Category: Industry Story

Introduction

Imagine a restaurant with no tables, no waitstaff, and no diners, yet generating millions in revenue. Welcome to the world of cloud kitchens. Once hailed as a disruptive force in the Indian food industry, cloud kitchens promised to transform how food was prepared, delivered, and consumed. With the rise of food delivery giants like Swiggy and Zomato, cloud kitchens were seen as a high-growth, low-cost solution. But as quickly as they rose, many operators have struggled to survive. What went wrong?

This article explores the rise and fall of cloud kitchens in India, analyzing their growth trajectory, the challenges they faced, and the key lessons for businesses looking to navigate this complex and evolving industry.

The Rise of Cloud Kitchens in India

Cloud kitchens, also known as dark kitchens or ghost kitchens, are delivery-only restaurants that operate without physical dine-in spaces. By cutting down on rent, staffing, and overheads, these kitchens can focus exclusively on food preparation for online orders. The model seemed tailor-made for the digital era, offering flexibility and cost efficiency.

But cloud kitchens weren’t just a response to changing consumer preferences. They aligned perfectly with the surge in demand for food delivery services, driven by platforms like Swiggy, Zomato, and UberEats. The absence of front-of-house expenses allowed operators to experiment with multiple cuisines under one roof, giving birth to a new kind of food business.

Market Growth and Drivers

In 2019, the Indian cloud kitchen market was valued at around $400 million. By 2022, that figure had more than doubled, reaching over $800 million. Analysts projected that the market could grow to $2 billion by 2024. The COVID-19 pandemic only accelerated this growth, as lockdowns and safety concerns pushed consumers toward online food ordering. Restaurants that had previously relied on dine-in business quickly pivoted to delivery models.

As Mr. Anurag Katriar, former President of the National Restaurant Association of India (NRAI), observed, “The cloud kitchen model is a game-changer for the foodservice industry, allowing businesses to operate with lower overheads while leveraging the growing trend of online food delivery.”

Challenges Leading to the Fall

Dependence on Aggregators

As cloud kitchens proliferated, many operators became heavily reliant on food aggregators like Swiggy and Zomato for order volumes. While these platforms offered access to millions of customers, they also charged steep commissions—typically between 20% to 30%. For businesses already operating on slim margins, these fees were crippling.

To illustrate, consider this: A kitchen with a 10% profit margin, after paying 25% in aggregator commissions, would already be operating at a loss. Over time, this dependence eroded profitability, pushing many operators to the brink.

Oversaturation and Branding Struggles

As the market grew, so did the number of players. The relative ease of setting up cloud kitchens led to a flood of new entrants, resulting in market saturation. Smaller operators, lacking the branding and marketing muscle of bigger players like Rebel Foods, struggled to stand out. Without a distinctive brand identity or loyal customer base, many kitchens found it difficult to attract repeat business, leading to unsustainable models.

Profitability Struggles

By 2023, it became evident that the cloud kitchen gold rush had its limits. Data showed that 25-30% of cloud kitchens in India shut down within their first year of operation. A survey by the NRAI found that nearly 50% of cloud kitchens in major cities like Delhi, Mumbai, and Bangalore were unprofitable.

The industry’s once-optimistic projections were now overshadowed by high failure rates and widespread closures, forcing a reassessment of the cloud kitchen model’s viability.

Key Industry Players

Several players capitalized on this opportunity, but none more successfully than Rebel Foods, the largest cloud kitchen operator globally. By 2021, Rebel Foods had over 450 kitchens across India, and its multi-brand strategy included popular names like Behrouz Biryani, Faasos, and Oven Story Pizza. Backed by investors like Sequoia Capital and Goldman Sachs, Rebel Foods was able to scale rapidly, with an estimated topline of ₹1,200 crore in FY23.

Other notable players include Cure Foods, Biryani By Kilo, Ghost Kitchens India, and FreshMenu, each employing various strategies to tap into the burgeoning market.

Case Studies: Lessons from Rebel Foods and CureFoods

Despite these challenges, some companies have not only survived but thrived. The key to their success? A combination of scale, innovation, and adaptability.

Rebel Foods offers a case study in multi-brand strategy. By running multiple restaurant brands from a single kitchen, they maximized efficiency and catered to diverse consumer tastes. This flexibility allowed them to pivot quickly to high-demand cuisines and scale across geographies. Their omni-channel approach—offering food through various platforms, including their own—reduced dependence on aggregators and improved margins.

Similarly, CureFoods, led by Ankit Nagori, followed a strategy of acquiring smaller cloud kitchen brands to build a diversified portfolio. This helped them tap into various market segments, from fast food to premium dining. Both Rebel Foods and CureFoods have invested heavily in technology, using data analytics to optimize operations, streamline logistics, and improve customer insights.

The lesson here is clear: To survive in the cloud kitchen space, businesses must build scale, diversify revenue streams, and invest in technology to drive efficiency.

The Future of Cloud Kitchens in India

While the initial cloud kitchen boom has slowed, the model is far from dead. In fact, its future could lie in direct-to-consumer (D2C) approaches, where businesses build their own apps and websites to engage directly with customers. This would help reduce dependence on aggregators and allow cloud kitchens to build brand loyalty.

Additionally, innovation in packaging, sustainability, and logistics could offer new avenues for growth. Businesses that focus on delivering a seamless customer experience—from order placement to delivery—will be better positioned to capture market share.

For cloud kitchens to succeed in the future, the focus must be on differentiation. Operators need to build strong brands, invest in customer relationships, and leverage data to make smarter decisions. As the industry matures, only those who can adapt quickly and strategically will survive.

Conclusion

The cloud kitchen model, once seen as a revolutionary force in India’s foodservice industry, has faced significant challenges. Heavy reliance on aggregators, market saturation, and profitability issues have led to the downfall of many operators. However, the future remains bright for businesses that can innovate, scale efficiently, and build stronger brands.

The cloud kitchen landscape may be high-risk, but with the right strategy, it also offers high rewards. As the industry continues to evolve, the key to success will lie in adaptability, operational excellence, and a deep understanding of the market.