There has been a lot of confusion amongst our users, restaurateurs, and the media about our “cloud kitchen” service. “Cloud kitchens” is a new phrase which doesn’t yet have a definition and is used for a wide variety of business models.
With this note, we are hoping to clarify what we are planning to do, and the underlying business model.
Zomato Infrastructure Services is a kitchen infrastructure service where we will work with current restaurant business owners to expand their business to more locations without incurring any fixed cost.
Key points to note about ZIS
What does “infrastructure” mean in this context?
- Think of these infrastructure services as delivery only food courts in locations slightly off the premium locations (think much lower rentals, but accessible); we will not have take-out or dine-in at these locations.
- Each location that we create for ZIS will have 4 or more restaurant brands co-located with each other, leading to shared (and thus lower) costs; each restaurant brand will have its own space of roughly 300 sq ft.
- These restaurants can choose to have owned/shared/outsourced delivery personnel – thus increasing delivery efficiencies.
- Locations are selected based on Zomato data – the initial pilots are being conducted in locations where we know that the demand is high, and good quality (highly rated) supply is relatively low. Most of these locations are densely populated mid-income areas in large cities, and second tier cities in India.
- Zomato will provide the real estate, build the kitchen and supply all the equipment for these brands to just ‘walk in’ and start their business in a matter of hours.
- Build out cost for these kitchens is low – we have invested time and energy in frugal and durable engineering to make sure that we don’t incur large capex while constructing these kitchens for our partners to use.
- To acquire cooking equipment, we are using Zomato data to identify restaurants which have recently shut down in the vicinity and are acquiring this (almost new) equipment at a discounted value; having said that, we are only procuring the best quality equipment which meets robust safety standards.
What’s the tech angle?
- The entire tech stack these kitchens would need is provided by Zomato free of cost to restaurants and is part of the “infrastructure” services.
- Zomato Base (POS), and Zomato Trace (Delivery Dispatching and Routing) are the two key components of the tech that will go into these kitchens.
- We can assume that these kitchens will be some of the most technically advanced kitchens ever made.
- We will use our data to help our partner restaurant brands create the right menu, and also have the right pricing in these locations to maximise the probability of success of our partner brands.
Which brands will be able to use ZIS?
- Zomato will not be cooking food by itself in these kitchens – unlike what some of the other aggregators are doing, we don’t want to compete with our own customers (restaurateurs).
- Only renowned and reliable operators will be eligible to use these kitchens (minimum rating on Zomato cutoff will also apply).
- Over time, this will help us help our closest partners to expand to markets outside their core cities of operation. For example, we would love to bring Paradise Biryani to Delhi using Zomato Infrastructure Services.
- Restaurants which use our services do not have a lock in period. They are free to walk out (with one month’s notice period) if this is not working for them. In this case, we will get some other brand in that place.
- Over time, we will allow multiple brands to share the same kitchens. For example, a pizza chain could use a particular kitchen spot during the day, and a burger place could use the same spot at night for late night deliveries.
- FYI – these brands are not expected to be exclusive to Zomato for delivery. We will let these brands list themselves on any other aggregator platform. In general, any new business by us will not misuse the scale of any of our other businesses. All new businesses are expected to become successful on their own, on the basis of their standalone P&Ls.
What’s in it for our users?
- That’s the fun and most exciting part. The “front of the house” in these kitchens will be common. As a user, you will be able to select dishes from multiple brands to build a single food order. So if you want to eat shawarma, and your friends want to eat pizza, that can be done in a single order. How about also including a frappuccino, and an ice cream with your order?
- This is something that’s very new, and is probably the first time in the world that this is being introduced at scale. We are very excited about how our users will use this power feature which will only be available on Zomato.
What’s the business model?
- There won’t be any fixed cost for restaurant brands to use Zomato Infrastructure Services. In fact, we will only charge them a nominal percentage of their revenue – we win only if these brands win. Our ZIS team will act as a key partner for them to make their business successful, and in the process, our business successful. Talk of win-wins – business doesn’t have to be, and shouldn’t be a win-lose situation.
- Restaurants will pay on top of this nominal fee for any other services that they use – e.g. Order Lead Generation, Advertising, etc.
- Over time, as we scale this business, our costs of operation should come down further and increase our return on capital.
Who is leading this at Zomato?
- Arvind Dixit – he was the COO of Wendy’s India in his previous role. He has been working with large scale QSRs for all the 18 years of his work life.
- The team’s plan is to stay lean and only grow up to a max of 5 people until we have about a 100 locations. A lot of the non-tech work is being outsourced to agencies who know how to handle physical buildouts best.
What can go wrong?
- Like anything, this also carries execution risks. Execution risks are too many to jot down here. But we think we are well prepared, and we will execute well here.
OK cool. Where’s the first kitchen? And what are the expansion plans?
- The pilot kitchen is in Dwarka. Starting to cook in the first/second week of March. We won’t have another location for another 2-3 months. There’s a lot to learn from the first one.
- Once we learn the business model’s nuances, and reasonably know how to bypass Murphy’s law, we will expand to 5 locations very soon. Post that, after one more big iteration of the business model, we will scale in second tier cities. We think we can really help expand the restaurant industry beyond the top 7 metros with ZIS – and that’s where the real opportunity for ZIS lies.
- Our initial estimates tell us that with some hard work, we can have a 100 locations by the end of 2018. As of now, we are not sure when and how this model will scale to our other strongest countries of presence.
Why are we doing this? And what gives us the confidence that we as a company, are well positioned to pull this off?
There are three unique advantages that we have as Zomato to be able to pull this off –
- User penetration – we can generate demand for these locations through our app traffic, thus minimising the chances of failure for these locations.
- Data, tech – from our app traffic data, we know the most conspicuous locations with a supply/demand mismatch.
- Supplier Relationships – we are in the good books of most of the restaurant industry – our relationships with the most prominent restaurant owners give us the leverage to help expand the industry in a good way.