After starting out as Faasos back in 2011, Rebel Foods has emerged as the leader in the cloud kitchen business in India capitalizing on the growing organised fast food delivery market in the country. The Sequoia-backed company operates nine sub-brands including Oven story Pizza, Behrouz biryani and Lunch Box among others.
The growth of Rebel Foods could be also noticed from its financial performance in FY20. Sales of food products through its network of cloud kitchens grew by 83% to Rs 557.5 crore during FY20 as compared to Rs 305.11 crore in FY19. Non-operating revenue of Rs 20 crore was collected through financial instruments.
The Pune-based company had raised Rs 751 crore from the issue of shares and borrowed another Rs 55 crore during the fiscal ended in March 2020 to fuel the growth of its operations. Rebel Foods invested Rs 36.7 crore in subsidiaries including DropKaffe and Joint Ventures in the middle eastern markets and purchased tangible assets worth Rs 131.5 crore during the same period.
On the expense front, the cost of raw material consumed stood as the biggest cost factor for the fast-food delivery company, making up 34% of the aggregate expenses incurred by the company during FY20.
Such costs surged 2.4X to Rs 348.43 crore during FY20 from Rs 144.02 crore spent in FY19.
Employee benefit expenditure also grew 2.5X to Rs 230.5 crore in FY20 from Rs 92.3 crore in FY19. These costs made up 22.5% of the annual costs and included ESOP related payments amounting to Rs 12.03 crore in FY20.
Following closely, customer acquisition costs of Rs 218.5 crore was the third-largest cost factor for Rebel Foods during FY20. These costs included advertising and promotional costs which grew 2.5X to Rs 122.15 crore in FY20 from Rs 48.2 crore in FY19.
Rebel foods also paid commission to selling agents such as Swiggy and Zomato to access customers through their respective platforms. These payments doubled to Rs 96.4 crore during FY20 from Rs 48.2 crore paid in FY19.
Rent and power costs of its cloud kitchens and offices grew 2.4x to Rs 61.7 crore in FY20 while transportation & distribution expenditure grew 3.5X to Rs 19.7 crore during the same period.
Other miscellaneous expenses which constituted mainly gas and utility payments and kitchen running costs jumped by 74.6% to Rs 34.4 crore during the fiscal ended in March 2020.
Repair and maintenance costs of Rs 19.7 crore pushed the net cash outflow from operations to Rs 380.3 crore during FY20. Total expenditure ballooned 2.3X to Rs 1,025.3 crore during FY20 from Rs 441 crore in FY19. Rebel Foods spent Rs 1.84 to earn a single rupee of operating revenues during FY20.
The company gunned for scaling up of its operation of the cloud kitchen business under new brands and geographical regions and burned through a lot of capital to attain the growth. Its losses surged 3.4X to Rs 445.7 crore during FY20 from Rs 130.6 crore lost in FY19 and EBITDA margin degraded from -37.92% in FY19 to -71.4% during FY20.
While the growth of scale is evident for Rebel Foods but perhaps it’s growing faster than the controls set by its management. Its auditors have expressed a ‘Qualified Opinion’ on the financial statements due to material weaknesses identified in the operating effectiveness of Rebel Food’s internal financial controls.
Auditors have also highlighted problems pertaining to timely recording and review of consumption of food items. They also raised concerns over the selection of vendors and rate approval for procurement of food items and kitchen equipment.
While Rebel Foods’ revenue grew by over 83%, its losses have mounted 3.4X, which is quite evident from its entry into the Middle East and Southeast Asian markets. The company requires to control the cost of customer acquisition, however, it’s likely to increase in the ongoing fiscal as Rebel Foods launched several new brands in FY20.
