How to set up and run a successful food delivery business in India

Helpful tips and best practices from industry insiders who have been there, done that

So you want to start a home-delivery kitchen? Or a cloud kitchen, perhaps? Online food delivery has become the new normal, particularly in the wake of the Covid-19 pandemic. The sheer number of home chefs who set up their businesses in the past two years is mind-boggling, not to mention restaurants that pivoted to delivery models. Cloud kitchens (or ‘dark’ or ‘ghost’ kitchens) are set to be a $2 billion industry in India by 2025, up from $400 million in 2019, according to a report by RedSeer Management Consulting.

The importance of cloud kitchens in today’s food and beverage space in India is further underlined by the first-ever Cloud Kitchen Convention held in early April this year by the National Restaurant Association of India (NRAI)’s Mumbai Chapter. “With the paradigm shift in consumer ordering behaviour, cloud kitchens have emerged as a lucrative business model in the industry,” say Pranav Rungta and Rachel Goenka, NRAI Mumbai Chapter Heads. However, as with any business, there are challenges along the way, as well as a few home truths you should be aware of if you’re planning to jump onto the bandwagon. We spoke to industry insiders—from large cloud kitchen brands to smaller businesses—to find out what it’s really like to set up a successful food delivery business in the country today.

Proof of the pudding

“In the business of serving food—whether it’s a restaurant or a delivery kitchen—the first thing is to have a good product because that’s fundamental to the success or failure (of your business); the format is secondary,” says Gauri Devidayal, co-founder and director of Food Matters, the company that runs online delivery brands like Mag Street Toppings as well as restaurants such as The Table and Mag Street Café in Mumbai. Cloud kitchens are indeed the flavour of the season, so it’s important to have a niche or a differentiated product to offer. “From specialisation within large cuisine categories like Chinese, Japanese or Indian, the need now is for micro-specialisation within micro-cuisine categories,” says Vinod G Nair, co-founder and chef at Nair on Fire, a Mumbai-based cloud kitchen specialising in homestyle Kerala food.

Of course, the importance of using quality ingredients cannot be emphasised upon enough . Zorawar Kalra, founder and managing director of Massive Restaurants Pvt. Ltd., which runs several restaurants as well as two delivery-only brands–Louis Burger and Butter Delivery–says, “Every ingredient of Louis Burger is made to work with each other. Right from the cheese to the lettuce to the meat patty, every ingredient is carefully sourced, and our buns are made fresh twice a day.”

Packing list

Another key factor to consider is how feasible it is to deliver the food. Kainaz Contractor, co-founder of Bhawan, a Delhi-NCR-based establishment focusing on chaats and mithai, that very recently discontinued its delivery service to open a dine-in space says, “When it comes to Indian food, curries are fine but chaat does not travel well. We had to do a fair bit of research to understand the right packaging material and figure out if we can pack some components separately.” For example, Bhawan’s bhel puri was delivered partially prepared with a portion of puffed rice and papdi packed separately that the customer can mix at home. Investing in good packaging is very important too; today’s customer expects environment-friendly packaging. You now have a plethora of options, including paper craft material and corn starch material.

Cost control

The costs of running a food delivery business broadly fall under two categories—operational costs and customer acquisition costs. If you’re running a home-based kitchen, you will have to factor in many things. “One has to consider establishment costs and overheads, and variables such as raw materials, packaging and hired help. You will also need to spend on branding,” says Banalata Sen, co-founder of Breaking Basmati, a Pune-based Bengali food delivery service. As you scale up, consider moving to a cloud kitchen set-up. You can even rent co-working kitchen spaces where you have the infrastructure provided for you, at a price, of course. “The rent-to-revenue ratio of cloud kitchens is significantly better than traditional restaurants. Good units can operate at single-digit rent-to-revenue percentages, thereby ensuring a quicker break-even. Additionally, set-up costs are lower, which means return on investment is significantly quicker in some cases. Our sales from Louis Burger’s 150 sq. ft. cloud kitchen are the same as those from a 4,000 sq. ft. restaurant,” says Kalra.

Tech support

Technology is a key driver of the cloud kitchen business, particularly when it comes to handling logistics. Whether you plan to list your business on aggregator apps like Swiggy and Zomato or on platforms like Thrive and Dotpe or even direct delivery, the costs–and challenges–associated with each format vary. “Zomato and Swiggy charge fees as high as 28-32 per cent of the MRP for listing on their platform and then arm-twist you into spending another 8-10 per cent towards discovery,” says Nair. Devidayal and Contractor also bemoan the variable commissions cost and the lack of transparency. “Now, Swiggy and Zomato are opening their own cloud kitchens, and obviously they are going to offer a better rate, so how do you stay competitive?” asks Contractor. She recommends managing your delivery logistics on your own. “You shouldn’t open your delivery brand assuming that any third-party aggregator is there to do your sale. Have your own website so that people start ordering directly from you over time.”

Devidayal, however, disagrees: “Whether we like it or not, the aggregators provide certain services; they are experts at what they do. I think that trying to do all that in-house takes away from focusing on our product and business.” At the end of the day, the decision depends on your business and what suits you best; managing your own delivery may work when you are just starting out but may become complicated as you scale up your business.

The way forward

While restaurants are not going anywhere, it’s clear that cloud kitchens are here to stay. “I’m bullish on cloud kitchen growth; it is a segment that you can’t ignore,” says Devidayal, although she doesn’t plan to launch any new delivery brands in the near future. Kalra, on the other hand, is moving full steam ahead; “We are planning to further expand our cloud kitchen business in New Delhi, Gurugram, Noida, Bengaluru, Mumbai, Hyderabad and Kolkata by the end of FY 2022. We are also planning to launch six new brands, including a pizza brand Slyce followed by Biryani by Jiggs Kalra.”

Nair sounds a cautionary note though, saying the food delivery business is tough and by no means a bed of roses. “If you can survive the first 12-18 months and reach a decent topline in monthly sales, then you can grow in this business. Reaching this point is tough and requires a phenomenal level of determination.” However, he adds that India is still a nascent market in terms of penetration, access and availability of choice; he predicts an explosion in food delivery and cloud kitchens in the next few years. Sen has the last word; “The most important thing is to have faith in your idea and do everything with honesty.”

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