Cloud Kitchens — Top 10 mistakes that take your business down
Srinivasan Rangarajalu
Regional Manager(Rational International India Pvt Ltd) /Chef/Ex Business owner
Foodtech startups have re-defined the food consumption of an average Indian customer. Gourmet to street foods are being delivered at our doorsteps by innovative, algorithm-driven apps, assigning a fleet of concierge delivery personnel, who pick up our meals from several choices of restaurants. This has shown to cause disruption in the food industry, in both organized and unorganized sectors.
One such advantage of this technology-driven delivery platform is the existence of Cloud kitchens or dark kitchens. These new-age kitchens have no visible presence. One cannot visit these kitchens in person either. In fact, there are few kitchens that are almost reaching the sales figure of a 100-crore mark in this concept. Foodtech aggregators such as Swiggy and Zomato have opened their own dark kitchens as well.
Everything looked hunky-dory until more people pitched in to open dark kitchens. The major rush to open these dark kitchens is due to low investment, limited manpower, marketing, and ease of customer acquisition, which is taken care of by the aggregators. Anyone can open up a food business with a budget of less than 5 lakhs. Lately, despite these advantages, several dark kitchens have been going out of business. The major reasons for the failure of these kitchens are as follows.
1. Lack of Business Vision
Clarity is particularly important for any form of business when it comes to its policies and goals. The vision for any business should be clear and simple. In addition, it should be easy to comprehend. Too many ideas clubbed together is a major recipe for failure. This methodology calls for too many stock-keeping units, staff, and unnecessary hidden expenditures, wastage, and confusion. Simple vision and ability to translate that in the form of operations are key to running a successful business.
2. Huge Leap in Aggregator’s Commission
During the initial stages, aggregators charged a decent percentage as commission. At the same time, advertisement, promotion, and customer acquisition costs were also low. Once the market monopoly was gained, aggregators were in greater pressure to showcase profitability. As a result, commission charges were increased, and customer acquisition charges were borne by respective businesses. At times, the costs were high enough that they were able to contribute up to 50 % of their gross sales, inclusive of promotions.
3. Too Many Players in the Same Segment
Unfortunately, most aggregators did not put a cap on the number of participating cloud kitchens in many locations. Although it is a perfect example of a market economy, the result is hundreds of restaurants selling similar products in one city/town. The majority of the people choose what to order based on the name/listing, and on several occasions the rating of an organization, which then again results in increasing customer acquisition costs due to competition. This is a perfect concoction for wiping out several low budget players, who cannot afford high promotional costs.
4. Pricing Factor
Major reasons for food industry failures are ignoring the food cost, portion size, labor cost, taxes, rent, and unexpected maintenance while pricing the products. However, there is a discrepancy amongst organizations regarding adding customer acquisition costs in all of this, as it is not part of operations.
5. Zero Market Research
Selling the wrong product and timing it incorrectly, and adding to that an unsuccessful location, is nothing short of a disaster. Hence market research is required for menu designing and pricing. Aggregators or independent market research organizations can be used for this purpose with minimal cost.
6. Lack of Consistency
Lack of usage of technology, for example, Combi Steamers, does affect the precise reproduction of products. Also, lack of proper SOP’s is a huge killer when it comes to consistency. The best option here is to involve a consultant who has a good exposure during initial stages, so the Capex is properly structured to be more fruitful.
7. Lack of Technology
To reiterate, technology is the most important aspect for consistency, multi-tasking, improved productivity, and food safety. The best examples are roti makers, combi steamers, induction cooking equipment, gravy mixers, electric and or induction-based brat pans, etc., which will be immensely helpful in reducing costs and increasing productivity.
8. Dependency on Unreliable Labour
The migrant labor force is the strength and weakness of this segment. They join an organization or leave as a team, which is hazardous, as the consistency is lost once the labor force moves out. A major issue we face is maintaining food safety standards due to a dearth of trained/educated labor force. Neither the chefs nor the entrepreneurs have the time or interest to provide them with proper food safety training. Currently, the FSSAI mandate is literally next to nothing when it comes to food safety standards and it is not going to be easy in the near future.
9. Flawed Costing
Food Costing is the most important aspect of managing any food business. Input of purchase, opening and closing stock, and wastage is required for cost analysis. The profit margin of any food industry is roughly around 10 to 20 percentage with some exceptions where the volume or the selling price is high. It is quite easy to lose accountability for 10 percent as it can go unnoticed in food wastage and excessive stocking, or in maintaining stock for unsold SKU’s. Using an informed food cost analyst as your consultant or on a contractual basis is advisable.
10. Lack of Structure and Process
SOP’s or standardized operating processes/procedures are a must for any industry to be successful. A defined formula will be extremely helpful in streamlining the process, inclusive of division of responsibility, reducing fatigue, and in developing consistent products. These are basic factors for any business to succeed.