Price rise, funding slump may dampen cloud kitchen growth

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Sustained inflation and a pullback in funding for startups could make it challenging for the cloud kitchen segment in India to maintain the pace of revenue growth seen in the past.

The earnings reports of the first two quarters of listed restaurant and food companies point to a broader trend of sluggish growth amid macroeconomic headwinds.

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In FY23, Peak XV Partners and Coatue-backed Rebel Foods recorded a 40% year-over-year growth in revenue, while Accel-backed Curefoods saw a four times jump. Similarly, Alpha Wave-backed Biryani by Kilo saw doubling of revenue.

For listed restaurant chains such as Jubilant Foodworks, Restaurant Brands Asia, Westlife Development, Devyani International, Sapphire Foods and Barbeque Nation, year-over-year topline growth last fiscal was in the 17-48% range. This range of y-o-y growth contracted to 6-22% y-o-y in the first half of FY24. Barbeque Nation’s revenue growth was flat in the April-September period.

Also read | ETtech in-depth: Cloud kitchens change flavours as pandemic-driven sheen fades away

Ankush Grover, cofounder and CEO of India and MENA regions at Rebel Foods, said the multi-brand company is tracking 15-20% y-o-y growth for its key brands such as Behrouz Biryani and Oven Story.

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Curefoods founder Ankit Nagori told ET that companies are focussing on sustainable growth. Curefoods expects to close FY24 with Rs 800 crore in revenue, a more than 100% increase from FY23.Also read | Cloud kitchen startup Curefoods invests Rs 10 crore in food discovery platform Hogr

“Inflation as well as interest rate increases are hampering the overall size of the consumer plate,” Nagori said. “For us, the food costs have gone up, and for customers the wallet sizes have shrunk. In general, disposable incomes are lower than the last 18 months, and I’m hoping it will correct in the next few months.”

Also read | Binny Bansal’s Three State Ventures leads Rs 300 crore funding in Curefoods

Rebel Foods operates brands such as Faasos, Oven Story and Behrouz Biryani. Curefoods runs cloud kitchen brands including EatFit, CakeZone, Nomad Pizza, Sharief Bhai and Frozen Bottle.

cloud kitchen

While Jubilant Foodworks is the master franchisee for Domino’s Pizza, Dunkin Donuts and Popeye’s in India, Westlife Development operates McDonald’s restaurants in the southern and western regions of the country. Restaurant Brands Asia is Burger King’s master franchisee in India.

Devyani International primarily operates outlets of Yum! Brands restaurants such as Pizza Hut and KFC in 14 regions, including Karnataka, Telangana, Andhra Pradesh and West Bengal, while Sapphire Foods operates Pizza Hut and KFC outlets in 10 regions, including Maharashtra, Delhi, Haryana and Gujarat. Speciality Restaurants operates outlets such as Oh! Calcutta and Mainland China.

Also read | Why cloud kitchen Rebel Foods is going back offline to build food courts

Eating out more

“There’s no doubt that more Indians are eating out…that’s in tandem with the growing young population, especially in urban areas with a demography of working professionals who don’t choose to cook at home,” a Mumbai-based consumer sector analyst said. “This is the cohort that will drive growth, because for these customers, eating out is not necessarily a discretionary spend.”

But for now, the bigger brands seem to be experiencing a slowdown in growth. According to sector experts, the price increases undertaken by restaurant chains and eateries over the last 12-15 months to deal with the rising food inflation may have reached its peak elasticity.

In addition, emergence of newer options such as local chains or smaller brands may be challenging their larger rivals for a share in the pie.

ET had reported on January 1 that homegrown pizza makers have emerged challengers to global brands.

“On the pretext of inflation, a lot of restaurants, including cloud kitchen brands, started increasing their prices. While initially it worked out, there’s a tipping point to how much you can increase without impacting the demand,” Arvind Singhal, chairman of Gurgaon-based consumer retail focused consultancy firm Technopak, told ET. “The same thing is happening in the FMCG industry, where the story of premiumisation has been overplayed.”

He said, “The other factor is for every segment within the restaurant sector, there are more options available to the customer. Overall, the food and beverage sector is not suffering…simply because so much is starting to come from smaller players.”

According to Singhal, there has been an explosion in the number of small eateries and restaurants after the Covid19 pandemic.

Notably, as of September 30, 2023, food-delivery company Zomato had 238,000 restaurant partners on its platform, compared with 207,000 a year prior to that, and 173,000 as of end of September 2021. While this number includes existing restaurants being onboarded by Zomato, it also serves as a partial proxy to new eateries coming up.

Curefoods’ Nagori said, “Last two-three years, there were a lot of tailwinds in the cloud kitchen business including the change in consumer behaviour. Funding in the sector also fuelled a lot of growth. Next few years are all about chasing profitability, while also looking at omnichannel–that’s the only way to grow in tier-II, tier-III markets.”

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