standards (FSS) Act, and only
hygiene, packaging, food safety, and fresh food to be delivered to consumers.
wages require cloud kitchens to adhere to Also food products offered for sale are
standards. subjected to sampling at any point in the
supply chain. Packaging, Waste
Economic The rate of unemployment, which is management and Marketing & Sales laws
currently at the rate of 6.1% affect the create new demands in the online food
online food delivery system. Healthier industry.
food options are pricier compared to fast
food or instant food. But the convenience Environmental Changing government laws and norms
of readily available food outweighs have made the online food industry to
cooking food from scratch. The discounts adopt a greener approach. The food related
and promotions offered by cloud kitchen as regulations and quality standards have
well the convenience are promoting the turned stricter in every country. With
greater expansion of food business. stringent quality and safety standards, the
Moreover, interest rates, taxation and food brands are pressed to adopt strategies
consumer expenditure explores the towards waste management, environment
opportunities prevailing in online food movements, energy saving initiatives, and
industry. children food. Adopting a greener
approach has helped to enjoy improved
Social-cultural Consumer’s wants and healthier options customer loyalty, and sustainable
affect the trends of food industry. development
Consumers have become conscious in
terms of hygiene, safety, calories and Source: Author
nutritional value of food offered. Demands
for organic and whole food, vegan and 5.3.2 Porter’s Five Forces Model
pescetarian diet is becoming the lifestyle of
Table-5.4: Porter’s Five Forces
younger generation. Also with the increase
in the number of migrant population, there
Porter’s
is surge in the demand for ‘Regional food’.
Forces
To attract more customers, cloud kitchens
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Strategic Analysis of Cloud Kitchen – A Case Study

existing market. There are several cloud kitchens

Threat of As per Jaradat (2013), the five competitive
players operating in different micro-markets of cities.
New forces of Porter enable the companies to
Mast Kalandar restaurants operated by Spring
Entrants develop efficient strategies which help to reach
Leaf Retail was one of the earlier known
a competitive advantage over their rivals and
brands to get into cloud kitchen. They shut
then dominate the market. Since the setup of
stores in some of the cities and started
cloud kitchen is cost effective, it is easy for a
operating centralised kitchens. FreshMenu,
new rival to enter the market. Thus, the firms
Box8, Biryani by Kilo, Faasos, Bhukkad and
in this sector have to gain competitive
Ammi’s Biriyani are other brands that are
advantage over others by competitive pricing
operating in this space (Deep, 2019). These
strategy, differentiated products, cost
brands are existing in the market for more than
reduction, creative distribution channels, menu
eight years and have a strong control over
expansion, promotions and discounts and
online food ordering sector. New entries in this
improved CRM.
area are Kabuliwala (Kolkata), Goila Butter
Chichen (Mumbai).
Bargaining Online food industry gets raw materials from
Power of numerous suppliers. Suppliers in a cloud
5.4 Internal Environmental Analysis
Suppliers kitchen can vary from a single firm supplying
for all the brands in the cloud kitchen to 5.4.1 Value Chain Analysis of Cloud Kitchen
different suppliers for each brand or
Table-5.5: Value Chain Analysis
combination of both. The suppliers in
dominant position can negotiate well to extract
higher price from the firms, thereby lowering Primary
the profit margins. Therefore, the cloud activities
kitchens have to build efficient supply chains
with multiple suppliers and develop loyal Inbound Cloud kitchens purchase raw materials from
suppliers whose business depends on them. Logistics fixed, well defined and numerous suppliers.
Cloud kitchens should always experiment with Most of the suppliers are local grocery shops
food ingredients, so that if any ingredient or farmers, supplying directly to the cloud
becomes expensive in future, they can shift to kitchens.
another one.
Operations Based on Hub and Spoke model, cloud kitchen
Bargaining Consumer is always a king and a determinant has a central kitchen with several delivery
Power of of price. Consumers are a demanding lot, who hubs. Some of its operations are –
Buyers want to buy the best available by paying the  A large kitchen space with several chefs,
least. Hence the bargaining power of buyers is preparing food items.
high. The firms can reduce the bargaining
power of customers by broadening the  Focus on lesser delivery time due to
customer base and introducing innovative distributed cooking. Eg. Petoo is trying to
products on a continuous basis. reduce delivery time to 10 minutes.
 Reduction in processing time by
Threat The threat of a substitute product is high if it automating the preliminary activities of
from offers a value proposition that is uniquely the kitchen.
Substitute different from what the present industry is
Products offering. This threat arises when the demand of  Focusing on sustainable packaging
existing product is affected by the change in options by discarding use of non-
price of the substitute product. This threat can biodegradable materials.
be reduced by focusing on consumer’s needs
 To increase the efficiency of supply chain
and preferences, by increasing the switching
in terms of technology, capacity and
cost of the customers and by extending to
purchase options.
being service oriented from just product
oriented.
Outbound Cloud kitchens work on a principle of
Logistics providing the best quality food and service at a
Rivalry Cloud kitchen is the next big thing in the food
great value in a clean and hygienic
among the service industry as several well-known brands
environment. They focus on innovation,
are entering the space. Since the entry barrier
energy conservation, waste management and
is less, it is easy for a start up to enter the
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Management Today Vol.9, No.3 July-September 2019

sustainable packaging to build an of different brands. In addition to this one

environmental friendly and sustainable accountant cum receptionist should have good
business. They also focus on higher customer interpersonal and communication skills.
retention by controlling the taste, quality and
price. In future too cloud kitchen with Shared The core values of cloud kitchens that enhance
continuous upgrading the apps, menu, brand values leadership are customized offers, minimum tap
and customer experience. processing, reliable and speedy delivery,
impressive packaging, and consistency in
Marketing Many of the cloud kitchens are having more quality.
and Sales than 10 kitchens/distribution centres. For eg.
Faasos is having 175 Box8 60 and FreshMenu Style The styles that helps in the growth of cloud
35 distribution centres, throughout India. The kitchens and in achieving organizations’ goals
average daily order in branded cloud kitchens are user friendly apps, very clear positioning in
is around 5000. terms of cuisines, especially healthy food, top
notch packaging and delivery service, quicker
Since Cloud Kitchens have no physical
than average delivery services and budget meal
presence, the marketing strategies of a cloud
options.
kitchen are very different from those of a
regular hotel. Cloud kitchens are making an
online presence with their own website and Hard elements
different social media pages, which are
continuously upgraded and made highly Structure Cloud kitchen is a restaurant without physical
interactive. Cloud kitchens are also linked to outlet, in which the food is prepared for all sorts
numerous third parties like Zomato, Swiggy, of deliveries. It works on hub and spoke model.
FoodPanda etc. to enjoy large-scale The business model runs around virtual
discoverability. Cloud Kitchens can also make websites/apps, via which they take orders
use of e-mail marketing, SMS and distribute (Meha, 2017). Slowly the business is expanded
pamphlets for wider reach. by opening more units in different locations.

Cloud kitchens use competitive marketing Systems Cloud kitchen uses processes and procedures
strategy due to higher margins, promotional which influences day–to–day activities like
strategies like occasional discounts, coupons, product development, customer relationship
reward points etc. management, quality improvement, cost
leadership. It also adopts range of systems like
Services Cloud kitchens are meant for just delivery of recruitment and selection, training, performance
food under various brands to consumers upon appraisal, quality control etc.
orders taken. The focus is on reducing the
delivery time with distributed cooking. Strategy Cloud kitchens are focusing on myriad of
strategies to keep the business lucrative. The
Source: Author strategies used are reusable packaging,
5.4.2 McKinsey 7s framework for cloud kitchen consistency in quality and taste, shortening the
delivery time, offering customized products,
Table 5.6: McKinsey 7s framework minimum tap processing, extensive feedback
system, regular follow up and improvement.
Soft Elements
6. Key Performance Indicators of Cloud Kitchen
Staff Due to lack of a dine-in or take away facility,
cloud kitchen does not require any wait staff but As per White (2017), the key performance indicators of
only requires a highly skilled kitchen staff. In a cloud kitchen are as follows-
cloud kitchen, the same chef may prepare the 1) Customer Loyalty: As per market research, the most
food of different brands or there may be different successful small businesses earn 70% of their revenue
chefs assigned for each brand. In addition, there from repeat and loyal customers. Hence businesses
may be requirement for delivery boys, should keep a record of orders of repeat customers.
accountant and kitchen helpers.
2) Powerful Promotions: Cloud kitchens should monitor
the effectiveness of promotions offered and check
Skills In cloud kitchens, the kitchen staff should
whether they are redeemed through delivery. This data
possess good culinary skill to cater to taste needs

189
Strategic Analysis of Cloud Kitchen – A Case Study

will also help them to calculate ROI of marketing aspect that gives cloud kitchens more preference is the
campaigns. increasing consumer inclination towards healthy food as against
the greasy fare that fast-food enterprises generally offer. With
3) Accuracy: Cloud kitchens have to monitor in terms of
certain limitations like late delivery, dependence on internet etc.
orders remade, orders sent back, or how many
Cloud kitchen is the ultimate need of time over traditional
complaints received from customers. The staff should be
kitchen and restaurants are aware that the fittest will survive in
trained accurately to accommodate a customer's special
the intense competition.
requests or food allergy requirements in order to avoid
waste from orders. Also the modified orders should be References:
accurately priced to make sure the bottom line is not
1) Agarwal, M. (2017). “Inside Zomato’s Push Towards
affected.
Cloud Kitchen – And The Road To Profitability?”
4) Competition: Many businesses grow well in https://inc42.com/buzz/inside-zomatos-push-towards-
competitive environment. Cloud businesses can track cloud-kitchen-road-profitability/. (Accessed as on
the number of promotions other pizzerias launch, their 10.08.2019)
menus, their delivery reach, etc.
2) Deep (2019). “Entry of branded players helps growth of
5) Employees: Metrics related to the employees is an cloud kitchens”, http://www.mydigitalfc.com/deep-
indicator of how well the delivery part of the business is dive/entry-branded-players-helps-growth-cloud-.kitchens.
working. There is a need to track metrics including sick (Accessed as on 17.05.2019)
days or call-offs, labor turnover, and length of
3) Jaradat, S., Almomani, S. and Bataineh, M. (2013). “The
employment, to assess how delivery is working from the
Impact of Porter Model`s Five Competence Powers on
employee’s point of view.
Selecting Business Strategy”, Interdisciplinary Journal of
6) Labor Costs: Labor is considered as one of a Contemporary Research in Business, Vol. 5, No. 3, pp. 457
restaurant’s top expenses, so cloud kitchens are – 470.
expected to keep these costs under control. There is a
4) The Restaurant Times, “Cloud Kitchen Model Decoded:
need to monitor total labor costs and labor hours to make
All You Need to Know About Cloud & Delivery
sure delivery activities are profitable, and not strenuous
Kitchens”. https://www.posist.com/restaurant-
for the business.
times/resources/cloud-kitchen-delivery-kitchen.html
7) Promise Times: Hungry people are impatient, (Accessed as on 08.08.2019)
especially if their scheduled delivery is late. There is a
5) White B. (2017). “8 Restaurant KPIs That Help Evaluate
need to track delivery POS system, to check how many
Your Pizzeria’s Delivery Service”,
orders arrived late. Cloud kitchens need to watch how
https://www.thrivepos.com/blog/8-restaurant-kpis-that-
many coupons distributed for free, make-good attempts
help-evaluate-your-pizzerias-delivery-service. (Accessed
in response to late deliveries and what the impact is on
as on 21.02.2019).
profits.
7. The Road Ahead About the Author
The increasing population, changing eating preferences, Dr. Nita Choudhary is UGC- NET qualified in the area
longer waiting time and longer travel times are driving forces of Human Resource Management and holds Ph.D. in HRM.
for the convenient, cheaper and home delivery options of She has seven years of experience in research and teaching
having food delivered at our doorsteps. Popular food delivery in the areas of HRM, Organisational Behavior, Business and
apps like Swiggy, Zomato, Food Panda, Uber Eats and Industry, Innovation Management and Strategic
Dominos are becoming inevitable for Indians in internet era. Management. She is also associated with University of West
Restaurants are shifting focus from traditional kitchens to cloud London, UK as HRM and Strategic Management faculty.
kitchens to tap the ample opportunities lying in this field.
Cloud kitchen concept boosts a better control over order and
supply, thereby helping to reach profitability faster. Another

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