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Strategic Analysis of Cloud Kitchen – A Case Study

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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: xiss12@gmail.com, 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

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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

185
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
Hardcore They are the first to try new restaurants and
foodies love boasting about their food knowledge
to friends and family. They earn a decent
salary and love to spend a major percentage
on food. In their spare time, Hardcore
Foodies like to attend college food fest,
restaurants and cookery channels.
Source: Author
User benefit based (In terms of time, parking and cost) and
pricing positioning strategy is used by cloud kitchen to attract
customers from different strata of the society. Consumers want
to avoid long waiting and commuting time, and do not mind
spending extra for the instant food offered by cloud kitchen.
5.3 External Environmental Analysis
5.3.1 PESTLE analysis of cloud kitchen
Table-5.3: PESTLE Analysis for Cloud Kitchen
Political Current trends affect the online food
industry. As public health policies are
focusing on fresh food ingredients with
lower sugar and sodium, the food sector
are adding healthier options in their menus.
Political regulations such as food quality,
hygiene, packaging, food safety, and
wages require cloud kitchens to adhere to
standards.
Economic The rate of unemployment, which is
currently at the rate of 6.1% affect the
online food delivery system. Healthier
food options are pricier compared to fast
food or instant food. But the convenience
of readily available food outweighs
cooking food from scratch. The discounts
and promotions offered by cloud kitchen as
well the convenience are promoting the
greater expansion of food business.
Moreover, interest rates, taxation and
consumer expenditure explores the
opportunities prevailing in online food
industry.
Social-cultural Consumer’s wants and healthier options
affect the trends of food industry.
Consumers have become conscious in
terms of hygiene, safety, calories and
nutritional value of food offered. Demands
for organic and whole food, vegan and
pescetarian diet is becoming the lifestyle of
younger generation. Also with the increase
in the number of migrant population, there
is surge in the demand for ‘Regional food’.
To attract more customers, cloud kitchens
Vol.9, No.3 July-September 2019
are implementing their own branding
makeovers. Social media and health Gurus
have also made the consumers aware of the
healthy diet.
Technological Technological advancement in terms of
packaging, food labels, food brands and
food production, can give a competitive
edge. Technology has helped cloud
kitchens to roll multiple brands from same
kitchen. E.g. Fassos is using brands
Behrouz for biryani and Firangi Bake.
Online food delivery segment has
transformed from local to inventory-led
business model. Cloud kitchen are using
their websites to provide information on
calorie intake, allergy, nutritional value
and promotions.
Legal Food industry in any country is affected by
laws. Food norms and laws have affected
the food quality and nutritional standards.
The food items should be produced in safe,
clean and healthy environment. In India,
consumers will be provided with all the
necessary information, as per the Food
Safety and Standards (FSS) Act, and only
fresh food to be delivered to consumers.
Also food products offered for sale are
subjected to sampling at any point in the
supply chain. Packaging, Waste
management and Marketing & Sales laws
create new demands in the online food
industry.
Environmental Changing government laws and norms
have made the online food industry to
adopt a greener approach. The food related
regulations and quality standards have
turned stricter in every country. With
stringent quality and safety standards, the
food brands are pressed to adopt strategies
towards waste management, environment
movements, energy saving initiatives, and
children food. Adopting a greener
approach has helped to enjoy improved
customer loyalty, and sustainable
development
Source: Author
5.3.2 Porter’s Five Forces Model
Table-5.4: Porter’s Five Forces
Porter’s
Forces
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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
188
Management Today
sustainable packaging to build an
environmental friendly and sustainable
business. They also focus on higher customer
retention by controlling the taste, quality and
price. In future too cloud kitchen with
continuous upgrading the apps, menu, brand
and customer experience.
Marketing Many of the cloud kitchens are having more
and Sales than 10 kitchens/distribution centres. For eg.
Faasos is having 175 Box8 60 and FreshMenu
35 distribution centres, throughout India. The
average daily order in branded cloud kitchens
is around 5000.
Since Cloud Kitchens have no physical
presence, the marketing strategies of a cloud
kitchen are very different from those of a
regular hotel. Cloud kitchens are making an
online presence with their own website and
different social media pages, which are
continuously upgraded and made highly
interactive. Cloud kitchens are also linked to
numerous third parties like Zomato, Swiggy,
FoodPanda etc. to enjoy large-scale
discoverability. Cloud Kitchens can also make
use of e-mail marketing, SMS and distribute
pamphlets for wider reach.
Cloud kitchens use competitive marketing
strategy due to higher margins, promotional
strategies like occasional discounts, coupons,
reward points etc.
Services Cloud kitchens are meant for just delivery of
food under various brands to consumers upon
orders taken. The focus is on reducing the
delivery time with distributed cooking.
Source: Author
5.4.2 McKinsey 7s framework for cloud kitchen
Table 5.6: McKinsey 7s framework
Soft Elements
Staff Due to lack of a dine-in or take away facility,
cloud kitchen does not require any wait staff but
only requires a highly skilled kitchen staff. In a
cloud kitchen, the same chef may prepare the
food of different brands or there may be different
chefs assigned for each brand. In addition, there
may be requirement for delivery boys,
accountant and kitchen helpers.
Skills In cloud kitchens, the kitchen staff should
possess good culinary skill to cater to taste needs
Vol.9, No.3 July-September 2019
of different brands. In addition to this one
accountant cum receptionist should have good
interpersonal and communication skills.
Shared The core values of cloud kitchens that enhance
values leadership are customized offers, minimum tap
processing, reliable and speedy delivery,
impressive packaging, and consistency in
quality.
Style The styles that helps in the growth of cloud
kitchens and in achieving organizations’ goals
are user friendly apps, very clear positioning in
terms of cuisines, especially healthy food, top
notch packaging and delivery service, quicker
than average delivery services and budget meal
options.
Hard elements
Structure Cloud kitchen is a restaurant without physical
outlet, in which the food is prepared for all sorts
of deliveries. It works on hub and spoke model.
The business model runs around virtual
websites/apps, via which they take orders
(Meha, 2017). Slowly the business is expanded
by opening more units in different locations.
Systems Cloud kitchen uses processes and procedures
which influences day–to–day activities like
product development, customer relationship
management, quality improvement, cost
leadership. It also adopts range of systems like
recruitment and selection, training, performance
appraisal, quality control etc.
Strategy Cloud kitchens are focusing on myriad of
strategies to keep the business lucrative. The
strategies used are reusable packaging,
consistency in quality and taste, shortening the
delivery time, offering customized products,
minimum tap processing, extensive feedback
system, regular follow up and improvement.
6. Key Performance Indicators of Cloud Kitchen
As per White (2017), the key performance indicators of
cloud kitchen are as follows-
1) Customer Loyalty: As per market research, the most
successful small businesses earn 70% of their revenue
from repeat and loyal customers. Hence businesses
should keep a record of orders of repeat customers.
2) Powerful Promotions: Cloud kitchens should monitor
the effectiveness of promotions offered and check
whether they are redeemed through delivery. This data
189
Strategic Analysis of Cloud Kitchen – A Case Study

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

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