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Risk and uncertainty are factors that connect with running any business. But even with SOPs and strict adherence to social distancing measures the restaurant industry is having a hard time bouncing back. The blog is about the cloudy forecast of restaurant industry. An Ipsos survey revealed approximately 50% of urban Indians ate out less often in local and small restaurants after the covid-19 outbreak. In fact, 6 in 10 global citizens (63%) claimed to have stopped eating out at small and local restaurants. While online ordering had also decreased by approximately 41% for urban Indians. It has also shown a significantly faster recovery as compared to dine-in because of the convenience for consumers.
What reports forecast?
A projection report by CRISIL estimates that dine-in restaurants might witness a decline in revenue by 40%-50% during FY’21. High operating leverage combined with lost revenue might lead to negative operating margins. It can also lead to a huge number of permanent closures in the industry. For restaurants, however, figuring out revenue-sharing agreements with landlords to cover overhead costs such as rent and electricity while running at significantly lower capacity has been quite difficult. Unlike the United States, the chances of a stimulus package from the Indian Government aimed specifically towards restaurants are very slim. Even the proposed Union budget for FY’21-FY’22 didn’t provide relief measures.
Current market situation
According to the National Restaurant Association of India, four out of every 10 restaurants are likely to close permanently in the absence of a government bailout. Covid-19 has severely damaged an industry that pre-lockdown had a turnover of Rs 4.2 lakh crore and provided employment to more than 7 million people. The current market situation has only made the cloud kitchen model more appealing to both new and established restaurateurs.
Actual potential of cloud kitchens
A cloud kitchen (also known as a ghost kitchen/dark kitchen) is a delivery-only kitchen. The concept has been around for a while now but with the high costs associated with running a dine-in restaurant combined with the decreased footfall of consumers due to the pandemic, the potential for cloud kitchen has increased exponentially. Increasingly, consumers are ordering online due to convenience. Low capital costs, decreased overheads, and the ability to serve multiple cuisines under one roof! It solidifies their potential to grow as the future of the food industry.
According to a report by Inc42, the Cloud Kitchen market in India is expected to be valued at $1.0BN by 2023, also adding that only 13% of the market has been utilized thus far. Rebel Foods, founded in 2011, is India’s biggest cloud kitchen company valued at over $800 million. It has positioned itself as a market leader by having over 300 cloud kitchens in over 35 Indian cities. Rebel Foods popular brands include Faasos, Behrouz Biryani, and Ovenstory Pizza. In December 2020, Rebel Foods entered a partnership with American fast-food chain Wendy’s, under which it will start and operate 250 cloud kitchens for them in India.
Despite the opportunities, demand is slowly returning to pre-covid levels. The margins remain slim making it difficult for single-brand cloud kitchens to survive. To thrive, it is important to analyze cloudy forecast of the restaurant industry. Also, multiple brands can operate under the same roof increasing the overall output of the kitchen. Even then, over-reliance on the duopoly of aggregators and their discount models is making survival an uphill battle. Times of India reported that restaurants had asked Zomato and Swiggy to change commission structures and cut discounts. The Industry experts reckon cloud kitchens need to start delivering orders themselves to improve margins. You can visit – https://blog.yumzyx.com/cloud-kitchens-are-great-but-what-if-it-rains/ If you wish to know more about Cloud Kitchens.
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