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:
Received 03.09.2019
Accepted 25.09.2019
Keywords:
Cloud kitchen; model; outlets;
segmentation; targeting; positioning.
Type of paper: Case study
In the era of internet, where generation Y wants most of the facilities ordered on one click, the
word ‘Cloud kitchen’ gained momentum. Cloud kitchen works on a hub and spoke model. There
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
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
of customer, competitor, market and environment. However, considering the strategic
uncertainties, mainly the intensity of competition, cloud kitchen services need to continuously
analyse market position, and adapt to market changes with innovative strategies.
1. Introduction to Cloud kitchen
Service on
demand
A cloud kitchen is a restaurant that focuses exclusively on
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,
ITiffin, Biryani by Kilo, FreshMenu, Eatlo, Hello Curry, etc.
are some of the popular examples of Cloud Kitchens.
Single point contact
to order food from
The concept of cloud kitchen as explained in terms of
demand and supply is given below
Fewer options compared to
aggregator services
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Responsibility of Contents of this paper rests upon the authors
and not upon GRIET publications
ISSN: 2348-3989 (Online)
ISSN: 2230-9764 (Print)
Doi: http://dx.doi.org/10.11127/gmt.2019.09.05
pp. 184-190
Copyright@GRIET Publications. All rights reserved.
On Demand side
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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
has traditionally been considered to be unhealthy.
However, due to the advent of cloud kitchens, more
value is being added to the customers.
User friendly
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
investing a lot on healthy lifestyle. Indians are spending
more on organic food, chocolates, desserts etc.
Higher profit margins
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
increase of approximately 150 percent in the online food
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
US$8,167m in 2019. The Revenue in online delivery market is
expected to show an annual growth rate (CAGR 2019-2023) of
9.1%.
Full stack ownership from
production to delivery
On Supply side
1.1 Reasons for the rising popularity of cloud kitchen
1) Stiff Competition: Stiff competition in the industry,
along with decreasing margins result in closing down of
many restaurants. The food tech startups - from the big
houses to the mid-sized and small ventures are moving
to cloud kitchen to beat the competition and survive.
Mast Kalandar has shut down restaurants in two of its
four cities to cut down the cost. Ammi’s Biryani has
closed down some outlets and converted to cloud
kitchen.
2. Objectives of the Study
The study encompasses the following objectives
1) To study the advantages and challenges faced by
cloud kitchen
2) To conduct analysis of cloud kitchen in terms of
customers, competitors and STP
3) To study the key performance indicators of cloud
kitchen
2) Changing Customer Preferences: With increasing
time crunch, customers are increasingly opting for home
delivery options. As the number of delivery orders
increases, restaurants are now moving towards cloud
kitchen operations. Zomato’s operation is slightly
different in this aspect. Instead of using its own food in
kitchen, it is giving other restaurants its kitchen space to
cook and get the food delivered.
3. Advantages of Cloud Kitchen
3) Operational Cost Reduction: The restaurant industry
is known for having very high operational costs. Real
estate costs are burgeoning across every city. This is
severely impacting the bottom line of restaurants
especially in terms of infrastructure cost. Also, the
culture of going to restaurants is slowly fading away.
Cloud kitchen restaurants try to reduce production and
packaging cost and maximize number of orders per day.
With the increase in customer base, the cost of
production can be reduced. With every 150 orders per
day from one Kitchen with $6 Average Order Value
(AOV), Cloud Kitchen business model promises a
margin on the upwards of 25%.
S.
No.
Parameters
1.
Infrastructure
and grocery
2.
Chef and staff
3.
Delivery
Advantages
 Savings on infrastructure
investment
 Reductions in service time
through kitchen automation
 Better quality control of food
cooked
 Easy expansion
 Minimum staff required
 Higher consistency in food taste
 Lower delivery times due to
distributed cooking
 Emergence of Logistics
providers
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Strategic Analysis of Cloud Kitchen – A Case Study
 New Trends in the Delivery
Sector
4.
Customer
Acquisition
Cost (CAC)
35 – 44
45 - 54
Median Age
 Higher customer retention due
to better control of quality and
taste
 More contextual customer data
in terms of food preferences
5.
Average
Order Value
(AOV)
 Expanding Variety of Cuisines
 Competitive pricing strategy due
to higher margins
6.
Commission
 No commission revenue
Male
Female
Gender
Internet users
Occupation
India’s QWL
Cost of Living Index
20%
2%
27 Years
709 million
664 million
462 million
Male – 71%
Female – 29.55%
49
Out of 66
23.81
Source: Indian statistics 2019
With nearly 44.6% of Indian population being the
consumers of online food services, the cloud kitchen has ample
of opportunities to explore in future. The food service market
in India is valued at 48 billion dollars, with revenue in the online
food delivery segment is growing at an annual growth rate of
9.1%.
4. Challenges Faced by Cloud Kitchen
1) Late Delivery: The staff is not able to keep up to the
expectations of on time delivery during a busy schedule
or peak seasons. This often results in the late delivery of
food, thereby resulting in uncertain repercussions.
5.2 Segmentation, Targeting and Positioning
2) Dependency on Internet: In the case of an internet
outage, restaurants tend to lose the ability to complete
basic operations such as taking orders, accepting
payments and tracking orders. They also tend to lose
access to data, thereby losing huge amounts of money in
the system.
Both geographic and demographic segmentation is
important because cloud kitchen needs to know which areas to
target for customers. Cloud kitchen concept is foraying mostly
into urban India.
Table 5.2: Customer Segmentation and Profiling
3) Absence of Human Touch: The cloud kitchen concept
is devoid of human touch with no personal interactions
between the vendor and the customer. The entire
process, starting from food ordering to delivery of food
has no face to face interactions.
Demographic
Segments
PG/ Hostel
dwellers
This group shares the room with 2 to 4
people and sometimes lives individually.
Cooking is not very high on their agenda,
and skip meals often. Instant food and
takeaways are their favourite. They always
hunt for food that is available with less
effort.
Young
married
couples
Not very keen on cooking and prefer to
spend quality time with family and friends.
High on entertainment quotient and
takeaways. Prefer to taste food from
various outlets on regular basis.
Working
wives
With both the partners working, they
experience time crunch. They earn decently
and spend a major share of their income on
food and entertainment. Takeaways are
frequent, about 2–4 times in a week.
Students
They are mostly in their teens and majorly
stay in hostels. They do not prefer meals
from college canteens and often skip it.
Ordering food via apps is high on their
agenda.
4) Hygiene: Many times companies build their kitchens in
unhygienic conditions, in order to reduce the operational
costs as much as possible. Customers don’t really want
to be served from prime real estate. However, any
chosen kitchen needs to be hygienic so that the food is
edible.
5. Analysis
5.1 Customer Analysis
Due to the centralization of the restaurants within major
cities, it is feasible for the cloud kitchen players to target the
customers residing in these cities. The cloud kitchen has already
targeted approximately 120 million users in urban India,
between age group of 20-30 years. It is going to target 50
million users in future. The findings for customer analysis are
shown below.
Profile
Table 5.1: Indian Customer Analysis
Population
Total
Age breakup
18 – 24
25 – 34
1.37 billion
(Growth rate –
1.26%)
34.4%
44.6%
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Hardcore
foodies
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.
They are the first to try new restaurants and
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.
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
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
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
Threat of
New
Entrants
As per Jaradat (2013), the five competitive
forces of Porter enable the companies to
develop efficient strategies which help to reach
a competitive advantage over their rivals and
then dominate the market. Since the setup of
cloud kitchen is cost effective, it is easy for a
new rival to enter the market. Thus, the firms
in this sector have to gain competitive
advantage over others by competitive pricing
strategy, differentiated products, cost
reduction, creative distribution channels, menu
expansion, promotions and discounts and
improved CRM.
Bargaining
Power of
Suppliers
Online food industry gets raw materials from
numerous suppliers. Suppliers in a cloud
kitchen can vary from a single firm supplying
for all the brands in the cloud kitchen to
different suppliers for each brand or
combination of both. The suppliers in
dominant position can negotiate well to extract
higher price from the firms, thereby lowering
the profit margins. Therefore, the cloud
kitchens have to build efficient supply chains
with multiple suppliers and develop loyal
suppliers whose business depends on them.
Cloud kitchens should always experiment with
food ingredients, so that if any ingredient
becomes expensive in future, they can shift to
another one.
Bargaining
Power of
Buyers
Threat
from
Substitute
Products
Rivalry
among the
existing
players
market. There are several cloud kitchens
operating in different micro-markets of cities.
Mast Kalandar restaurants operated by Spring
Leaf Retail was one of the earlier known
brands to get into cloud kitchen. They shut
stores in some of the cities and started
operating centralised kitchens. FreshMenu,
Box8, Biryani by Kilo, Faasos, Bhukkad and
Ammi’s Biriyani are other brands that are
operating in this space (Deep, 2019). These
brands are existing in the market for more than
eight years and have a strong control over
online food ordering sector. New entries in this
area are Kabuliwala (Kolkata), Goila Butter
Chichen (Mumbai).
5.4 Internal Environmental Analysis
5.4.1 Value Chain Analysis of Cloud Kitchen
Table-5.5: Value Chain Analysis
Primary
activities
Inbound
Logistics
Cloud kitchens purchase raw materials from
fixed, well defined and numerous suppliers.
Most of the suppliers are local grocery shops
or farmers, supplying directly to the cloud
kitchens.
Operations
Based on Hub and Spoke model, cloud kitchen
has a central kitchen with several delivery
hubs. Some of its operations are –
Consumer is always a king and a determinant
of price. Consumers are a demanding lot, who
want to buy the best available by paying the
least. Hence the bargaining power of buyers is
high. The firms can reduce the bargaining
power of customers by broadening the
customer base and introducing innovative
products on a continuous basis.
 A large kitchen space with several chefs,
preparing food items.
 Focus on lesser delivery time due to
distributed cooking. Eg. Petoo is trying to
reduce delivery time to 10 minutes.
 Reduction in processing time by
automating the preliminary activities of
the kitchen.
The threat of a substitute product is high if it
offers a value proposition that is uniquely
different from what the present industry is
offering. This threat arises when the demand of
existing product is affected by the change in
price of the substitute product. This threat can
be reduced by focusing on consumer’s needs
and preferences, by increasing the switching
cost of the customers and by extending to
being service oriented from just product
oriented.
 Focusing on sustainable packaging
options by discarding use of nonbiodegradable materials.
 To increase the efficiency of supply chain
in terms of technology, capacity and
purchase options.
Outbound
Logistics
Cloud kitchen is the next big thing in the food
service industry as several well-known brands
are entering the space. Since the entry barrier
is less, it is easy for a start up to enter the
Cloud kitchens work on a principle of
providing the best quality food and service at a
great value in a clean and hygienic
environment. They focus on innovation,
energy conservation, waste management and
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Management Today
Vol.9, No.3
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
and Sales
of different brands. In addition to this one
accountant cum receptionist should have good
interpersonal and communication skills.
Many of the cloud kitchens are having more
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.
Shared
values
The core values of cloud kitchens that enhance
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
Cloud kitchens use competitive marketing
strategy due to higher margins, promotional
strategies like occasional discounts, coupons,
reward points etc.
Services
July-September 2019
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
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.
Soft Elements
6. Key Performance Indicators of Cloud Kitchen
Staff
Skills
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.
As per White (2017), the key performance indicators of
cloud kitchen are as follows1) 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
In cloud kitchens, the kitchen staff should
possess good culinary skill to cater to taste needs
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Strategic Analysis of Cloud Kitchen – A Case Study
will also help them to calculate ROI of marketing
campaigns.
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.
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.
References:
1) Agarwal, M. (2017). “Inside Zomato’s Push Towards
Cloud Kitchen – And The Road To Profitability?”
https://inc42.com/buzz/inside-zomatos-push-towardscloud-kitchen-road-profitability/. (Accessed as on
10.08.2019)
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.
2) Deep (2019). “Entry of branded players helps growth of
cloud
kitchens”,
http://www.mydigitalfc.com/deepdive/entry-branded-players-helps-growth-cloud-.kitchens.
(Accessed as on 17.05.2019)
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.
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.
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.
4) The Restaurant Times, “Cloud Kitchen Model Decoded:
All You Need to Know About Cloud & Delivery
Kitchens”.
https://www.posist.com/restauranttimes/resources/cloud-kitchen-delivery-kitchen.html
(Accessed as on 08.08.2019)
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.
5) White B. (2017). “8 Restaurant KPIs That Help Evaluate
Your
Pizzeria’s
Delivery
Service”,
https://www.thrivepos.com/blog/8-restaurant-kpis-thathelp-evaluate-your-pizzerias-delivery-service. (Accessed
as on 21.02.2019).
7. The Road Ahead
About the Author
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.
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.
Cloud kitchen concept boosts a better control over order and
supply, thereby helping to reach profitability faster. Another
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