A palpable shift towards cloud kitchens in India and SEA

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Today, Rebel says it has has 260 cloud kitchens in 17 cities and processes 2 million orders a month. Freshmenu, meanwhile, has 37 kitchens in three cities and claims to process 20,000 orders per day.

The Ken reached out to Rebel Foods and was informed that the company couldn’t respond as the official spokespersons were not available. Sequoia, too, refused to participate in the story.

The fourth whistle

Rebel’s latest funding puts it on a collision course with Swiggy-Zomato. But not so long ago, these companies helped Rebel’s cloud kitchen model take off.

According to industry estimates, about 60% of Rebel Foods’ orders continue to come through online aggregators. To maintain some sort of autonomy, the company, beyond taking orders on its own web and app platforms, maintains it own delivery fleet. It also runs social media campaigns to grab eyeballs for its own platform.

Rebel’s switch to cloud kitchens came just as the online food delivery revolution was taking shape, and in doing so broke the company free from complete dependence on aggregators.

Swiggy started its operations in 2014 while Zomato was already operational in India since 2006 and Uber Eats didn’t start its operations in India until May of 2017.

But not everyone was as lucky.

Aggregators have largely established themselves in positions where they can control the flow of orders to a particular restaurant or a brand by controlling the listing that a customer sees on their platform. They also have reams of customer data to predict behavior, making it easy to meet demand. And cloud kitchens have to depend upon them for customer discovery.

The aggregators know and do not hesitate to take advantage of it. While both Swiggy and Zomato control the search and discovery of restaurants on their platform, Swiggy also charges a promotion fee from its partner restaurants above access fees.

Swiggy didn’t directly comment on promotion fees, but its spokesperson said, “[Swiggy’s] brands do not receive any preferential treatment as compared to the rest of the partners and are levied standard commissions for operating on the platform. These brands receive actionable insights which are made available to other partners as well and bear marketing costs for all promotions on the platform.”

“If the partner restaurant does not pay for promotion, they will not be listed in the first five restaurants,” claims Ashok Seela, who started a restaurant called Biryani Pot in 2014. Seela, who shut shop last year, claims his orders dropped drastically as he’d stopped paying Swiggy promotion fees. “The main reason being is the aggregators start promoting another restaurant in the same area by listing them higher in the search results or by running discounts, resulting in more customers ordering from that restaurant.”

Swiggy didn’t respond to questions about promotion fees.

Zomato, meanwhile, has been offering funds to restaurateurs to start cloud kitchen operations, says Seela, adding that he too was approached. He declined as he had left the food business to start a community commerce startup.

Are all restaurants benefitted?

The question, though, is this—does this benefit restaurateurs at all? Kochhar says the costs don’t add up. “If a cloud kitchen gets only 200 [orders] in a day, then you need to have more brands/cuisines in the same location to get more orders. I fail to understand what their cost advantage is. These days, most big restaurant brands share a portion of their sales as rental costs. McDonald’s pays 9%. Which can often go to 11-12%.”

Cloud kitchens are anything but a cheap business, especially if they’re looking to scale. “They are supposed to be cheaper than restaurant dining. But unless I start a brand called ‘Daljit Biryani’, I need to scale. And the minute I raise VC money, say $100M, I need to plan and model for a $1 billion exit,” says Kochhar.

And in the case of an aggregator like Zomato, he says it makes little sense. “If Zomato wants to take its commissions from 18% to 26%, what is the cost differential for a cloud kitchen? What you save in rental, you pay in commissions. And you still pay for branding. And you need 100s of locations. And it costs them the same to make it. I don’t see how they get any cost advantage at all.”

And that’s where Rebel’s somewhat-fifth grand pivot comes in. Going international.