Covid-19: Dark-Kitchen Business will be the next Big Trend Globally Predicts Investors, Food Players

With changing times we have seen not only food-tech players catching up the dark kitchen model but also top restaurant brands sensing the growth opportunity with such concepts. Players like Lite Bite Foods which was one of the first restaurant group to explore the dark kitchen business, Biryani players like Biryani Blues and Biryani by Kilo that has both online as well as offline presence are cashing in on dark kitchen business. In fact for the biryani segment, delivery has seen a much better growth as compared to their in-store sales.

Therefore it is important for restaurants and prospective food players to build business models that are a mix of physical restaurant with a dine in brand, complemented by multiple delivery brands and delivery only kitchens. The dine-in brand helps in getting visibility and is very important for customer experience and thereby drives delivery from the physical outlet. Whereas multiple brands delivered from the outlet brings additional revenue per square feet without any additional costs and boost the bottom line.

What Caught Investors to put their money in Dark Kitchen Biz

Funding in the food tech space has grown by 35x in the last five years. And, we have seen huge interests of investors in the dark-kitchen or the delivery business. Vikram Gupta, Founder, IvyCap Ventures who was one of the first investor to invest in the dark-kitchen and delivery space believed that food sector as a whole is quite an attractive sector for VCs and one can see various investments happening in that sector over the last several years. “One has to look at specific business models when you dig dipper and you realize that there is potential of a lot more things. So, one is of course much focused category in food which has a huge market. We noticed biryani as a category which is consumed in a big way across the country. One challenge that you see in India is that taste differ when you travel from one state to another but in case of biryani ofcousrse there is different taste in India from South to north but people like to have different flavours, taste of biryani whether it is lucknowi, hyderabadi or dindigul biryani, it is a very unique category which has a very substantial consumption,” added Gupta who is an early investor in Biryani brand Biryabi by Kilo.

What Model Works Best in Delivery Kitchens

There are two models in cloud kitchen- one is the infrastructure provider giving you the real-estate, trying to find the good tendency mix and providing ancillary services for each individual food brand who is cooking their own food in that cloud-kitchen and the second model is what players like Kitopi is trying to do is to partner with number of brands and do the cooking themselves. The two business models have different challenges for themselves. “In Kitopi’s case the challenge is to give consistent food quality because they are cooking their own food on the other hand in the traditional cloud-kitchen model, there is challenge of securing the real-estate. In case of Kitopi, the best way to scale is to partner with X number of food brands which have enough loyalty and popularity in certain parts of the town or country,” added Sudarshan Pareek, Principal Investments.

Delivering not just food but experience

“We were really early into this game and setup our first virtual restaurant in 2015. The amount of competition that will continue in this space is phenomenal. It lowers the amount of possible potential for a brand. Marketing, brand penetration, customer loyalty; customer attention becomes one of the most important pieces of this game. Rather than focusing on too many brands we started focusing a lot more on our health food brand and Japanese brand because they perform better in the market we operate,” said Max Von Poelnitz, Founder, Nosh and Spoonful by adding that if you are relying on third-part delivery, you are missing the touch-points with the customer. So, I mean the customer is ordering from another platform and they are making the delivery. So, a large piece of the value chain is outsourced. “We believed that to create value and consistent customer experience it was important to start our own journey. So, we built our own app and website. Just like any restaurants, 80 per cent of our sale is from retained customer,” he further added.

Hence, we can see that with online food industry to grow from $4 Bn to $8 Bn in next three years which is a massive 25% growth rate, dark-kitchen business is really going to become huge.