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Digital disruption: the hyperlocal Food services

in post-COVID
delivery and cloud kitchen driven India

future of food services in post-

COVID India 161
Kishore Thomas John Received 10 June 2021
Revised 14 July 2021
Department of Management Studies, Indian Institute of Technology Madras, Accepted 15 July 2021
Chennai, India

Abstract
Purpose – The pervasive impact of the COVID-19 virus on the food services sector in India has created
conditions for fundamentally altering the structure of the industry. This paper offers a nuanced evaluation of
the transfiguration of the market, explaining descriptive views supported by numerous secondary data
sources.
Design/methodology/approach – This is a self-driven study grounded in secondary data. Qualitative and
quantitative assessments are assimilated from credible market research reports of multiple agencies in the
Indian context, as well as news developments during the pandemic period.
Findings – Digitally pivoted platforms such as cloud kitchens and delivery aggregators will eclipse all other
formats due to the potential long-term prevalence of the COVID-19 virus. These formats would rise to a
dominant position in the Indian food services sector in the coming decade.
Research limitations/implications – This study is entirely driven by secondary data due to the inherent
difficulties of collecting sizeable and good quality primary data as a result of the lengthy and stringent
lockdowns imposed across India. Future studies should consider collecting consumer responses to get a better
picture of changing dining habits in the post-pandemic scenario.
Practical implications – The dynamic and evolving food services in India, catalyzed by the Internet and
digital technologies will help academicians study the long-term implications of this change, and how it would
impact society at large. The paper provides a rich body of contemporary data and analysis in the food services
sphere.
Social implications – The COVID-19 pandemic and its long-term persistence would dramatically alter food
service consumption across India. This will not only change how the industry is structured, but will reshape
how food is consumed into the future.
Originality/value – The study is a holistic examination of the relationship between the coronavirus pandemic
and the food services industry in India. The macro perspectives aided by news coverage and industry research
would help generate potential research questions on its own merits.
Keywords Food services sector, Cloud kitchens, Delivery aggregators, food-tech, Digital disruption,
Coronavirus, Post-COVID transformation
Paper type Viewpoint

1. Introduction
In the wake of the global spread of COVID-19 virus in March 2020, India imposed one of the
world’s longest and strictest lockdowns (Purohit and Parmar, 2021). The impact of this action

© Kishore Thomas John. Published in International Hospitality Review. Published by Emerald

Publishing Limited. This article is published under the Creative Commons Attribution (CC BY 4.0)
licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both
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authors. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/ International Hospitality Review
Vol. 37 No. 1, 2023
legalcode pp. 161-187
The author is a fully funded research scholar of IIT-Madras and is supported financially under the Emerald Publishing Limited
2516-8142
Half Time Research Allowance (HTRA) scholarship scheme of the institute. DOI 10.1108/IHR-06-2021-0045
IHR was devastating on the economy, with millions driven into poverty, and the economy
37,1 grinding to a near halt (Agarwal and Bellman, 2020). The Indian restaurant sector, valued at
over $50 billion was forecasted to cut about 1.5 million jobs and suffer $9 billion in losses,
being one of the worst affected sectors in the economy (Ahmed and Roy, 2020). Reports by
market research companies and food-tech firms suggested that 40% of the restaurants in the
country were permanently closed due to the pandemic with dine-in revenues cut by half
(CRISIL Research, 2020a; Zomato, 2020). However, the sector started witnessing the green
162 shoots of recovery following a relaxation of restrictions and the waning of the first wave.
Between the months of September 2020 to February 2021, the sector recovered slowly but
steadily, with the growth and resumption of food services driven mostly by delivery apps and
food aggregators (Ishwar, 2020; Bhalla, 2020). The recovery was aided by the long festive and
sports season that extended from September till the year’s end. By New Year’s Eve, food
delivery apps were taking record number of orders as customers increasingly embraced the
delivery format (ETTech, 2021a; Ahmed, 2021). The dine-in business saw recovery in
numbers only by February 2021 when the effects of the first wave were on the decline
(Tandon, 2021a). In March 2021, the Union Health Minister had declared that the worst of the
pandemic was over (Biswas, 2021).
The impact of the unexpected and devastating second wave changed all that. With
infection rates in India breaking new records every day, the country was once again
preparing for the long haul, with fresh lockdowns imposed across states and cities by local
authorities (Slater, 2021; Singh, 2021). The government’s principal scientific advisor had
warned of an imminent third wave, exacerbated by mutant variant strains of the virus
(Chirtavanshi, 2021). The ravages of the second wave were borne adversely by the battered
food service industry, with restaurants closing down once again amidst new lockdowns in
major cities and states (Tandon, 2021b; Ganguly, 2021a; Das, 2021). This development was
ruinous considering that restaurants and bars were clamoring for the government to ease
restrictions for diners only two months earlier (Bengaluru Bureau, 2021; Sadhu, 2021).
The re-imposition of stringent lockdowns on the food service sector which was making a
slow and arduous recovery had put many restaurants in a “ventilator mode”, essentially
surviving solely on takeaways and food-delivery apps (PTI, 2021; Roy, 2021; Ganguly,
2021b). Published studies by the American CDC had pointed to the risk of spread in
restaurants (Explained Desk, 2021; Timesofindia.com, 2020). This suggests that the dine-in
sector would survive only in a much diminished mode for as long as the pandemic posed a
threat. The coronavirus continues to be an undeniable and persistent problem for India. Its
tenacity is expected to bring in disruptive changes in the dining and restaurant industry. This
perspective paper examines the likely scenario of how the sector would survive and progress
into the foreseeable period and its impact on the industry as well as consumers in India.
Specifically, the paper would examine the disruptive effects of cloud kitchens, food-tech apps
and the delivery segment, and how they rose from relative obscurity to command a dominant
position in India’s food services industry.

2. Food services in India: a sector feeling the pangs of disruption

India’s food services sector saw its first major growth impetus following the liberalization
and opening up of the economy in 1991. Its growth since then has been marked by
acceleration and an internationalization of tastes and preferences. This is reflected by the
increasing number of international food chains setting up their businesses across the
country. Technopak’s study titled Indian Food Services Market cited in Barbeque Nation
Hospitality Limited (2021) had divided the Food Sector’s growth story into 3 distinct
phases, each spanning a decade beginning in 1991. The specificities of each stage are
highlighted in Table 1. The sector witnessed pronounced acceleration and growth toward
 Concentration
areas Business types Business model Key driver Key challenge

Transforming Mega metros (2 International (mainly Complete ownership, Opening up of Indian economy Limited infrastructure and
India cities) and mini- US) brands and home- or franchising with and end of license-raj era. connectivity. Issues of logistics and
(Introduction) metros (6 cities) grown brands self-funding Accelerated economic growth lack of skilled manpower. Limited
1991–2000 and rise of the services sector. market research and lack of
Growth of the middle class and availability of consumer data.
rapid expansion of metro cities Culture shock for international
with cosmopolitan cultures brands to Indian food preferences
(McDonalds beef controversy)
Ambitious India Tier-I cities (20 Diversification of Franchise and Growth of regional cities in state Limited market research and
(Growth) 2001– cities in total) sector and customer emergence of joint capitals, satellite cities and availability of consumer data.
2010 clusters, new brand ventures partnerships industrial, commercial and IT Growing but nascent Internet
entries and public equity, hubs. Attraction of foreign landscape. Adoption of digital
angel investors investment and international technologies. Insularity of India’s
players into India’s growth story growing middle class toward new
(India Shining Campaign) lifestyles. Building the food services
sector as a lifestyle choice
Digital India Emerging lower Expansion of multiple Joint ventures driven Increasing urbanization, Developing loyal customers in an
(Expansion) 2011– Tier cities and American brands by IPOs and angel accelerated economic growth increasingly crowded market.
2020 towns across Indian investments and an enabling regulatory Digital proliferation. Leveraging
subcontinent environment with lifting of CRM initiatives. Market
restrictions for international segmentation and diversification.
players. Rapid proliferation of Disruptive effects of food-
Internet and mobile telephony technology firms
Transfiguring Pan-India Food-tech aggregator Hyperlocal, with Expansion of smartphone usage. Monopolization of digital market.
India (Disruption) expansion and and cloud kitchen partnerships and tie up Growth of cash-less and contact- Commoditization of food service.
2021–2030 presence driven with local businesses less payment methods. AI, Decline of dine-in formats.
Machine learning and data Government intervention
mining
Source(s): Adapted by the author from Barbeque Nation Hospitality Limited (2021)
in post-COVID
Food services

163
India

sector from 1991–2020

Table 1.

of India’s food services

Phase-wise expansion
IHR the second decade of the new century, characterized by the rapid growth and expansion of
37,1 the organized sector.
The growth and expansion of the third phase is accentuated by the exponential rise of
Internet access and adoption of mobile telephony. In 2007, only 4% of the entire population
had access to the Internet (Keelery, 2021). However, the period from 2010 onwards saw a
sharp increase in Internet adoption. As of 2020, close to 50% of the population could access
the Internet (Table 2). Simultaneously, there has been a significant increase in the number of
164 smartphone users in the country (Table 3). Reports by market intelligence agencies have
suggested that India had 468 million smartphones in 2017, expected to reach 859 million in
2022 (PwC-ASSOCHAM, 2018). By end of 2019, it was reported that India had crossed half a
billion smartphone users (IANS, 2020). Interestingly a year later, another study reported that
97% of all Internet users in India access it through their smartphones (Mumbai Bureau, 2019).
By mid-2020, the number of rural Internet users had overtaken urban users, signaling a phase
shift in India’s digital revolution (Mishra and Chanchani, 2020).
Reports from 2014 had suggested that India’s food service sector was poised for a major
transformation (CII-Grant Thornton, 2014). The rise of digital technologies was seen as a
catalyst for transitioning marketing expenditures of food service segments into the online
sphere. In 2016–17, marketing expenditure was approximately 4–6% of the total revenues of
the industry (FICCI-Technopak, 2017). However, the spend pattern indicated a favorable tilt
to digital media in comparison to traditional formats. Figure 1 shows the breakup among
different formats. The QSR and FD/IC spending on Digital videos account for more than half
of their entire budget. The Caf!e and PBCL segments spend most on third party aggregators in
order to make it easier for customers to identify outlets on their devices. The casual dining
segments spend most on E-mail marketing and search engine optimization. Fine dining spend
was the highest on social media, as was PBCL.
Cost-based analysis in 2018 (Table 4) showed that most of the segments were operating
with low margins, aggravated by a regulatory system that requires up to 15 different licenses
for a restaurant. This was in stark comparison to other Asian counties where licensing
regimes are less cumbersome and more business friendly (FICCI-Technopak, 2017). The
extent of regulation coupled with low margins were a cause of much distress in the sector,
which is typically cash-strapped- having only around 16 cash buffer days (ETCIO, 2020). In
effect, the abrupt first lockdown in March 2020 had sounded the death knell for a significant
number of restaurants, being unable to resume operations after the restrictions were eased
75 days later. Anurag Katriar, the president of National Restaurant Association of India
(NRAI), representing around 500,000 restaurants reflected “Knowing the high-risk nature of
our current business model and the fragility of our profitability were perhaps the biggest lessons

Details 2014 2015 2016 2017 2018 2019 2020

Table 2. Users (In millions) 226.3 332 321.8 446 560 688 747.41
Internet users in India Penetration (%) 18.3 27 34 35 38 48 50
and penetration Source(s): Compiled from multiple reports from IBEF (2021) and Statista in Keelery (2021)

Details 2014 2015 2016 2017 2018 2019 2020

Table 3.
Smartphone users Users (In millions) 123.3 250.66 304.51 394.82 479.34 634.58 696.07
in India Source(s): Statista Research Department (2021)
 100% Food services
90% in post-COVID
80%
India
Percentage Composi!on

70%

60%
165
50%

40%

30%

20%

10%

0%
Casual Fine
Café QSR PBCL FD/ IC
Dining Dining
Display Marke!ng 10 10 9 11 0 0
Modile / SMS 0 0 19 2 0 0
Search & E-mails 10 20 51 26 10 14
Digital Video 0 50 9 12 10 57
Third Party
Figure 1.
50 0 2 6 40 14
Spending patterns
Social Media 30 20 9 43 40 14 among different dining
format in India by
Note(s): FD/IC: Frozen Dessert/Ice-Cream, PBCL: Pubs, Bars, Café’s and Lounges percentage in 2016–17
Source(s): Compiled by the author from (FICCI-Technopak, 2017)

Caf!es QSR CDR Fine dining PBCL

Store economics table by food service type

APC (US $) (approx value) 2.00–3.00 5.50–8.50 8.50–12.00 >15 >15
Table turnover 1.8–2.2 1.4–1.6 1.7–2.5 1.2–1.8 1.7–2.0
Avg. store size (Sq. Ft.) 1,000–1,500 1,200–1,500 3,000–3,250 3,250–3,500 3,250–3,500
Avg. CAPEX per store (US $) 97K–139K 139K–208K 416K–486K 486K–556K 416K–486K
Avg. sales/day/store (US $) 208–277 902–972 NA NA NA
Store-wise breakup of costs
CoGS 40% 30% 32% 32% 30%
Employee costs 12% 22% 18% 18% 25%
Rent costs 12% 11% 13% 15% 15%
Outlet expenses 16% 15% 12% 8% 10%
Outlet EBITDA 20% 22% 25% 27% 20%
Total revenue 100%
Note(s): Costs calculated in constant 2018 dollars 1 US $ 5 approx. 72 INR Table 4.
APC: Average per Cover, CoGS: Cost of Goods Sold. CAPEX: Capital Expenditure Approximate store
EBITDA: Earnings before Interest, Tax, Depreciation and Amortization economics for various
QSR: Quick Service Restaurants. CDR: Casual Dining Restaurants. PBCL: Pubs, Bars, Caf!e’s and Lounges food service segments
Source(s): Compiled and tabulated by the author from FICCI-PwC (2018) in 2018
IHR learned from this pandemic. . .reducing the fixed expenses or converting some of them to a
37,1 variable is a key requirement for survival under the circumstances” (Bhatia, 2021).

3. The evolving Indian diner

India has a predominantly younger population. It is also the youngest among the BRICS
166 nations with a median age of 28.7 years. Estimates by the CIA in 2020 put 43.82% of the
population below 24 years, numbering at over 581 million. A substantial chunk of the
population is of the working age. This is enumerated in Table 5.
India’s population and family structure also underwent a structural transformation in the
post-millennial period, characterized by rising urbanization, growing number of nuclear
families, changing consumer tastes and preferences, higher experimentation in foods,
awareness and access to market offerings and a larger proportion of women in the workforce.
These changes have been cited by numerous industry analysts (FICCI-Grant Thornton, 2015;
FICCI-KPMG, 2016; MoFPI, EY and CII, 2017; FICCI-Technopak, 2017).
To better understand the dining-out profiles by age group, a study by FICCI-Grant
Thornton in 2015 showed that the 21–30 age group comprised the largest segment of diners.
Importantly, consumption of food services was driven predominantly by younger age
groups, with those above the age of 40 constituting a small fraction. These figures were
largely upheld by another study conducted by Nielsen in 2017 which specifically
concentrated on India’s middle and affluent classes. The findings showed that food
services consumption was more prevalent among the affluent classes-where a higher
percentage dine out and spend more and also among the millennial age groups of both
categories, who spend a greater share of their income on food as well as higher amounts per
visit. Notably, the study highlighted that the bottom 80% of India’s middle class typically
spend less than $ 10 during a visit, demonstrating the limited purchasing power among
Indian households for food services (see Figure 2).

Age group Percentage Male population Female population

0–14 Years 26.31 185,017,089 163,844,572

15–24 Years 17.51 123,423,531 108,739,780
25–54 Years 41.56 285,275,667 265,842,319
Table 5. 55–64 Years 7.91 52,444,817 52,447,038
Age structure of India’s 65 Years and above 6.72 42,054,459 47,003,975
population Source(s): CIA (2021)

50
Percentage of Total

40
30
20
10
0
Figure 2. 18-20 Years 21-30 Years 31-40 Years Above 40 Years
Age profile
categorization of Percentage 18 40 31 11
Indian diners in 2015
Source(s): FICCI-Grant Thornton (2015)
 Juxtaposing Table 6 with Table 4 allows shows that 80% of India’s middle class can only Food services
afford to eat as Caf!e’s, QSR and CDRs, based on budgetary considerations. Furthermore, the in post-COVID
culture of dining-out is most prevalent among the millennial age groups. A study by CBRE in
2018 showed that millennial Indians dine out around 5 days a month with 60% of millennials
India
eating out more than thrice a month. In 2019, data published by the NRAI reported that the
dining-out culture is fast picking up in India, led by major metro cities (Sanand, 2019). The
report also said that Caf!e’s and coffee shops were the most popular formats, frequented by
college students, office-goers, couples and families. Table 7 shows the eating out frequency 167
and spending pattern among different age groups as well as cities.
What the data make evident is that prior to the COVID-19 outbreak, eating out was
picking up pace in India, while ordering-in was much behind, both among consumers as well
as in major cities. A schema of how an urban couple spends their year showed that dining-out
was the third most popular recreational activity after movies and get-togethers (Table 8).
However, what is also evident is that while dining-out in India is above the global average, it is

Affluent class
Description Middle income class ($ 4,166 to $ 13,888) (>$ 13,888)

Percentage of households that 5% 9%

eat-out
Average annual spend on eat- $ 76.38 138.88
out
Percentage of total food expense 10% 13%
spent on eating out among
millennials (ages 18–34)
Average expenditure on eating $ 109.91 $ 159.18
out among millennials (ages 18–
34)
Percentage of total food expense 3% 7%
spent on eating out among Gen
X (ages 35–50)
Average expenditure on eating $ 61.9 $ 130.38
Table 6.
out among Gen X (ages 35–50) Spending pattern on
Split of classes into sub- Bottom 2nd 3rd 4th Top Top Top food services by Indian
categories 20% Quintile Quintile Quintile 20% 10% 1% households (economic
Average spend per visit $ 1.34 $ 2.70 $ 4.87 $ 8.51 $ 28.3 $ 37.5 $ 88.8 class and
Source(s): Nielsen (2017) generation wise)

Eating-out Average spend/ Ordering-in Average spend/

Description frequency/month outing ($) frequency/month ordering-in ($)

15–24 Years 2.3 3.06 0.9 1.65

25–34 Years 1.9 3.00 0.7 1.57
>35 Years 1.5 4.04 0.3 1.42
Mega metros 6.3 13.85 2.1 6.6
Mini metros 5.5 11.48 1.9 5.77 Table 7.
Tier-I and II 4.8 9.41 1.1 4.21 Spending pattern
cities among consumers
Source(s): Technopak, compiled by author from Edelweiss (2021) and Barbeque Nation Hospitality based on age groups
Limited (2021) and cities (2020)
IHR Activity Days spent
37,1
Office 109
Sleeping 104
Commuting and parking 28
Cooking/Meals 25
Watching TV 20
168 Get-together with family and friends 14
Homework and children activities 13
Eating out 9
Gym/fitness 7
Shopping 6
Household chores 4
Table 8. Birthday parties 4
Day-wise split of Grooming 3
activities of an urban Films 2
Indian couple in 2017 Source(s): Technopak-FICCI (2017)

below several other regions such as Hong Kong, Taiwan, Malaysia, Thailand, Vietnam,
Singapore, Morocco, Saudi Arabia and Brazil (Nielsen, 2016).

4. The shifting shape of India’s income distribution

The national census of 2021 was stalled due to the second wave of the pandemic. As a result,
estimates of India’s wealth distribution are available only from various market research
agencies, which have used their own metrics and segmentation to show the different socio-
economic classes of Indian households. Figures 3 and 4 and Table 9 show estimates from
three leading research companies. What can be gleaned from these insights is that India has a
substantially larger middle class and highly tapered upper and elite classes, suggesting a
wide disparity in income among households.
The data consistently shows that India’s struggling households at the bottom of the
pyramid would rise out of impoverishment as the country progresses into the third decade.
This however, was not to be. By 2020, however, India had plunged into an economic recession

100%
Globals (> $ 22065.3)
90%
80%
Strivers ($ 11032.7- $ 22065.3)
70%
60%
50% Seekers ($ 4413.1- $ 11032.7)
40%
30% Aspirers ($ 1985.9- $ 4413.1)
20%
10%
Deprived (< S 1985.9)
0%
Figure 3. 2008 2015 2020 (PCE) 2030 (PCE)
Changes to India’s
socio-economic groups Note(s): PCE-Pre-COVID-19 Estimates
from 2008 to 2030 Income Distribution is calculated in constant 2010 dollars. 1 US $ = 45.73 INR
Source(s): McKinsey Global Institute, compiled from IBEF (2014) and IBEF (2018)
100% Elite (> $ 30,800) Food services
90% in post-COVID
80%
70%
Affluent ($ 15,400- $ 30,800) India
60%
50% Aspirers ($ 7,700- $ 15,400)
40%
30% Next Billion ($ 3,000-$ 7.700)
169
20%
10% Strugglers (< $2,300)
0%
2005 [209.1 million 2016 [266.5 million 2025 (PCE) [304.8
Figure 4.
Households] Households] million Households] Changes to India’s
socio-economic groups
Note(s): PCE-Pre-COVID-19 Estimates from 2005 to 2025
Income Distribution is calculated in constant 2015 dollars. 1 US $ = 65 INR (estimate)
Source(s): BCG in Singhi et al. (2017)

2019 2020 2021 2022

Households 2013 2014 2015 2016 2017 2018 (PCE) (PCE) (PCE) (PCE)

Household 236 239 243 247 251 255 259 262 266 270
numbers
$ 5,000–$ 9,999 80 90 96 108 126 138 149 173 188 206
$ 10,000–$ 17 19 21 24 31 36 41 54 64 79
49,999
More than $ 0 0 0 0 0 0 1 1 1 1
50,000 Table 9.
Note(s): PCE- Pre-COVID-19 Estimates Household distribution
Income Distribution is calculated in constant 2018 dollars. 1 US $ 5 70 INR by income slabs (in
Source(s): Deloitte-RAI (2019) millions)

before the onset of the pandemic (Kochhar, 2021). The lockdown and the economic fallout that
followed severely impacted India’s population. Data published by the Pew Research Center
indicated the pervasive effect of the pandemic in India, with 75 million people driven back into
poverty and a substantial reduction in the low and middle income groups. The pandemic had
more than doubled India’s poor and reduced India’s middle class by 33 million people (Refer
Table 10).

Socio-economic Daily income (US Pre-COVID Post-COVID

group $) (millions) (millions) Difference Impact

High income > $ 50 3 2 1 Decrease

Upper-income $ 20.01–$ 50 22 16 7 Decrease
Middle-income $ 10.1–$ 20 99 66 32 Decrease
Low income $ 2.01–$ 10 1,197 1,162 35 Decrease Table 10.
Poor <$2 59 134 75 Increase Gross population
Note(s): Income Distribution is calculated in constant 2021 dollars. 1 US $ 5 75 INR distribution by income
Source(s): Pew Research Center in Kochhar (2021) slabs (in millions)
IHR 5. How COVID-19 affected India’s food services sector
37,1 The onset of the pandemic had severely disrupted India’s food services sector, which was
forecasted to bring in revenues of US $ 20 billion in the Oct–Dec 2020 quarter alone. Data from
Figure 5 show the severity of the contraction following the imposition of the first lockdown.
The period April–June 2020 showed near total loss of revenues. Recovery was slow for most
of 2020. Projections for 2021 were based on assumptions of a weakening pandemic, relaxation
of restrictions and a resumption of normal life. This unfortunately has been reversed by the
170 state-level lockdowns that have begun since April and are at full force in most of the states by
May 2021. Reports have suggested that close to 98% of India is again under partial or
complete lockdown, with night curfews, as well as restrictions and curbs on movement and
normal conduct of business (Sharma, 2021; Sukumar, 2021).
To get a better understanding of how the whole industry has been affected, data published
by Technopak are examined in Figures 6–8. Projections for the period from April 2021
suggest a steady recovery, with almost all segments recovering and exceeding the revenues
reported prior to the pandemic outbreak. This may perhaps be very optimistic. The outbreak
of the second wave was not foreseen at the time of publishing the data. The ominous
projections of a third wave, with the continuing threat of mutating strains that are less
responsive to existing vaccines suggest that estimations of recovery from April 2021 are too
early and unlikely to be realized in the near future.
Figure 6 shows that the unorganized segment would grow at a much slower pace in the
post-pandemic period. The sector which is comprised mostly of dhabas (highway joints),
roadside eateries, street food and hawkers is the segment for which the least unit-level data
are available. In the pre-COVID era, it constituted a sizeable chunk of the total market.
However, its overall share has been steadily falling.
The aggregated data presented in Figure 6 do not consider the impact of prolonged and
repeated lockdowns on this segment. A possible reason for this is the lack of data, since such
outlets do not come within the tax net and also do not require real-estate unlike that of the
organized food sector. The organized standalone and chain market register seemingly higher
growth rates. Calculating CAGR from Figure 7 shows that CDR would register the sharpest
growth in the standalone format, while from Figure 8, it is clear that QSR would be the fastest
growing segment among chain formats.

25
Earnings per quarter in US $ (Billions)

20

15

10

0
Oct-Dec Jan-Mar Apr-Jun Jul-Sep Oct-Dec Jan-Mar
2019 2020 2020 2020 2020 2021
Figure 5. Pre-Covid Es!mates 18 15.33 13 16.33 20 16.33
Revenue changes in Post-Covid Es!mates 18 11.66 1 3.86 9.66 12
food services (US $
Billions) with COVID- Note(s): Revenue Distributionis calculated in constant 2021 dollars. 1 US $ = 75 INR
19 impact estimates
Source(s): Technopak, from Edelweiss (2021)
 Market Break-up in US $ (Billions)
2021 2022 2023 2024 2025
2015 2016 2017 2018 2019 2020
(E) (E) (E) (E) (E)
Restaurants in Hotels 1.07 1.17 1.27 1.40 1.53 1.55 0.53 1.65 1.79 1.92 2.08
Organized Chain 2.33 2.72 3.15 3.80 4.67 5.31 3.05 7.37 8.87 10.68 12.88
Organized Standalone 8.80 9.63 10.93 12.47 14.61 16.04 7.24 19.53 22.71 26.43 30.79
Unorganized Market 26.00 27.68 29.67 31.75 33.80 33.59 15.95 34.41 36.48 38.68 41.00

Note(s): Revenue Distribution is calculated in constant 2021 dollars. 1 US $ = 75 INR. (E): Estimates
Source(s): Technopak, from Barbeque Nation Hospitality Limited (2021)
in post-COVID
Food services

171
India

Figure 6.

estimates for India’s

(US $ Billions)
food services industry
Fiscal-year wise
IHR Market Size in US $ (Billions)
37,1

172 2021 2022 2023 2024 2025

2015 2016 2017 2018 2019 2020
(E) (E) (E) (E) (E)
FDR 0.24 0.24 0.25 0.27 0.28 0.28 0.07 0.31 0.33 0.36 0.39
PBCL 1.27 1.40 1.53 1.67 1.93 2.03 0.52 2.32 2.59 2.89 3.24
FD/IC 0.21 0.23 0.24 0.27 0.28 0.29 0.13 0.31 0.33 0.36 0.40
Café 0.67 0.72 0.77 0.83 0.92 0.95 0.43 1.01 1.11 1.21 1.32
QSR 1.08 1.24 1.40 1.64 1.93 2.13 1.27 2.57 2.99 3.47 4.01
CDR 5.33 5.80 6.73 7.80 9.27 10.36 4.84 13.01 15.36 18.13 21.43
Figure 7.
Fiscal-year wise Note(s): Revenue Distribution is calculated in constant 2021 dollars. 1 US $ = 75 INR. (E):
estimates for organized Estimates. QSR: Quick Service Restaurants. CDR: Casual Dining Restaurants. FD/IC: Frozen
standalone market (US
$ Billions)
Dessert/Ice-Cream. PBCL: Pubs, Bars, Café’s and Lounges. FDR: Fine Dining Restaurant
Source(s): Technopak, from Barbeque Nation Hospitality Limited (2021)
Market Size in US $ (Billions)

2021 2022 2023 2024 2025

2015 2016 2017 2018 2019 2020
(E) (E) (E) (E) (E)
FDR 0.07 0.07 0.07 0.07 0.08 0.08 0.01 0.07 0.08 0.08 0.08
PBCL 0.12 0.15 0.16 0.20 0.28 0.32 0.08 0.41 0.49 0.59 0.71
FD/IC 0.13 0.16 0.17 0.20 0.25 0.28 0.13 0.36 0.41 0.49 0.57
Café 0.23 0.24 0.25 0.28 0.32 0.33 0.15 0.36 0.40 0.44 0.49
CDR 0.75 0.89 1.08 1.31 1.57 1.79 0.73 2.32 2.79 3.35 4.03
QSR 1.04 1.21 1.40 1.73 2.16 2.51 1.93
6.99 3.84 4.69 5.72
Figure 8.
Fiscal-year wise Note(s): Revenue Distribution is calculated in constant 2021 dollars. 1 US $ = 75 INR. (E):
estimates for organized Estimates. QSR: Quick Service Restaurants. CDR: Casual Dining Restaurants. FD/IC: Frozen
chain market (US $
Billions) Dessert/Ice-Cream. PBCL: Pubs, Bars, Café’s and Lounges. FDR: Fine Dining Restaurant
Source(s): Technopak, from Barbeque Nation Hospitality Limited (2021)

The fixed cost implications are different between the unorganized and organized segments.
Rentals and fixed costs would be high in the organized segment, especially in major cities
where space is in high demand. Malls and F&B clusters typically charge high rentals,
including maintenance costs, while high streets are typically congested in India, making it
inconvenient for vehicular mobility and parking spots (see Table 11).
 Even after the first lockdown was lifted, restrictions on restaurant operations, specifically Food services
in matters of social distancing, hygiene norms, seating capacity, working hours and sale of in post-COVID
alcohol affected dine-in and revenues (Tandon, 2020). In the days leading up to the second
lockdown in 2021, restrictions were imposed again, leading to much anxiety and concern in
India
the industry (Das, 2021; Bhushan and Verma, 2021). With infection rates continuing in high
numbers into May, the lifting of lockdowns and restrictions seemed to be uncertain (Sinha,
2021). There was open speculation that the restaurant sector would have to survive only on a
takeaway/delivery mode for the foreseeable period (Roy, 2021). 173

6. Enter the disruptors: food aggregators and cloud kitchens

Food-tech and cloud kitchens are emerging phenomena in India that have found rapid growth
and ascendancy. Until a decade ago, these segments were virtually unheard of. Their
popularity was facilitated in large part by the growth of Internet and smartphones. The rapid
rise of these formats points to an imminent disruption in the industry. Market research
reports as late as 2015 on food services made no mention of these segments (FICCI-Grant
Thornton, 2015). However, by 2017, their emergence was observed; aided in-part by
increasing discretionary spends of younger consumers (FICCI-Technopak, 2017). India’s
food-tech industry has witnessed a steady rise in investments with the figures increasing
even after the pandemic. Table 12 indicates the Year-on-Year trends in investment across the
3 major categories of technology-driven food services in India.

6.1 Cloud kitchens

Cloud kitchens are variously known as dark kitchens, ghost kitchens, commissary kitchens,
virtual kitchens or cyber kitchens (Oracle, 2020). Oracle had classified the cloud kitchen
concept into three main types (shared space, dedicated space and virtual brand) based on
usage of space, real-estate and equipment, as well as branding. Unlike typical restaurants
which offer seating for diners, these outlets cater exclusively to a delivery or takeaway
market, situated in spaces where rentals are low to keep costs down (Sanwaria et al.., 2021).
Cloud kitchens are almost entirely dependent on food-tech and aggregators for sustaining
their business model. In 2020, a report by Euromonitor International stated that India has
around 3,500 cloud kitchens; far ahead of developed western economies like the USA (1,500)

Description F&B cluster% High street% Commercial space% Mall% Table 11.
Distribution of
Overall market distribution 7 60 4 29 organized segment
International restaurants 8 26 4 62 among real-estate
Domestic restaurants 7 68 3 22 formats at 3 Indian
Source(s): CBRE (2018) metros

Food-tech type 2014 2015 2016 2017 2018 2019

Food delivery 60 129 81 89 1,672 102

Cloud kitchen 12 66 28 10 22 165 Table 12.
Table reservation 0 4 3 12 34 0 Y-O-Y investment
Year total 72 199 112 111 1,728 267 trends in Indian food-
Note(s): Investment figures are calculated respective years in millions of US Dollars tech segments in US $
Source(s): Compiled by author from BCG-Google (2020) (Millions)
IHR and the UK (750) (Schaefer, 2020). The sector was also poised for steep growth after the onset
37,1 of the pandemic, forecasted to grow five-fold from $ 400 million in 2019 to $ 2 billion by 2024
(Biswas, 2020). However, these projections were revised by the end of 2020, with new
estimates suggesting that cloud kitchens would take 30% of the total market share in India
by 2021, up from only 13% the year before (Inresto, 2020). Table 13 lists out the some of the
publicized players in this space in India. Besides these, there are hundreds of fragmented
cloud kitchen entities spread all across the country. A significant portion of the players are
174 regionally focused and do not enjoy pan-India presence, apart from Rebel Foods which owns
the maximum number of brands and outlets. The typology of Indian cloud kitchens is
indicated in Table 14.
Analysts have estimated that if an Indian cloud kitchen was set up with an initial
investment of INR 1 million (Approx. $ 13,333) with an average-order-value of $4 and gets
750–800 number of orders daily, it could recover its entire investment within a year (Sanwaria
et al., 2021). This volume is possible if multiple brands operate from the same kitchen in a
shared space. The market researcher Datalabs by Inc42 calculated the cost of setting up a
cloud kitchen in India to be about a third of that of a conventional restaurant (Cheema, 2019).
A detailed split-up of costs is shown in Table 15. Cloud kitchens are specifically suitable for
the delivery business. To get a better perspective, Table 16 compares the breakup of costs of a
cloud kitchen vs. a typical restaurant in the delivery format. A sizeable cost component
(almost 25%) is incurred as commissions to the delivery partner. This cuts into margins
deeply, leaving traditional restaurants with practically no profit. In contrast, cloud kitchens
offer economic viability due to lower cost of setting-up, running and better margins.
Cloud kitchens encapsulate the delivery meal experience in an affordable, value-oriented
offering. The low-cost operating structure allows the format to pass on the benefit to the
consumer. An expert at PwC in 2019 had described India as a “highly price-sensitive market”
(BBC, 2019). Consumer studies in retail have shown that Indians are more demanding; seek
value and are conservative with their spending when compared with other countries (BCG-
CII, 2016). The economic impact of the pandemic, the threat of loss of livelihood and the
uncertainty of further disease spreads might amplify this behavior, leading to less
discretionary spends. This has indeed been reflected in market studies which have shown an
increasing trend to saving and thrift (Beniwal, 2021; KPMG, 2021). The president of NRAI
was quoted as saying that “F&B business is largely fuelled by discretionary expenses” (Bhatia,
2021). It is implied that eating out at restaurants will be affected. However, the cloud kitchen
segment might be able to buck this trend by altering the cost structure vis-"a-vis a traditional
restaurant, allowing more value to be realized by end consumers.

6.2 Delivery apps

India’s online food-delivery market has evolved into a duopoly in recent times, with major
international players marking their exit (Goel and Conger, 2020). Within the food service
sector, these are called platform-to-consumer (P2C) segments in contrast to restaurant-to-
consumer (R2C) segments, where the order is typically received and serviced online by the
restaurant itself (Poluliakh, 2020). The online platform serves as an intermediary between the
consumer and the food service outlet, providing detailed information about different
restaurants, menus and offers (prices and discounts). The logistics of the collection and
delivery are also handled by the platform’s own agents. The platform collects a commission
from the restaurants and/or consumer (Barbeque Nation Hospitality Limited, 2021).
Comparative data from Table 12 show that close to 83% of all funding received in the food-
tech space has been in the delivery segment. Collectively, the two largest players in the arena
each are billion dollar plus in valuation, although they are yet to become profitable. Even in
the midst of the pandemic, when investor sentiment was affected, these majors continued to
Name of Year of Location/
operator founding Market value HQ Remarks

Zomato 2008 $ 5.43 Billion (2021) Gurgaon Launched Zomato Infrastructure Services (ZIS) in 2016 to help build cloud kitchens for use
by multiple restaurants. This venture was closed in 2020. It is now investing in other cloud
kitchen start-ups like Loyal Hospitality of Bengaluru. Also tied-up with major star hotels
and fine dine restaurants across India during pandemic for food delivery
Rebel foods 2011 Approx. $ 800 million Mumbai Commenced operations as a restaurant in 2011. Converted into a cloud-only model by 2016.
(2020) 350 kitchens across 35 cities in India as on Mar 2021. 11 brands in total including Behrouz
Biryani, Oven story, Mandarin Oak, Lunch Box, the good Bowl, Sweet Truth, Firangi Bake,
the 500 Calorie Project, Navarasam, Slay. Planning to offer IPO by end of 2022 and targeting
Billion dollar valuation. Largest player in India by size, market value, brands and reach.
Franchisee model launched for expansion. Deal signed with American Giant Wendy’s in
2020 to open 250þ cloud kitchens across India
Box 8 2012 $ 55.5 million (2020) Mumbai Operates in 4 major cities: Mumbai, Pune, Bangalore and Gurgaon. Delivers close to 660K
meals from 100 outlets monthly. Also owns the Pizza brand Mojo Pizza
FreshMenu 2014 $ 53 million (2020) Bengaluru Internet-first restaurant mainly focused on Bengaluru’s cosmopolitan market. Last major
round of funding was 2019. 5 kitchens closed in 2020. Company reported a slow-down in
2021 with fresh investments drying up
Swiggy 2014 $ 4.46 Billion (2021) Bengaluru Cloud kitchen business started in 2017 as Swiggy access in limited format. Hundreds of
outlets opened and 200þ cloud kitchen brands created. Many shut down due to pandemic.
Tied-up with most fine-dine restaurants and five-star hotels across India for delivery during
pandemic. Unicorn company
Biryani-by- 2015 $ 20 million (2020) Gurgaon Sells biryani by weight, including chicken and mutton. Last major funding in August 2020.
Kilo Operates 48 outlets from 25 cities
Inner chef 2015 $ 30 million (2020) Gurgaon Provides food services in Gurgaon, Noida, Delhi, Mumbai, Bengaluru and Hyderabad
Petoo 2015 $ 1.69 million (2019) Bengaluru Struggling with seeding in recent years. Last major funding was in 2016. Had 31 franchisees
with presence in 12 cities across 7 states at a time. Now, it is mainly based out of Karnataka
and has an outlet in Chennai
Cure-Fit 2016 $ 399 million (2020) Bengaluru Last major funding received in 2019. Offers entire gamut of fitness, diet, training and
nutrition. Food is offered under its sub-brand EatFit. Outlets in 6 cities
Ghost 2019 $ 3 million (2019) Mumbai Cloud kitchen incubator. Owns over 18 brands spread across desserts, biryani, south Indian
kitchens food, snacks, Chinese, ethnic Indian and pizza
Ola foods 2019 No data available. Bengaluru Network of 40 cloud kitchens across 6 cities. Major brands include: The Biryani Experiment,
Subsidiary of Ola Khichdi Experiment, Paratha Experiment, the daily diner, Bowl some, that Pizza Place,
Nashta Express and Glupp
Source(s): Compiled by author from multiple sources and Tracxn (2021)
in post-COVID
Food services

175
India

kitchen players in India

Publicized cloud
Table 13.
IHR Cost center Description Cost (US $) Description
37,1
Operating expenses Rentals $ 357–$ 571 Area of 800 Sq. ft. Monthly
rentals
Licenses $ 214–$ 257 Multiple licenses required
annually
Kitchen and $ 7,142–$ Cost for area- one time investment
176 Equipment 14,285
Staff $ 571–$ 1,000 Monthly, including chefs and
commie
Marketing and selling Customer acquisition $ 571–$ 2,000 Monthly, including CRM, website,
expenses etc
Social media $ 285–$ 571 Monthly
Branding and $ 714–$ 857 Package design, containers,
Packaging materials
Table 14. POS and inventory $ 57–$ 71 Monthly
Cost components of Note(s): Costs is calculated in constant 2019 dollars. 1 US $ 5 70 INR
cloud kitchens in India Source(s): Compiled by author from Limetray (2019)

Type Floor area Description Specifics

Independent cloud 500–600 Sq. ft The oldest and original model Orders are online with delivery
kitchen model only model. Exclusive kitchen
space. Highly specialized cuisine.
Aggregator dependent. Found all
across India
The brand house 2000þ Sq. ft Multi-brand kitchen for multiple Adopted by Rebel foods. Online
model cuisines. Single kitchen. 1 orders to single kitchen with
mother kitchen, many child multiple brands. Different cuisine
brands variety. Aggregator dependent,
but with own platform also
The Storefront 1,200–2000 Sq. ft Single brand in single kitchen, Has the traits of a typical cloud
Franchise model but multiple outlets and a kitchen with the option of
visible storefront takeaway. Allows physical access
to end customers. Used by
FreshMenu in Delhi
Aggregator Multiple kitchens of Multi-brand offering owned by Parent aggregator is source of
Owned (Shell type) 100–500 Sq. ft in a an aggregator with rented orders. Provides space for partner
model larger kitchen kitchens. A shell model with brands in same kitchen. Higher
only space and basic utilities. vertical integration. Used by
Clients bring all equipment, Swiggy in Swiggy access
staff, raw materials and menu
etc.
Aggregator Multiple partners, Rented kitchens, but equipment Fuller than the shell type model,
Owned (Filled- each operating a provided by aggregator. with more support from
shell type) model kitchen space of 250– Technical details shared, aggregator. Customers can walk
500 Sq. ft including recipes. Has a visible into the store for takeaway.
storefront Patronized by Zomato
Infrastructure services
Fully Outsourced n.a Everything is outsourced. Even Called Kitopi model after the call-
model major kitchen work is center. Own online platform. Raw
outsourced. Chefs only do final materials purchased and stored.
Table 15. touches and finishing Pre-prepared in central kitchen.
Typology of cloud Sent to satellite kitchen for final
kitchens in the Indian touches
context Source(s): Compiled by author from Limetray (2018)
attract funds, allowing their businesses to grow and race closer to profitability. Table 17 lists Food services
out the major players in the past and the present time. The growth of the two dominant food- in post-COVID
delivery platforms in India has been phenomenal, rising from near obscurity and confinement
in major cities in 2015 to nationwide presence by the end of 2020. Interestingly, it can be seen
India
from Table 13 that both Swiggy and Zomato had launched their own cloud platforms only to
wind it down later. Clearly, the delivery business was more profitable. To lend a perspective
177

Attribute Particular Cloud kitchen% Restaurant%

Fixed costs Rent 25 24

Wages/salaries
Energy (Electricity þ Gas)
Raw material Meat/vegetables/oil etc. 40 18
Packaging Preparation for delivery NA 5
Table 16.
Ads and discounts Promotion of outlet 25 Comparison of costs
Commissions Paid to the delivery partner 25 25 between a cloud
Profit margin What is retained by outlet 10 3 kitchen and restaurant
Source(s): Cheema (2019) in delivery format

Name of Year of Market Location/

operator founding value HQ Remarks

Zomato 2008 $ 5.43 Gurgaon Started off as a restaurant review portal.

Billion Commenced its delivery business in 2015. $ 977
(2021) million funding raised in 2020. $ 252 million
raised in Feb 2021. Approximately 230,000 gig
workers in 2019. Offers a Zomato Gold loyalty
programme
Amazon 2012 No data Bengaluru Commenced in May 2020. Operations solely in
India Bengaluru in 62 pin-code areas as of March 2021.
Offers free delivery for prime members and
charges nominal fees for non-prime customers
Food Panda 2012 $ 31.7 Delhi Early entrant in market with operations in 5cities.
million Sold off to Ola India in December 2017. Ola shut
(2017) down the delivery business 18 months after
acquisitions to concentrate only on the cloud
kitchen business
Dunzo 2014 $ 267 Bengaluru Niche player concentrated only in 7 cities. Offers
million a drop-off facility also involving food among a
(2021) “Curd to condoms” delivery model. Will pick up
item of choice from store/restaurants and deliver
to specified location
Swiggy 2014 $ 4.46 Bengaluru $ 157.88 million funding in 2020. $ 800 million
Billion funding until April 2021. Over 250,000 gig
(2021) workers as of 2019. Offers a Swiggy Super loyalty
programme
Uber eats 2017 $ 350 Gurgaon Ride sharing platform entered food delivery
million business in May 2017. Started business in
(2020) Mumbai and expanded to other cities. Sold off Table 17.
business to Zomato in Jan 2020. Had 10 million Publicized food-tech
users at time of sale. Took 10% stake in Zomato delivery players
Source(s): Compiled by author from multiple sources and Tracxn (2021) in India
IHR on the growth of the two players, Table 18 provides a comparative view on the city-wise
37,1 presence and daily orders across time.
The COVID-pandemic and the associated lockdowns, while affecting the restaurant
industry as a whole had provided some relief for online delivery apps. Despite curfews and
restrictions for dine-in at restaurants, these segments were given sufficient leeway to operate
under the consideration that food delivery was an “essential item” (Arun, 2021). Reports in
October 2020 suggested that the two biggest food delivery apps were able to recover their
178 business volume to pre-COVID levels (Abrar, 2020). By November 2020 Goldman Sachs had
forecasted both Swiggy and Zomato to become profitable entities in 2022, revising earlier
estimates that had suggested late 2023 (Dash, 2020). In April 2021, Zomato filed for an IPO
with India’s regulator and was expected to raise $ 1.1 billion in funds (Toh, 2021).
HSBC in a 2021 report claimed that Swiggy and Zomato would become profitable in the
COVID-era due to increase in the average-order-value coupled (AoV) with reduction in
discounting (Salman, 2021). The cost-wise breakup is shown in Table 19. A sustained
pandemic period extended over multiple lockdowns and repeated waves of infection would
allow the delivery players to dominate traditional formats, permitting losses to be recovered.
A Bank of Baroda Capital Market study claimed that approximately 63% of the online
food service customers in 2019 comprised of millennials (Burde and Naik, 2021). Projections
show the P2C segment moving past R2C by 2025. The differences of the pre-pandemic and
post-pandemic estimates suggest that the market would grow by an additional $ 1.7 billion
due to the pandemic alone to reach a cumulative $ 18.1 billion by 2025 (Figure 9).
The projections are based on the underlying assumption that the pandemic is a singular,
unusual occurrence rather than a prolonged and persistent social disruption. The figures
therefore might be much higher in the online delivery space, as latitude for regular restaurant
operations are curtailed and/or restricted. The longer the pandemic continues to persist; the

Description of food-tech app 2016 2017 2018 2019 2020

Swiggy: Number of cities by presence n.a n.a 44 500þ 600þ

Swiggy: Order counts per day 40,000 80,000 700,000 1,400,000 n.a
Table 18.
Growth of the major Zomato: Number of cities by presence n.a n.a 63 500þ 556þ
food-tech players (City Zomato: Order counts per day 30,000 100,000 650,000 1,300,000 n.a
count and daily Note(s): n.a- Data not available
order count) Source(s): Compiled from multiple sources and BOBCAPS in (Burde and Naik, 2021)

Cost-wise breakup per order on online aggregators Pre-COVID Post-COVID

Average value of an order in (US $) 4 5.33

(Minus) amount taken by restaurant (US $) 3.066 4.13
(Equals) net revenue of aggregator App (US $) 0.93 1.20
(Minus) delivery cost (US $) 0.60 0.53
(Minus) support cost (US $) 0.066 0.106
(Minus) discount (US $) 0.266 0.133
(Minus) restaurant refund (US $) 0.066 0.066
Table 19. (Equals) contribution margin (US $) (–0.066) 0.360
Pre-COVID and Post- (Minus) marketing þ fixed cost (US $) 0.333 0.266
COVID breakup of cost (Equals) EBITDA for the delivery food-tech aggregator (US $) (–0.40) 0.0933
components for Online Note(s): Revenue distribution is calculated in constant 2021 dollars. 1 US $ 5 75 INR
Aggregators Source(s): HSBC in S.H. (2021)
steeper would be the rise of online deliveries. However, the rise of these online aggregators to Food services
dominant positions in the industry has not been without contention. The NRAI had called in post-COVID
these apps “Digital Landlords” for their exorbitant commissions and punishing terms
(Sharma, 2020). There have also been cases of labor unrest among gig workers, protesting
India
unfair employment practices (Vaidyanathan, 2020). A report by the Oxford Internet Institute
claimed that the work cultures in Swiggy and Zomato were the worst in India, with unfair
policies and practices prevalent in wages, working conditions, contractual terms,
management policies and worker representation (Fairwork, 2021). 179
A particularly sore issue for restaurants was the lack of access to customer data, which
aggregators refuse to share (Narayanan and Ambwani, 2021). The NRAI in 2020 had mulled
the creation of a rival aggregator online delivery portal to offer better terms to restaurants
(Sharma, 2020). Until 2021, the NRAI had not succeeded in developing a viable alternative
that can match the scale and scope of these aggregators. The entry of a dominant e-tailer like
Amazon is predicted to shake the market hold of the exiting players, due to lower
commissions and better terms offered to restaurants (Motilal Oswal, 2021). However, Amazon
at the present time is operating only in a single city in India (Kelkar, 2021). Its large scale
expansion might have long-standing implications for the delivery segment.

6.3 The future is hyperlocal

Food services are by default hyperlocal. Unlike conventional e-tailers that transport
merchandize over long distances, hyperlocal businesses work on satisfying demand within
circumscribed geographies using other businesses based within these regions (Team Inc42,
2019). The augmentation of logistics capabilities supported by technological advances allows
such businesses to respond to customer needs rapidly, usually in less than an hour. India is
attracting investment to hyperlocal startups in a diverse range of portfolios such as groceries,
pharmacy, logistics, etc. (Singh, 2020). The COVID-19 pandemic would accelerate the growth
of such services due to the inherent restrictions it imposes on mobility and physical access.

7. The dynamics of disruption

The effects of the predicted disruption in the food services sector are two-fold:
(1) The manner in which the consumer purchases food services.
(2) The existing structure of the industry
A prolonged COVID-era punctuated with multiple waves of the pandemic and mutating virus
strains will continue the legal confinement of citizens, leaving them more dependent on
hyperlocal businesses. This may be embraced by the younger generation given their
inclination toward food services and online aggregators. However, there will be a significant

15
Market Size in US $

10
(Billions)

5
0
2016 2020 2025 (Pre-Covid) 2025 (Post-Covid) Figure 9.
R2C 4.4 5.4 7.6 8.4 Online P2C and R2C
market in India with
P2C 0.3 4.8 8.8 9.7 estimates (US $
billions)
Source(s): Technopak, from Barbeque Nation Hospitality Limited (2021)
IHR impact on discretionary spends due to the economic fallout of the pandemic. This will affect
37,1 spending on food services (CRISIL Research, 2020b). Cloud kitchens can circumvent this
problem by value pricing and food-portioning to position their offerings as home meal
replacements.
The indicators seem to suggest that the future of food services will be sustained by the
delivery segment due to the COVID-19 virus. This will fundamentally shift the control over
the service experience from the restaurant toward the online aggregator app (Figure 10). The
180 landscape of the industry will be altered due to the predicted capitulation of the unorganized
segment. This may be attributed to continuing concerns and fears of safety and hygiene
within this segment. It is unlikely that the unorganized segment will be able to weather the
ravages of the pandemic over prolonged periods due to lesser working capital. The
projections which have forecasted a significant share of the unorganized market even in 2025
may not hold true in the face of unfolding crises. The future may point toward low-cost
business models which are supported by higher digitization and marketing. The cloud
kitchen model sustained by aggregators might be a viable format for the coming era
(Figure 11).

Seller Minimum
Average Order Value Increases
Convenience Increases
Burden of Conveyance

Home Delivery

Seller’s Control over

Take-away/ service encounter
Drive-through

Figure 10.
Comparing different Restaurant Dine-in
food service Buyer Maximum
consumption formats
Source(s): Author’s own

Higher Digi!za!on and Marke!ng

Lower Capital Expenditure
Higher Capital Expenditure

QSR, CDR, Fine-Dining Cloud Kitchens

FOOD SERVICE

Mess, Canteen Unorganized Sector

Figure 11.
The rise of lower-cost
and highly-digitized
cloud kitchens in the Lower Digi!za!on and Marke!ng
post-COVID era
Source(s): Author’s own
8. Concluding observations: the way forward Food services
Consumer food habits have fundamentally changed in the COVID-era. A study by IPSOS in in post-COVID
the Indian context has revealed altered dining behavior, with increased focus on healthy
and immunity boosting foods (Gangwani, 2020). Notably, the annual food trends report by
India
Godrej (2021) which compiles expert opinions of food writers, consultants, chefs, hoteliers,
restaurateurs and industry leaders from across India suggested the post-pandemic period
to be driven by safety and health concerns and the rising dominance of cloud kitchens.
Cloud kitchens have inherent advantages in operating during the COVID-era due to a 181
scalable architecture and lowered costs of labor and rental. However as a downside, these
segments do not enjoy the same visibility or brand presence of full-service operators and
are entirely dependent on online aggregators for their sustenance. The absence of client-
facing-staff would also make service recovery difficult in the event of a failure.
Furthermore, the problem of commoditization is increasingly ominous as the segment
becomes crowded.
The inherent challenge of cloud kitchens would be to balance the pre-COVID consumer
drivers of discounts, convenience and variety with the post-COVID drivers of downsized
spending, safety and hygiene in a transparent setting to build consumer confidence. These
may be achieved through various digital features like live kitchens and streaming.
Food-tech aggregators on the other hand, face more daunting challenges. Their increasing
prominence and growth will invite the attention of regulators and the government as they
become “too big to ignore”. Already, complaints to the competition commission of India have
flagged anti-competitive practices of these aggregators and their potential abuse of dominant
position (CCI, 2020). There are also fears from industry watchers about a digital monopoly
imposed by these players, who after reaching market dominance may overcharge customers
and restaurants (Shahane, 2020). Furthermore, as the gig economy expands in India, it will
attract the attention of lawmakers to protect the interests of such workers (ETTech, 2021).
Food aggregators already have hundreds of thousands of delivery agents on their payroll.
The Indian government is deliberating labor codes for this emerging workforce (Bala, 2021).
There is also a genuine possibility of unionization of gig workers for collective bargaining
and representation. These factors may ultimately extract additional cost expenditures from
the end-consumer.
Notwithstanding the above risks, the present market conditions are favorable for the
growth of these segments. India had more than 200 million online shoppers in 2020 (BCG-
Google, 2020), and this is slated to increase further. The vast amounts of unit-level user data
collected by aggregator apps would allow them to leverage on technologies like artificial
intelligence, machine learning and data mining for targeted marketing, advertising, demand
management, route planning and optimization as well as horizontal integration into other
hyperlocal segments. For consumers, the long honeymoon with aggregators may be coming
to an end, but for the aggregators the party is just beginning.

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Corresponding author
Kishore Thomas John can be contacted at: [email protected]

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