Cloud Kitchen Policy
Upon extensive research by the team at DDC Delhi, it was found that cloud kitchens are emerging as a strong segment in the food business industry and are generating a significant number of direct and indirect jobs. The proposal to boost cloud kitchens was first unveiled as part of the Kejriwal Government’s employment-focused ‘Rozgar Budget’ 2022-23 which plans to create 20 lakh jobs in Delhi in 5 years.
DDC Delhi, in collaboration with the Department of Industries, convened wide-ranging stakeholder consultations on 26 April 2022 wherein representatives from over 15 cloud kitchens and food delivery aggregators operating in Delhi were invited to discuss some of the pressing challenges/issues and how the Delhi Government can facilitate the growth of the industry in the city. Their inputs were sought for creating a roadmap for growing the cloud kitchen segment in Delhi. The participants welcomed with enthusiasm the decision of Hon’ble Chief Minister Sh. Arvind Kejriwal to recognise cloud kitchens as an industry and to bring out a dedicated ‘Cloud Kitchen Policy’ and gave several practical inputs to ensure the initiative becomes successful.
Delhi Government is very hopeful about the growth potential of the concept of cloud kitchens as an industry as its model is low-risk, cost-effective and scalable, allowing for high profit margins even for players with less capex. We see the prosperity of the whole city in the prosperity of the cloud kitchen industry. Even without government interventions, the segment has managed to create a massive industry in a short period of time – offering employment to many and contributing to the economy. When the government and industry stakeholders collaborate together, the segment can witness an unprecedented boom. We want to ease the entire process for the operators – from rents to licensing to providing a skilled workforce.
DDC Delhi mooted the idea of setting up cloud kitchen clusters by the Delhi Government in industrial areas. Setting up cloud kitchen clusters could allow many benefits for the operators and consequently, the aggregators and the consumers. Such clusters can provide the segment with adequate space to expand within existing industrial areas with access to industrial power tariff, which is lower than the commercial rates, and possible exemption from dine-in regulations. As the setting up of such clusters would not require a change of land use, they may be exempt from conversion charges as well.
Such clusters can significantly ease the process of setting up the cloud kitchens with the allocated spaces being equipped with several plug-and-play features like power connection, PNG connection, effluent treatment and common facilities like shared cold storage, parking space etc. The stakeholders welcomed the idea, with the suggestion to identify such industrial areas that have regular power supply and are not very far away (< 7km) from residential clusters (to reduce delivery time and costs).
Objectives of the Policy
The objective of the upcoming policy would be to recognize the Cloud Kitchen Industry and to facilitate the operation thereof by developing opportunities and skills. It is envisaged that the licensing and compliance requirements for Cloud Kitchens would be simplified and streamlined to enable such businesses to operate smoothly without any hindrances.
Context for the Policy
Cloud kitchen, also known as virtual kitchen or ‘ghost kitchen’, refers to a place where food is prepared and delivered at door steps by taking orders via calls and online ordering platforms. Cloud kitchens are different from the regular brick-and-mortar F&B establishments, as they serve as delivery-only kitchens, take orders via their own app or online food aggregators and also have the capability to operate as multiple food brands.
These kitchens usually operate at a fraction of the traditional restaurant space. Lately, many restaurants have come up with a food delivery-focused brand of their own as D2C (direct-to-customer) channels drive profitability and help create new revenue streams. Setting up cloud kitchens entail lower capex than the traditional dine-in and quick service restaurants due to lower property tax, rentals and setup costs (for equipment, furniture, etc.) While launching a traditional restaurant is a high-risk venture that requires a strong market capital, cloud kitchens are a low-risk venture as they can operate at a fraction of a traditional restaurant space thus increasing their EBITDA profit margins.
Moreover, cloud kitchens are also able to garner increased visibility despite less marketing spends due to quick exposure through online delivery apps. The digital business model enables them to easily gather valuable data insights about customers so they can adapt accordingly to ensure quick and efficient service. Ensuring quality standards is also easier in cloud kitchens as opposed to dine-in restaurants where surface exposure is high due to seating and customer walk-ins. Doorstep delivery witnessed a boom during the lockdowns and constituted a significantly larger percentage of revenue than dine-in, with even traditional restaurants pivoting to focus on cloud kitchen setups and mitigate the fall in dine-in sales.
There are over 20,000 cloud kitchens currently active in the city, which provide substantial direct and indirect employment, and their number of cloud kitchens in Delhi is growing at a rate of over 20% every year. The domestic cloud kitchens market is expected to grow from $400 million in 2019 to reach $1.05 billion by the end of 2023 and $2 billion by 2024 according to a report by Red Seer Management Consulting.