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The Future of Cloud Kitchens

While having your favourite lunch from a nearby restaurant delivered, have you wondered what are the underlying processes that power the restaurant to deliver the food at your doorstep? For most people, the answer would be “no”, but if you are the type of person who likes to dig a bit deeper, then this article is for you. We are going to be talking about the most popular and profitable format in the organised food sector of India; cloud kitchens. Showing consistent growth in the past couple of years and with the trend continuing, let’s understand the future of cloud kitchens. So let’s begin now, shall we?

Over the past couple of years, with the penetration of the internet, the concept of cloud kitchens and online food ordering has caught up in India. Today, people prefer to have non home-cooked food even on weekdays, breaking the earlier trend of ordering food from restaurants only on weekends. This has helped in the growth of the food sector in India, so much so, that it has helped the organised food sector on a consistent growth trajectory to reach 2.57 lakh crore accounting for a growth rate of 15% by 2022 - 2023. That is a significant jump from the past couple of years of having an estimate of 1.48 lakh crore and a growth rate of 13% during 2018 - 2019.

Cooking a meal in a cloud kitchen (for representational purposes only)

In the organised sector, cloud kitchens have higher EBITDA profitability and lower capex. This could be attributed to lower operating costs and higher profit margins per menu item sold. In a full-service, dine-in restaurant, one has to take into account the costs incurred for the property, equipment, furniture, food licence and the alcohol licence separately. Hence, the capital expenditure after a dine-in restaurant in most cases is found out to be 2 to 3 times that of a cloud kitchen. Looking deeper into profits, because of a lack of manpower, rent and licences, cloud kitchens generate almost 1.5 times the net profits than a traditional dine-in restaurant.

Not only does cloud kitchens impress in capex and profitability, it has also been able to drive consumer satisfaction as well. According to Redseer Consulting, a lot of new brands emerged via cloud kitchen models have been able to get comparable customer experience as the long established QSR brands. This could be attributed to attention in hygiene and food safety, superior packaging and timely delivery of food, which on a whole aids in a superior customer experience. In metropolitan cities of Mumbai and Delhi NCR, cloud kitchens get a higher preference among consumers as compared to well established Quick Service Restaurants (QSR) brands.

Growth of Cloud Kitchens over a span of 7 years

As a result, cloud kitchens are likely to see a 5 to 6 times growth in their gross merchandise value (GMV) and to become an estimated 3000 billion rupee industry by the end of FY 2025. Cloud kitchens expanding to Tier 2 and Tier 3 towns and cities would help maintain the growth momentum of the Indian food industry. With its rapid growth over the last couple of years and a promising future, it would not only support millions of households but also multiple allied agencies such as real estate, food processing, consulting etc., and it is due to these factors cloud kitchens have a distinct advantage in the organised sector.

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