Coping with the crisis: The rise of cloud kitchens as the new alternative

face of the food industry.

Submitted by:
Aman Singh P41067; Shikha Mishra P41111; Shivam Gupta P41112; Shlok Dungerwal P41113;
Shubhayan Modak p41115
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Abstract
The pandemic has, like most industries, taken the food and hospitality industry by storm.
Immediately after the diseases broke out, restaurant sales and take outs started declining rapidly,
with businesses shutting shop permanently within months into lockdown. Millions of jobs were lost
at all rungs of the food industry, from elite restaurants laying their staffs off, to the roadside eateries
bidding adieu to their much-loved employees, the tales are almost similar. With the new normal
rolling in, the cloud kitchen trend fast caught up, and took the right advantage of the gap between
the rising demand of takeaway and the rising apprehensions related to the pathogen at loose. This
research focusses on the aspects that led to the rise of the cloud kitchen model of business as one
of the emerging trends in the new normal. We will be looking in details about what the Cloud Kitchen
model of the food business looks like, and why it is fast gaining the centerstage, as well as delve
deep into the growth and future predictions of this industry by relying on first hand data.

The Food Industry

Food serves as one of the primary links between humans and society. The business of food has
existed for as long as history has been around. The tales from the mediaeval world are all full of
events and social interactions happening in taverns and eating houses all across the globe. Such is
the important of food that major events in history, literature, economics, business and many other
walks of life have been regularly associated with the art of gastronomy. However, despite their
fulfilling presence, food has majorly been a business entity and a means of sustenance for millions
of people around the world. Come the 1900s and restaurant and food industry was already one of
the major Lee accepted choice of livelihood. And with every passing decade, more people flocked
into this trade because of its relatively ease of business and low capital investments to start with.
By 1960s Food industries got actively engaged with other industries such as corporate, hospitality,
healthcare, community living and So on. Research and development around food saw a sharp rise
and associated job profiles started emerging. Professions like expert chef, nutritionist, diet planner
et cetera started to gain mainstream attention from people across the world. With this gradual yet
steady development, the food industry became one of the most bankable investments and
individual can start their future with. The entrepreneurial spirit quickly caught up around the mid-
1970s and this led to a major boom in the number of small eating houses, restaurants and similar
across the world. This was accompanied by a boom in the variety of foods on the menu, extensive
research and exploration amongst various local cuisines, giving birth to an entire gastronomic
ecosystem. Magazines, tablets, newspaper articles, television cooking shows and similar media
initiatives started showing up, amplifying rapidly the associated industries. With the West engaging
in rapid capitalization of market opportunities, we saw the creation of big food houses like
McDonald’s, Burger King and the likes.

In India, food has been synonymous with identity. For a community whose inherent values, lifestyles
and daily habits revolve around their food habits, Indians are particularly sensitive about their food
and how they consume it. While there is no doubt that food has been an ancient part of our daily
lives, it is important to note that the market hype revolving food, and its immediate necessity for a
good lifestyle has only been a very recent phenomenon on. With the advent of fast internet
Coping with the crisis: The rise of cloud kitchens as the new alternative
face of the food industry.
Submitted by:
Aman Singh P41067; Shikha Mishra P41111; Shivam Gupta P41112; Shlok Dungerwal P41113;
Shubhayan Modak p41115
-----------------------------------------------------------------------------------------------------------------------------------
connections, cheap mobile devices, and reducing internet costs, Food industries saw a massive
boom in the associated content industry. Within a span of years, hundreds of online portals social
media channels and other initiatives popped up, giving the general public and huge amounts of
informative content to consume. Food also has a dominant mainstream television presence, with
its hubs in the UK and USA. Shows like Masterchef popularized the global food scenario, bringing it
close to people. In India, cooking shows and competitions have long been popularized by
mainstream content channels, with a few daily soaps having their dominant theme as food, it’s
preparation and similar.

This industry is a preferable area of investment for starting a small venture because of its high
reliability. Save extreme circumstances (like the pandemic situation), food houses generally manage
to stay afloat and in business even in trying times by adjusting menus and prices because it deals in
a basic commodity, one which is staple to survival. This coupled with an immense sense of
confidence in dealing with food, a commodity that, in India sells on all occasions, events and days
provides an impetus to individuals for opening up a food startup. The relative less necessity of
training and expertise is perhaps, the convenience factor in this – food is a commodity that can be
prepared and cooked by anyone willing to engage in business – unlike a mechanic or labor, this
doesn’t involve much of technical knowhow, or body breaking labor. While this ease of doing
business in the food industry has led to many people successfully starting their business and
sustaining, and employing further, this also has seen unscrupulous entities dealing n substandard
products, leading to health anomalies.

The Food Industry is by far, the industry holding the record of the variety and type of products it
offers to its customers across the globe. The possibilities are endless, combinations infinite, and
each person cooking a dish punches in his/her own hand, making every plate of food that was ever
eaten on this earth unique. All of this came to a dead halt with the 2019 nCOV outbreak. Imagine a
fully loaded trailer suddenly ramming into a concrete dam – the effect was synonymous to what you
just imagined in your head.

What is a cloud Kitchen, and why is it in demand?

In stark contrast to the full-fledged menu type of service that established restaurants have offered
traditionally, modern eatery houses are preferring to sticking to a small platter of related dishes.
This gradual shift in the product range from wide to specialized products has multiple reasons, all of
which are essentially operational and has to do with ease of business, which will be discussed later.
These small specialized stores offering special dishes and on-demand customized orders were hit
the hardest – with a relatively small seed fund, it was illogical for these establishments to continue
operating, hence, ceased to exist.

With things turning to be steadier now than few months back, many such businesses have started
operating on the cloud kitchen model – keeping only procurement and preparation as the
immediate function, and handing over the prepared meal to delivery agencies for a direct to
doorstep delivery of the food. Cloud kitchens only deal in preparation of the food, and the entire
consumption is ex-situ, with a 100 percent delivery/takeout option. This eliminates the entire hassle
Coping with the crisis: The rise of cloud kitchens as the new alternative
face of the food industry.
Submitted by:
Aman Singh P41067; Shikha Mishra P41111; Shivam Gupta P41112; Shlok Dungerwal P41113;
Shubhayan Modak p41115
-----------------------------------------------------------------------------------------------------------------------------------
of customer interaction and service, taking out transmission risks, hygiene concerns and social
distancing parameters.
The benefits are multifaceted:
• The no-inhouse and direct service means a massive reduction in space requirements. This
saves massively on outlet costs, rent costs, taxation, interior design, and maintenance costs.
• This saving can be further engaged in research and development related to food, packaging
and hygienic ways to preserve and transport the food to the customer in the best shape, size
and consistency as possible.
• The current customer base strongly focuses on specialized niche food items over the run of
the mill restaurant menu. Cloud Kitchen helps set up small brands of special menus, and by
clustering multiple brands under one central kitchen, helps save resources.
• Compounding multiple brands under one kitchen helps save money, which can be used
elsewhere.
• The selected products are generally chosen so as to have similar raw material and
preparation requirements, making procurement and preparation easier for the workforce.
• Labor requirement is less as there is zero customer engagement and the product on offer is
trimmed down to convenient offering.
• The actual location of the cloud kitchen hardly matters, cutting down the rent expenses, as
the model is delivery based.
• Mostly, residential spaces ae hired for setting up such kitchens, cutting down on resources.
• Research and development on packaging is very important as it is one of the very few factors
that actually influences the customer’s decision making – retaining the warmth, taste and
shape of food is important.
• A massive budget is spent on research and development of food, as these specialized menus
die out pretty fast, and a constant innovation in food products is needed to remain relevant
in the market and ensue the retention of customers.
• A majority of the funds saved are utilized for marketing and online canvassing. A massive
spend goes to online marketing, social media handles and content generation as in the
absence of physical customer interaction, online content marketing is one of the major
marketing avenues.
• Incentive introduction is a major ploy into keeping the business running through sustainable
profits. A new incentive is necessary for maintaining the continuity every two three months.
These incentives can be a new food item, a new flavor, a topping, or a combo, or anything
from the vast array of options cuisines provide the ground owners and the chefs with.
• Discount dependency isn’t a sustainable practice as in the long run, this hampers the brand
image. All houses tend to maintain a constant nominal discount figure, calculations for which
are already included in the original product price.
• Factors of price sensitivity is essential – a startup needs to identify, through proper surveys,
the price segment in which his product should be introduced to the market for the average
customer to be able to purchase comfortably.
• General Price Sensibility differs considerably with Festive Price Sensibility, so, introducing a
new food brand via a cloud kitchen setup during a festive season is wiser a decision.
Coping with the crisis: The rise of cloud kitchens as the new alternative
face of the food industry.
Submitted by:
Aman Singh P41067; Shikha Mishra P41111; Shivam Gupta P41112; Shlok Dungerwal P41113;
Shubhayan Modak p41115
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• Food is volume business, and more the volume, less is the effective cost.
• Lastly, Cloud Kitchen initiatives and brand centric focus helps in portfolio diversification for
larger corporate players.
With the above data in mind, we are delving further into our analysis on cloud kitchens. Our research
process comprises of performing the background study, understanding the situation in depth,
assessing the deciding parameters and proceeding with our literature study in order to gauge the
amount of research already done previously. Having finished, we have proceeded with framing the
questions so as to gather the necessary information. Once completed, we have proceeded with
analyzing the obtained data and studying the various trends that are visible from the data. Further,
from the data and the study, we have proceeded to gather the necessary points and conclusions
about the rise of cloud kitchen as a sustainable model of business in the food industry and have
gone ahead with predicting the future trend associated with this business model.

Previous Studies
The United Nations has called the COVID-19 pandemic “the greatest test that we have faced since
the formation of the United Nations,” to flatten the daily COVID-19 cases (Conceição, 2020) actions
such as lockdowns and social distancing lead to temporary shutdown in restaurants businesses and
significantly decreased the demand for businesses that were allowed to continue to operate (Bartik
et al., 2020). As a result the forecast for the future of restaurants are catastrophic, as it was
estimated that over half of the restaurants won’t survive (Severson & Yaffe-Bellany, 2020).
Also, as suggested by the behavioral inhibition theory (Elliot, 2006) the anxiety caused by the
pandemic may lead to avoidance behavior, such as increasing physical distance from others in social
interactions. As a result social distancing behavior in some cases started before formal policies were
implemented (Conceição, 2020).
Therefore, under these circumstances, it is important to consider the alternatives to dine-out, as at
the time of crisis people show a greater demand for options that involve less risk (Rittichainuwat &
Chakraborty, 2009).
Preliminary findings also indicate that a large proportion of restaurant customers (64.71%) and the
majority of hotel customers (70.42%) believe that the use of various technologies in service delivery
will be necessary in the COVID-19 environment in order to minimize human-to-human contact
(examples: service robots, contactless payment such as Apply pay or contactless bank cards, digital
menus that can be viewed on personal mobile devices via QR codes, contactless digital payments,
keyless entry, touchless elevators, etc.) (Gursoy et al., 2020).
As observed by a survey conducted by Mckinsey & Co. consumers expected spending for next two
week on 21-June-2020 is below -50% compared to next year. By September 30 it improved but it is
still negative compared to last year. At the same time it was between -30 to -49% on 21-June-2020
and positive (between 0-14%) on September 30 which shows that take away and delivery was not
that badly affected as compared to restaurant and may show positive growth from October. Also in
the same survey in customer purchasing food take out & delivery category has shown positive
growth for both 21-June & 30-September 2020 compare to last year (Charm, 2020)
Coping with the crisis: The rise of cloud kitchens as the new alternative
face of the food industry.
Submitted by:
Aman Singh P41067; Shikha Mishra P41111; Shivam Gupta P41112; Shlok Dungerwal P41113;
Shubhayan Modak p41115
-----------------------------------------------------------------------------------------------------------------------------------
Framing the Questions
Coming to the important part of research which is sampling and questionnaire design to conduct
surveys. Looking at the sampling frame, and the context related to it, quota Sampling a Non-
Probability sampling is being adopted for the consumers. Quota sampling is often confused with
stratified and cluster sampling- two probability sampling methodologies. The primary difference
between the methodologies is that with stratified and cluster sampling, the classes are mutually
exclusive and are isolated prior to sampling. Thus, the probability of being selected is known and
members of the population selected to be sampled are not arbitrarily disqualified from being
included in the results. In quota sampling, the classes cannot be isolated prior to sampling. as each
class fills or reaches its quota, additional respondents that would have fallen into these classes are
rejected or excluded from the results. In this survey, we are constrained by the demographics like
urban and up to a age range.
For cloud kitchen, purposive sampling is being selected as researchers are bound to collect the data
of the only selected respondents in. in purposive sampling or judgmental sampling, the researcher
employs his or her own expert judgement about who in the sample frame. Prior knowledge and
research skill are used in selecting the respondents or elements to be sampled. As with all non-
probability sampling methods, degree and direction of error introduced by the researcher cannot
be measured and statistics that measure the precision of the estimates cannot be calculated. We
choose the particular sampling for cloud-kitchens as they were available or were easy to reach. For
data collection we also use Likert scale, semantic differential scale and Guttman scale. In Likert scale
ordinal variable is coded, it consists mainly of 5 ,7 or 9 type variables. For example we use 5 Likert
scale for a question mainly strongly disagree, somewhat disagree, neutral, somewhat agree, and
strongly agree. In semantic differential scale we use different types of adjectives like good, bad,
useful, not useful etc. Guttman scale is risky to use as its intensity of response changes.
Questionnaire design for survey is the vital element of a survey, keeping the questions design in a
such way that it does not breach privacy. Structured questionnaire are the most used while
conducting as it uses close-ended, lower cognitive load, higher responsible and more accurate. For
the consumers are mostly dependent on the what, and where types questions, which comes under
the mutually exclusive and exhaustive (web based). Questionnaire design for the cloud kitchens is
based on telephonic and mail based, it was not convenient for us to reach them personally because
of the pandemic. Data collection is done in various ways like the responses we have. Dichotomous
response consists of only yes or no, sometimes it has true or false. Other responses are Nominal
responses, ordinal responses, interval responses and continuous responses. In continuous response
mean, mode or median can be calculated as it is numerical type response.

Analyzing the Questions

Now Let us have a look at the consumer data collected using google forms.
As mentioned, the sampling method used by us to study consumer behavior is Quota sampling. This
has given us a sample space of 111. The data shows that only 51.4 % people taking the survey were
sure what cloud kitchen is, this shows that there is still not enough awareness amongst people.
The data collected shows that 40.5% of these people are familiar with ordering from a cloud kitchen.
Among these 45 people, 48.9% people have continued ordering food despite the pandemic scare.
Coping with the crisis: The rise of cloud kitchens as the new alternative
face of the food industry.
Submitted by:
Aman Singh P41067; Shikha Mishra P41111; Shivam Gupta P41112; Shlok Dungerwal P41113;
Shubhayan Modak p41115
-----------------------------------------------------------------------------------------------------------------------------------
Further analysis and study of this data collected revealed that 68.2% of people still ordering food
has actually increased their frequency of using cloud kitchens. And the rest have either decreased it
or have faced no change in their food ordering pattern. Also, 8 out of these 22 people experienced
an increase in price of the food they were ordering from the cloud kitchen. While, 13 people
observed no change in price. Out of the total 45 people ordering from cloud kitchen, before the
pandemic scare, 23 people stopped ordering during and after the lockdown.
What can be concluded by looking at this trend is multi fold.
1. Cloud kitchens are still something people are getting to know about; it is not something
they fully understand or are familiar with.
2. Most of the cloud kitchens managed to keep their prices the same even after facing non-
sale and lockdown for a few weeks to months. They were able to provide customers the
services at the same rate even after incurring losses.
3. The little price hike that we did notice was mostly because of unavailability of or
inaccessibility to raw materials like sauces, buns, bread, etc.
4. The people who continued using cloud kitchen services even after the lockdown or
pandemic scare were among the 18 – 35 age group range.
5. A significant number of people were deterred by the pandemic and the hygiene aspect
of ordering food from outside. Safety became their primary concern and not food
delivery. Some people though, we think, were driven more by need than luxury to have
continued ordering food from the cloud kitchen.
6. Another observation that we did make while interacting with customers was that the age
group of the data collected is a little skewed as the people who actually order food in
households with the older generation, are the younger people with access to
smartphones. So further research can in depth try to understand the food buying habits
or households and not individuals of different age groups.

The cloud kitchen owners are actually expecting further growth in the future, they are convinced
that the sales numbers will look better than what they looked pre COVID. So, from the research and
data analysis that we have performed we can conclude that people have started preferring cloud
Coping with the crisis: The rise of cloud kitchens as the new alternative
face of the food industry.
Submitted by:
Aman Singh P41067; Shikha Mishra P41111; Shivam Gupta P41112; Shlok Dungerwal P41113;
Shubhayan Modak p41115
-----------------------------------------------------------------------------------------------------------------------------------
kitchens over actual dine in restaurants so that there is reduced or limited human contact amid this
pandemic. Also, in total 33% existing consumers have increased the frequency of ordering food post
lockdown.
Coping with the crisis: The rise of cloud kitchens as the new alternative
face of the food industry.
Submitted by:
Aman Singh P41067; Shikha Mishra P41111; Shivam Gupta P41112; Shlok Dungerwal P41113;
Shubhayan Modak p41115
-----------------------------------------------------------------------------------------------------------------------------------
The scope of our research entails that we will try studying the addition of a new consumer base to
cloud kitchens as our research focuses mainly on pre-existing customers and change in their habits
brought on by the pandemic.

Concluding the Arguments

To make the research data vibrant we tried to study cloud kitchens from various locations in India.
To gather the information, we connected to kitchen owners and did a telephonic interview. Cloud
kitchen is an urban concept so the location we choose were Ahmedabad, Delhi, Lucknow and
Kolkata. The questions were framed to understand the organizations working and their customers
understanding.
The time of operating hours vary but most of them are operational between 11am to 2am in
morning. Some cloud kitchens have their own delivery system and some dependent upon third party
delivery services like Swiggy and Zomato. Before the Covid pandemic the owners of cloud kitchens
had a positive attitude as growth was about 10% year-on-year in revenue. When lockdown was
imposed their operations ceased. Few of them could survive which we interviewed and others
closed their operations.
When the government started to uplift the lockdown could kitchen’s saw a good boost in sales. As
people carved for good delicious outside food which they missed during the lockdown, could be
fulfilled by ordering in cloud kitchen. Initially, in the month of June supply chain were disturbed and
Coping with the crisis: The rise of cloud kitchens as the new alternative
face of the food industry.
Submitted by:
Aman Singh P41067; Shikha Mishra P41111; Shivam Gupta P41112; Shlok Dungerwal P41113;
Shubhayan Modak p41115
-----------------------------------------------------------------------------------------------------------------------------------
raw materials were not available in required quantities and price. As the economy further started
to open up prices of raw materials started to normalize.
The price of food items in the menu were not changed. But the additional cost of maintaining safety
and hygiene hit hard on the profit margins.
The owners are expecting the market to come to normal and further increase in sales as people
prefer to have food at home than outside.

References:
1. COVID-19 and human development: Assessing the Crisis, Envisioning the Recovery, UNDP, Page No.
- 3, 4, http://hdr.undp.org/sites/default/files/covid-19_and_human_development_0.pdf

2. How Are Small Businesses Adjusting to COVID-19? Early Evidence from a Survey, National Bureau of
Economic Research, https://www.nber.org/papers/w26989

3. Independent Restaurants Brace for the Unknown, The New York Times,
https://www.nytimes.com/2020/03/20/dining/local-restaurants-coronavirus.html

4. Effects of COVID-19 on preferences for private dining facilities in restaurants by Jung keun Kima &
Jacob C.Lee, https://www.sciencedirect.com/science/article/pii/S1447677020301789

5. Perceived travel risks regarding terrorism and disease: The case of Thailand by Bongkosh Ngamsom
Rittichainuwat & Goutam Chakraborty,
https://www.sciencedirect.com/science/article/abs/pii/S0261517708001222

6. Effects of COVID-19 pandemic on hospitality industry: review of the current situations and a
research agenda by Dogan Gursoy,
https://www.tandfonline.com/doi/full/10.1080/19368623.2020.1788231

7. Consumer sentiment and behavior continue to reflect the uncertainty of the COVID-19 crisis,
McKinsey & Company, https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/a-
global-view-of-how-consumer-behavior-is-changing-amid-covid-19