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In 2018 I read a report titled “Is the kitchen dead?” published by investment bank UBS on the ‘mega trend’ of online food ordering. But I was skeptical of this trend. Why? I still remember people liked going out to a restaurant not just for eating but also to socialize to unwind. Many even considered going out as a social status.

But today, it has all changed and come like a nightmare for the hotel/restaurant industry. The Indian cloud kitchen market size is expected to be about $1 billion by 2023, with a double-digit growth rate every year.

This revolution in the food sector will be further catalyzed with the advent of 5G technology & the internet of things (IoT). The global food tech market size was USD 220.32 Billion in 2019, and it is anticipated to reach USD 342.52 Billion by 2027, at a CAGR of 6.0% during the forecast period. The high growth can be attributed to the popularization of electronic commerce, the growth of the internet, and the penetration of smartphones.

Before I dive into Rebel Foods’ business model, you need to learn what a cloud kitchen is. A cloud kitchen or a ghost kitchen takes your orders online and delivers them to your doorstep. It’s a physical kitchen that you see in a restaurant but without a seating capacity—such kitchens tie-up with delivery partners like Zomato or Swiggy or Uber Eats. There are two simple advantages: lower operational cost and low barriers to entry.

Business Model Transition by Rebel Foods

Faasos Menu Prices [Updated 2021] - TheFoodXP

Remember, the Faasos outlet that looked like above but is not available now in your area or city. But then you must be wondering why we still see advertisements and apps. The retail chain did not shut down but moved to an online presence. The change did not happen overnight, but its target audience helped the brand make this informed decision.

The pioneer of the Indian cloud kitchen sector, Rebel foods Private Limited (formerly Faasos), did not start as a cloud kitchen company but started with an aim to become a dominant player in the organized retail chain competing with the likes of McDonald’s, Dominos, KFC, and others. Today, Rebel Foods touts itself as the largest chain of internet restaurants in the world.

Rebel Foods is an Indian online restaurant company that operates 12 cloud kitchen brands, including Faasos, Behrouz Biryani, and Oven Story. It is the largest cloud kitchen restaurant chain in India, operating more than 350 cloud kitchens, as of March 2021.

Although Faasos was doing good in terms of revenue and had already invested about four years in the restaurant business with the brick and mortar model, exorbitant rent and labor costs made Rebel Foods doubt the sustainability of the business model. The existing model required a substantial amount of capital expenditure, marketing, and patience to ensure the store in a locality worked as per the set expectations.

In 2014, Jaydeep Barman (founder of Rebel Foods) attended Sequoia Entrepreneur Summit. At the time of attending the summit little he had thought that he would get the answer to scale the business with sustainable costs.

Doug Leone gave a presentation on what he thought businesses could learn about scaling from the universal laws of physics. He mentioned that the primary job of founders was to find and eliminate the friction in their business. It was that lightbulb moment for Jaydeep Barman.

The next thing that came to Jaydeep’s mind was to get an insight into the customer’s thoughts about Faasos and how they viewed it as an organized food chain. To put his thoughts into action the first thing he did was to survey the customers and ahaa the results were surprising.

70 % of customers had never entered the outlet, i.e., the web and phone delivery business was indeed growing independently of the stores, and hence the idea of having a store was holding no value.

To give an insight into the financial metrics of a cloud kitchen vis-à-vis the restaurants, see below

ParameterCloud KitchenRestaurant
Location (sq ft)600-7001500-2000
Property Cost (INR)25000-40,00050,000- 150,000
Staff Costs (comparison)X5X
Profit Margins~15%~3-5%
Source

Faasos was doing well in terms of revenue before the business model shift. Their topline increased from INR 4 crore in 2012 to INR 62 crore in 2016. But the business model transition to cloud kitchen in 2016 helped Rebel Foods (Faasos parent) achieve growth by increasing revenues and reducing capital expenditure. The below graph gives a better understanding of this:

Multi-brand Cloud Kitchen Model

Once Rebel Foods shifted to the new business model, many opportunities and options opened for them, and the company expanded exponentially. Rebel foods opened about 50 cloud kitchens spread across four cities in a span of 2 years, and by the end of 2020, they had about 320 cloud kitchens with a presence in 35 cities.

After expanding the menu under the Faasos brand, although for a brief period, they removed it and started building new brands as people associated Faasos with wraps only. The decision to start with Behrouz Biryani was very pragmatic. The founders did not want to have both food categories in the same brand category.

Anyone in his place would have started with Pizza but he knew that the market was dominated by Domino’s and Pizza Hut. In 2017 after acing both these brands he went back to Pizza and launched four variants unique in their own way.

By 2020 Rebel foods had about 12 brands under its umbrella, with the coffee brand Slay the latest addition. The top 3 brands in Rebel Foods’ portfolio are Faasos, Behrouz Biryani, and Over Story, while others are catching up fast.

The Company moved from being just a single brand restaurant to a parent company with a dozen restaurant brands under the umbrella. You can think of Rebel Foods as a single factory that is churning out multiple brands as products.

The massive advantage for Rebel foods or rather the cloud kitchen model is innovation. They opened a series of brands within a short span of time because they were able to leverage the existing facilities to build a new product along with scale. They were able to experiment without the fear of committing much in terms of both time and value.

The multi-brand strategy also resonated with people as each brand has its own identity and typically appeals to a different audience.

A sneak peek into the future

There was a time when workplace automation was closely linked to manufacturing plants with robots, but now it has entered our kitchen by way of cloud kitchen.

Rebel Foods plans to deploy technology in the cloud kitchen by implementing Visual AI QC machine, Robotics-led smarter fryer, Automated wok, and putting QR code on the orders placed by the customer. The company plans to standardize the taste of the dishes through the deployment of technology as expert chefs are limited, and the human-made changes do not stay the same.

In addition to the above, the Company started to invest in exciting food brands. For instance, their last food brand Slay, a coffee brand, posted revenue of a lakh per month before holding over the reins to Rebel Foods.

Like any other brand, once the brand is built, it plans to leverage the popularity by cashing in on other revenue streams. The company plans to use its kitchen infrastructure to expand beyond its own cooked meal brands by diversifying into ready-to-cook kits, meats, packaged snacks.


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Abhishek Jain
Author

Abhishek is a Chartered Accountant and excited by domains such as consulting, finance and data analytics. During free time he likes reading books on genres related to Finance, History & Politics.

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