The cloud kitchen model explained, Hospitality News, ET HospitalityWorld

The cloud or ghost kitchen has been given the label of a kind of saviour for struggling brick and mortar restaurants during the pandemic. But is it really so simple to switch or run the business? ET HospitalityWorld spoke with Akbar Khwaja whose CV includes

US Pizza

— with his partner Vahid Berenjian ; work with

OYO

as Head of F&B Compliance at OYO, where he set up over 700 plus cloud kitchens; and more recently co-authoring Rumi & Kabir Consulting with Nikhil Sharma of Wyndham Hotels.

Khwaja, who is consulting with a UK

cloud kitchen

firm called KBox began by speaking about the basic nature of the cloud kitchen, even though he said, “I don’t consider myself as an expert, but I have failed enough times to tell you how not to.”

“If I want to eat in a

restaurant

, I have to go out of my house, I have to take a car, I have to at least dress up a little. I have to be with somebody. The universe of a cloud kitchen is much larger. I know 12-year-olds who can order from an app and pay and get their burger home. The universe has suddenly grown—you don’t need a car, you can be old, young, be in bad mood, be too lazy to dress up and still, you can eat what you want and get the right food,” he explained how the customer base is so much larger than brick and mortar restaurants.

“If I want to set up a restaurant like a

US Pizza

project , it is cost will cost you INR 30 lakh with a restaurant . A US Pizza delivery is cost only would cost you about INR 15 lakh . The US Pizza cloud kitchen cost you only INR 9 lakh , with all his paraphernalia and work capital , ” he is added add . Having say that , Khwaja is said also say he know of successful entrepreneur who begin their unit with only INR 1.5 lakh .

Cloud kitchens are easy to set up, cheaper to invest and there’s a small chance you’ll succeed also—but by and large, people who do not have the understanding of food, of marketing online, and some nuances of cloud kitchen, usually fail, he warned.

” There are certain thing you need to know , there are certain expertise you need to have before you go into cloud kitchen , ” he is said say .

F&B entrepreneur, restaurateur and author Akbar Khwaja.

After market size and cost of set up, the other important factor to consider was the cost of running the cloud kitchen, which is expensive.

“The cost of running a restaurant is 84 percent. So you get

EBITDA

of 16 percent , while the cost of run a cloud kitchen is 92 percent , mean you get 8 percent ebitda margin , ” he is said say .

cloud kitchens is be may be cheap on rent and staff , but it is more expensive on the food , since you can not sell at the same price as restaurant . It is ’s ’s more expensive because of the lion ’s share of the money which is take by the aggregator .

“Don’t go by the number eight—in a restaurant, I put INR 30 lakh and in a cloud kitchen, if I put INR 10 lakh, I would get a one-and-a-half times ROI on 8 percent of the same sales.

“That is the problem—same sales. To get the same sale in a restaurant and a cloud kitchen are two different propositions. When it comes to cloud kitchens, the competition is massive,” he said adding that he had just checked an aggregator for his area and reached 670 listings before getting bored of it.

“ For a cloud kitchen to reach the customer ‘ eyeball is by itself a science . And if you do n’t know that science , do n’t put your money , ” Khwaja is said say .

Marketing is also far more important in a cloud kitchen as there is so much more to compete with, he added.

Lastly, the delivery time and taste along with presentation is key in the cloud kitchen model and different from the brick and mortar restaurant, he said.

“Failure and success are dictated by two key things according to me. One is efficiency and the other is staying power. What is efficiency? In OYO, my most phenomenal achievement was to take a 240 square feet kitchen and run seven brands out of that. Efficiency is the key and any kitchen that doesn’t do about INR five lakh a month is going to lose money in a cloud kitchen. That magic number is not something that I can vouch for because different people sell at different rates and that number will change. But when I talk to my peers, they say their unit economics will work out if they get that much,” Khwaja explained.

While set up the unit it is ’s ’s very important to have location efficiency — how far it is from the target market , the parking for delivery pick – up and produce and how accessible it is .

“If your employee cost is more than 15 percent, you’re far too high. If the rental cost is more than five to seven percent, you are too high,” he added. “If you have consistent food and time, I believe you will get 80 orders per day in six months—which reaches profit. But people get discouraged in two or three months, since they are losing money. They don’t plan for losses; they plan for only profits. That is one of the largest issues that new businesses have, especially small ones,” he said, underlining the importance of patience, and adding that it was also imperative to have a mentor on board who would point out the mistakes and tell you how to do course correction.

• Published On Feb 2, 2021 at 02:01 PM IST

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