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Starting a Cloud Kitchen business is the latest trend that has picked up rapidly in the past few years and the rising demand for online food ordering has made Cloud Kitchen an attractive business for Startups.
A) What is Cloud kitchen business?
Cloud kitchen also popularly referred to as Ghost Kitchen is a commercial kitchen where food is prepared and delivered to end consumer right at their door step by taking orders online via phone calls or Food Delivery Platforms.
Cloud kitchens or Ghost kitchen do not have a dine-in facility at their location. They simply prepare the food, pack it and deliver it to the desired location of their customers.
B) Domestic and Worldwide Market size of Cloud Kitchen Business?
The Global cloud kitchen market size was estimated at 43.1 billion US Dollars in 2019 and its forecast to reach 71.4 billion US Dollars by 2027 by Statista.
The cloud kitchen market size in India is expected to be around 3.5 billion UD Dollars by 2024-25 with CAGR of 17.25% for the next three years.
Demand for online food delivery has increased owing to greater demand among youths and working professionally, thus the market size of cloud kitchen has swelled exponentially in recent years.
C) Market potential for Cloud kitchen Business in India?
Considering India’s massive geography, the market potential for cloud kitchen business is immense.
Cloud kitchen is still and upcoming Business model slowly gaining tractions in cosmopolitan cities of India. As the average disposable income for Indian middle-class families in cities are on the rise so is the rise in demand for Online Food delivery.
Smaller Satellite cities are the new driving force of Indian economy, thus there is a huge market potential for cloud kitchen business to flourish and prosper in such cities as the overhead expenses are pretty low with inexpensive real estate and cheap labour.
Metro cities have shown the strongest trends for online food delivery platforms thus a swarm of Cloud kitchen have opened lately giving rise to stiff competition. Specialised cloud kitchen focused on serving a particular niche segment is the new found opportunity in Metro cities. The creamy layer of India’s population stays in Metro cities, thus the demand for online food delivery is maximum here with higher per order value.
D) What is the Model of Cloud Kitchen business?
A Cloud Kitchen’s Business Model is as follow
- You buy or rent a piece of commercial estate and set-up a centralised commercial kitchen with an industrial grade equipment’s for cooking and other tech hardware for orders processing.
- There is no physical outlet for walk-in dinning.
- The food is prepared fresh on-demand then packaged and delivered straight to the customers location.
- The business serves customers of a particular geographical area within a certain radius.
- Orders are taken online through online food aggregator platforms, own websites and via telephonic calls.
- A Cloud kitchen Business is based on a Hyper-Local Delivery Business Model.
Hyperlocal delivery Model is when an on-demand product is delivered instantaneously within a particular radius of a geographical area. This delivery model is mostly suited for hyperlocal groceries, local Pharmacy and Food delivery services.
E) What are the types of Cloud kitchen Business Model?
1) Independent Cloud Kitchen:
This is the original Cloud kitchen model. They are a single brand kitchen without a physical store front. They prepare their own food as per the order received, package and deliver to customers door step. This business model is self-reliant in terms of receiving orders through its own websites or telephonic calls and delivering packed meals by itself.
2) Multi-brand cloud kitchen
A multi-brand cloud kitchen model owns several brands, under one parent company. All the Brands work in one large commercial kitchen space with multiple work station. Each brand has its own cuisine and they cater to different needs of the customers.
3) Hybrid cloud kitchen:
A Hybrid Cloud Kitchen model is mix of both take-away outlet and cloud kitchen. The Brand has a single kitchen which has physical outlet for walk-in and take-away orders as well as delivery services. The delivery process could be self-handled or managed through food aggregator platforms like Zomato or Swiggy.
4) Cloud kitchen Business owned Food delivery platforms
This is a business model in which online food delivery platforms own and operate a large strategically located Kitchen. They may invite different food brands to come and work in their kitchen while they manage their delivery fleets and generate online orders through their Apps.
5) Co-working or Shared cloud Kitchen business Model
As the name suggest multiple brands of cloud kitchen business come together to set-up one large shared kitchen space much like a co-working space to full fill market demand. This is an economically beneficial partnership for all brands as the cost of operations is brought down significantly.
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F) How much revenue does a cloud kitchen business generate in India?
A Cloud kitchen business generates revenue by the means of selling food items. The revenue structure of a cloud kitchen is similar to that of a regular dine-in restaurant.
Most Cloud kitchens operate in average profit margins ranging from 5% to 15% or higher. But for Kitchens who are operating in Niche food categories profits could be as high as 30% or more.
The average revenue of a cloud kitchen depends on number of factors like location, scale, serviceable area, average order value (AOV) etc.
Let’s look at a case of typical cloud kitchen revenue. This example is a gross over simplification for better understanding real life scenario may vary greatly.
- ABC Cloud kitchen processes 50 orders per day with AOV of ₹ 250 per person.
- Total daily sales would be about ₹12,500 and an average monthly revenue of ₹ 3,25,000/-
- After Deducting overhead expenses, operational cost, food cost, aggregator commissions and other fixed expenses a gross profit of around ₹ 40,000/month can be generated.
HOW TO START A CLOUD KITCHEN BUSINES IN INDIA
G) How much does it cost to set up a cloud kitchen business in India?
The cost of setting up a cloud kitchen business may vary greatly as there are number of factors. Starting a mid-size cloud kitchen in metro city of India will cost you anywhere between ₹ 15 Lakhs to ₹ 20lakhs onwards. Note that Real estate cost and labour cost can greatly influence the startup capital required for Cloud Kitchen Business.
Here is a gross breakup of Set-up cost for cloud Kitchen Business in India.
|Cloud kitchen setup cost breakup calculated for 6 months|
|1||Rental for 800 sqft space @ 90,000/mnth+ 1lakh deposits||6 months||640000|
|2||Basic equipments & tech hardware||one time||550000|
|3||Licensing and Incorporation||one time||50000|
|4||Cook salary of min. 2 person @ 20,000/mnth||6 months||240000|
|Hepler salary min.3 person @ 12,000/mnth||6 months||216000|
|5||Working capital requirement @ 25000/mnth||6 months||150000|
|6||Marketing and Advertising||150000|
|Initial Capital requirement for 6 months of opeartion||2101000|
|*The above Data if for refernece only.|
H) Which are the licenses and registrations required for starting a cloud kitchen?
Before commencing your Cloud kitchen business, it is extremely important to Register your business and obtain all necessary Licenses and permissions from your local governing authorities. Always remember to abide with all the regulatory compliances. Here is a list of licenses you are needed to obtain.
1) Certificate of Commencement of Business: A Certificate of Commencement of Business is an important mandatory legal document which validates that your business is registered in India with the Ministry of Corporate Affairs (MCA) under the Registration of Companies Act 2013. Pick the right company structure for your Cloud Kitchen business and register as
- One Person Company (OPC),
- Limited Liability Partnership (LLP),
- Private Limited Company (PLC), or simply as a
- Sole Proprietorship.
2) GST: Good and Services Tax registration is mandatory for all businesses operating in India. GST on food delivery business is currently taxed at 18% while. A business is liable to pay GST the moment its annual turnover crosses the 20 Lakh threshold. Your business will also have to obtain a GSTIN number for Tax payment.
Labor Law Registrations
1) Employees Provident Fund registration is mandatory for food businesses employing more then 20 persons as employees. In some States it is more than 10 persons. In such cases, employees with monthly income less than Rs 15,000 shall be mandatorily covered under EPF.
Remember that without registering your business you will not be able to obtain many of the licenses given below.
1) FSSAI: Food Safety and Standards Authority of India is the statutory body responsible for safeguarding, protecting and promoting public health through supervision and regulation for food safety. FSSAI Licenses are mandatory for all kinds food-related business in India.
2) Trade License: Trade license is also a mandatory license issued by State government and is to be obtained by all businesses including Cloud Kitchens. The Local Municipal corporation of your area will furnish this license after submission of all necessary documents.
3) Fire and Safety License: A Non-Objection-Certificate (NOC) cum Fire License from Fire Department is an important document for all kind of restaurants, hotels and Cloud kitchens. Your business premise will have to fully comply with all fire safety standard and protocols set by fire department before obtaining the NOC. Not obtaining Fire and safety license can put you in legal trouble in case of any accident.
4) Shop and establishment act (S&E license): All states in India have made S&E License mandatory now. Shop or Commercial establishment are required to register under Shop and establishment Act of respective States with local Municipal corporation within 30 days of commencement of their business operation.
Additionally, you may have to apply for other important Licenses and permissions depending on the States in which you wish to operate your Business. Other licenses you may need to obtain are.
- Certificate of Environmental Clearance.
- NOC from Police Department.
- Signage License.
- Alcohol/liquor license.
- Waste management Licenses.
- Pollution Clearance.
- Trademark Registration.
I) How to choose the right location or property for Cloud kitchen?
Choosing the right location for Cloud kitchen is an important business decision. Try to choose a property on the peripheral of the city limits where you could get a better deal i.e., larger area for low rental commitments. If your Cloud kitchen model will not have any walk-in customers, then you could choose a slightly remotely accessible area so to keep your rentals really low. For a single brand standalone Cloud kitchen, a minimum of 300 sq. ft. of area is sufficient.
J) What are the basic kitchen equipment and other tech hardware needed for Cloud kitchen?
Right equipment and kitchen tools are essential for increased productivity and faster order processing of your Commercial Cloud Kitchen. Always choose an Industrial Food Grade cookware, Utensils, Cold Storages and other essential tools and equipment.
Although, this list is not exhaustive but here a list of some important basic Cloud Kitchen equipment’s you may need to invest into.
- Commercial Cooking range.
- Deep Fryers.
- Industrial Refrigerators.
- Racks and Shelves.
- Cooking Utensils, Knives and Choppers.
- Exhaust hoods
OTHER TECH HARDWARE
- Fire Alarms and Fire Suppression systems.
- Cloud Kitchen POS (point of sale) system.
- Computers with High-speed broadband connections.
- CCTV surveillance system.
- Printers and Scanners.
K) How to Hire an experienced Staff and Cook / Chef for Cloud Kitchen?
A good and experienced cooking staff is the backbone of a Cloud Kitchen Business. For new mid-size Cloud kitchen business 2 to 3 cooks, 1 head chef and 3 to 4 helpers are adequate. However, depending upon your scale of operation you could hire accordingly.
A decent Head Chef with 4 to 5 years of experience can draw handsome salary anywhere between ₹ 8 to ₹ 10 lakhs per annum. Cooks with decent experience are paid between ₹ 1,80,000 to ₹ 3,20,000 per annum. Helper are paid between ₹ 1,20,000 to ₹ 1,80,000 per annum.
Although Head Chefs are quite expensive to hire. A good Head chef can help you to innovate new recipes, design new menu, maintain quality across dishes, supervise cooks, layout kitchen SOP’s, manage inventories and of course adapt and innovate to the changing market needs. If you are on budget, you could hire an independent Consultant Chef initially.
L) How to do Marketing and advertising of Cloud Kitchen?
For a Cloud Kitchen Business digital presence is all and everything. Traditional means of marketing may do little good to your business.
Digital Marketing the single most highly important tool for success in online world. Hire a good digital marketing agency which understands your Cloud Kitchen Brand and help you position your business strategically in Online space.
Have strong Social Media presence on Facebook, Twitter, Instagram, Pinterest etc. Post new content periodically and engage with your audience.
Own a fully functional Website, Blog, Run Ads campaign on Food aggregator platforms, advertise with Google, Bing, Yahoo etc.
Build a marketing plan if you have not already done yet. The key to generating more online sales for your Cloud Kitchen business is to build an effective Brand Marketing strategy with a mix of both online and offline tactics.
M) What are profits margins can one make from a cloud kitchen business?
Cloud kitchen is a profitable venture, for a typical cloud kitchen profits can hover between 5% to 15% across menu. Cloud kitchen operating in niche segments like Health foods, Exotic foods, Customised foods etc tend to have higher profits then regular kitchens generally this niche categories have healthy profits ranging between 18% to 25% or even higher
N) What are challenges and hurdles in cloud kitchen business?
The Cloud kitchen can have astronomically high technological cost since most of operations are cloud-based, businesses have to invest heavily in high tech hardware. Proprietary Software, Mobile Apps and Websites are all expensive to build and maintain they need regular checks to keep the site functional and bug free.
The business will have to invest in Proprietary Software’s which can seamlessly connect with all the Online Food aggregator apps and websites for taking order. This software then communicates it further to the central kitchen for order processing and also give a live tracking of order status to both the customers and aggregators.
High speed broadband, hiring technical crew, various online subscriptions and memberships, computer spare parts, Web hosting, etc are some of the other expenses which the Cloud kitchen business have to incur.
Another big challenge for Cloud Kitchens is its logistical cost. Both in-bound transportation and Out-bond deliveries can take a toll on your revenues. Unused Inventory can add to the overhead expenses of business by reducing storage and increasing wastage. Last mile delivery can also be expensive for Cloud businesses in the view of rising fuel prices. Customer service, Material handling, order processing, packaging, product returns, waste disposal and transportation are other expenses that need to properly planned and managed to keep the logistical cost to the minimum.
Make sure you have significant orders per day so that the last mile delivery becomes feasible. The choice of delivery vehicle can also add to additional cost like Fuel, maintenance, pay n park, parking tickets etc. E-bikes are great alternative to explore in the midst of rising fuel cost. This way you can also help reducing the carbon foot print of your company.
Cloud Kitchen is labour intensive business and highly depended on human work force. From Kitchen to delivery there is high level of human dependence thus making the business prone to errors like error in judgment, deficiencies in output, mental fatigue, stress, behavioural issues and other human factors thus dragging down the business’s productivity, efficiency, Brand value and increasing the operational cost. However, most of this issue can be ironed out by providing focused training to all the work force.
Training can greatly help in reducing attrition levels among employees increase performance, reduce stress, faster order processing, better communication and train them to work as a team.
4) Food aggregator commissions
Commissions charged by online food aggregator platforms are also a major challenge for Cloud kitchens. Peak Commissions charged can be as high as 30% on order value, but average commissions range from 22% to 25% for most aggregators’ platforms. Such hefty commissions charged by aggregators platforms are a nightmare of most Cloud kitchens. This invariably increase the cost of food thus dragging sales.
O) Will a cloud kitchen franchise be a profitable business venture?
Yes, franchising is a great way to enter the Cloud Kitchen business if you are on a budget or lack necessary technical skills to start a cloud kitchen business. Franchising radically lowers the risk of failure as the franchisors provides with all the technical assistance, business knowledge, training and other help to the franchisee to setup the business.
Brand recognition, built in customer base, marketing support and Capital support are some of the other advantages of choosing a Cloud Kitchen franchise. Royalties and revenue sharing can be discussed to come to mutual agreements. However, with all the benefits there are a few trade-offs like business controls, profit sharing and restrictive growth which one needs to also keep in mind.
Cloud kitchen business is the business for the future. This business model is here to stay entrepreneurs who are willing to stride hard and innovate there is gold mine ahead. In spite of stiff competition, the large geographical size of India provides ample of market opportunities for all business to flourish simultaneously.
I, am Ravi Bhoir the founder and author and of this Blog Website. Had been freelancing as content writer for many years now my focus in writing had always been mainly on startups and entrepreneurship and currently my focus is theBusiness-Strides.com a blog website helping small businesses and Startups.