F&B Sector cooks up a New Recipe to Beat High Rentals

As rentals in prime locations of India ‘eat up’ an average of 25-30% of a restaurant’s revenue against the global trend of 15-20%, online food delivery segment is gaining ground and is likely to cross $7 bn in 2019. Prominent brands are hitching on to the cloud kitchen domain to save on real estate costs and power ahead on the strength of their F&B offerings alone.

-  Anuj Kejriwal, MD & CEO – Anarock Retail

Real estate rentals have risen significantly in major cities like Mumbai on the back of increasing shortage of quality supply. This factor alone often leads to thousands of restaurants across Indian metros shutting shop each year. Rentals in some prime locations in Mumbai can ‘consume’ 25-30% of a restaurateur’s total monthly revenue.

High real estate costs have berthed concepts like co-working and co-living in the office and residential spaces. The F&B sector came up with its own cost-saving recipe. This profit-devouring real estate cost is significant if we consider the average global trend of 15-20%. It holds true for many nonprime areas of cities like Mumbai as well.

However, prime locations are obviously the lodestone of success for F&B, especially when it comes to full-fledged restaurants. Even a small food counter drawing much lower rentals can do good business as long as the brand and its offering is right for the location and its clientele.

Since they can afford the high rentals, many organized domestic and global F&B brands survive while smaller, unorganized players often have to pull out. Besides cutting down on profit margins, high rental costs also limit F&B players’ business scalability, since renting the right space requires high working capital and upfront deposits.

Cloud Kitchens to the Rescue

Given these challenges, the new concept of ‘cloud kitchens’ - which involve low operating costs and high-profit margins - is gaining increasing traction among F&B players.

A cloud kitchen - usually situated in a remote (read cost-effective) area - is essentially space where food is prepared for delivery only and has no dine-in or takeaway facilities. In many cases, small eateries come together to share a kitchen facility from where deliveries can be made easily.