The rise of virtual food brands in India

Augustine Kurian and his business partners never gave food delivery a second thought. Diners walked into their restaurant—Kappa Chaka Kandhari in Chennai and Bangalore—for the unique gastronomical experience they had to offer. But the March 2020 lockdown changed it all. As restaurants shuttered and Indians turned to food delivery apps, restaurant owners were forced to go back to the drawing board and reevaluate their approach.

Kurian initially curated a delivery-only menu in April from their dine-in offering, but as months passed, the team decided to launch a separate, full-fledged virtual brand, DumBir, to deliver a variety of Biryanis starting December. “The pandemic and the lockdown made us look at this opportunity that always existed but we never thought of,” says Kurian, who currently runs one such outlet for delivery and plans to launch eight more soon. They are also exploring more brands to launch. 

Prior to the pandemic, most restaurants that were on food delivery apps had the same menu on offer for both dine-in and delivery. And then there were a host of cloud kitchens with their delivery-only options. But the pandemic has now led to restaurants, big brands, conglomerates and local chefs launching virtual food brands solely for delivery purposes as a new and unexpected opportunity opened up. In the last six to eight months, hundreds of new delivery-only food brands have started to populate food delivery apps Swiggy and Zomato alongside several of them also having direct ordering channels for customers.

Experts estimate that at least 20% of the new onboarded brands on food delivery apps are now virtual brands. 

The reasons for this are simple, explains Divya Prabhakar who runs a restaurant called Bengaluru Oota Company and is in the midst of launching a delivery-only brand for southern regional cuisine. “All restaurants were impacted during Covid, so you want to work in a space that’s not very volatile,” says Prabhakar. “The economics of running a cloud kitchen are very different — overheads with restaurants are so high which isn’t the case with virtual kitchens. And with people’s dining habits changing, you’d want to change along with it.”

Unlike the U.S., where the pandemic-induced acceleration of virtual brands was to use up the idle kitchen space, experts say, in India it’s more about aligning with changing consumer habits coupled with the fact that it’s economically more viable to launch a new food brand which is delivery-only rather than a full-fledged restaurant with high rents and long lock-in periods. In India, many of these virtual brands are being launched using new cloud kitchen spaces — an industry that is expected to become worth $2 billion by 2024, per RedSeer Management Consulting, up from $400 million in 2019. 

Startups offering a plug-and-play model of cloud kitchens are catering to this growing need. Delhi-based Kitchens Centre, launched almost two years ago, helps new and existing food brands with a ready-to-move-in cloud kitchen with the necessary infrastructure and technology — Shopify for the food services industry, so to say. 

In the last six months, Kitchens Centre has been approached by hospitality industry people from all stripes, enquiring about how they could get into the business of delivering food. These include conglomerates such as the ITC which launched in-house brands such as ITC Pulao for their pulao and biryani collection, and also top hospitality companies such as Massive Restaurants, Azure Hospitality, Speciality Restaurants and BBQ Nation ramping up their cloud kitchen presence across cities with both — their anchor and new ancillary brands. 

“Conversations about launching cloud kitchens with Speciality were on for almost a year, but in April their plans accelerated” recalls Lakshay Jain, founder and CEO of Kitchens Centre. “We have also been approached by restaurants and food courts asking us to take over some of the unused kitchen space.” Jain further says they have almost doubled their occupancy from 160 kitchens to 300 kitchens in the last few months and have onboarded close to 200 virtual listings. 

Experts in the food tech space say that while the concept of cloud kitchens has existed in the country for several years now, brands that didn’t exist in the restaurant ecosystem at all have cropped up as a result of the lockdowns. And the trend is here to stay — especially since restaurants provide 12% margins as opposed to cloud kitchens that offer margins as high as 18%, says foodtech analyst Abhijit Routray. As for restaurants wanting to launch new brands for different cuisines, it’s about brand perception. 

“This trend will sustain for a long time,” says Routray, an engagement manager at RedSeer Consulting. “Restaurants want to have a house of brands instead of squeezing different kinds of food under the same brand because they want to have different cuisines targeting different consumers at different price points.”