Ola seeks to scale cloud kitchen model through private brands

ANI Technologies, the Bengaluru-based company that owns homegrown ride hailing platform Ola is restructuring its food delivery business unit Foodpanda India to transform it into a cloud kitchen platform.

Ola will incubate and scale several private brands catering to different tastes and customers through online food delivery marketplaces and physical outlets, The Economic Times reported.

Ola had announced the launch of its first private brand Khichdi Experiment last week.

The company has shifted its focus to building and scaling up private brands which it views as a prominent opportunity and a long term asset, Pranay Jivrajka, CEO of Foodpanda, was quoted as saying in the report. The new approach is in line with its decision to roll back the investments on Foodpanda to build a cloud kitchen platform that will incubate several private brands.

According to Jivrajka, the company is currently piloting 7-8 brands and is experimenting with a number of business models including a physical retail strategy to set up offline outlets at convenient locations such as office campuses, malls, and food trucks where people can pop in for a quick meal. It will also list these brands on online delivery platforms such as Swiggy and Dunzo.

While the Foodpanda India website is defunct at this point, the mobile app features its other private brands such as Lovemade, Grandma’s Kitchen and FLRT.

The company currently operates 50 kitchens and serves six cities including Bengaluru, Hyderabad and Mumbai. It wants to expand the scope of operations to 150-200 kitchens and more Tier II cities in the next 12-18 months, the report said.

Ola did not respond to specific queries from TechCircle with regard to the future of Foodpanda India and its food business expansion plans.

Ola had acquired the Indian business of food delivery platform Foodpanda from its Germany-based parent Delivery Hero in a stock deal in December 2017. Ola had also committed to inject $200 million into Foodpanda India to expand its business.

However, the high capital cost model of the food delivery business was proving to be a significant money loser for Ola while the market was becoming more competitive with its rivals Swiggy and Zomato raising large funding rounds.  Meanwhile, Ola’s primary rival Uber continued its aggressive discount-led growth strategy for food delivery unit Uber Eats. Much like Ola, Uber has slowed down on its food business over the last few months, largely due to high cash burn.

As the competition intensified from Naspers-backed Swiggy and Alibaba-backed Zomato, the two leading aggregator platforms, Ola announced a pivot from delivery services to cloud kitchens in May this year.

 “We are focused on building a portfolio of own food brands and curated food offerings through our fast-expanding network of kitchens,” the company had said in a statement.

According to a report from financial daily Mint at the time, Foodpanda had suspended its food delivery operations and laid off around 40 mid-to-entry level employees and around 1,500 delivery executives as part of the pivot to cloud kitchens.

The success of multi-brand cloud kitchen companies such as Rebel Foods (known for its Faasos brand) and InnerChef, and the prospects of greater profitability of this model have encouraged delivery marketplaces including Zomato and Swiggy to launch their own cloud kitchen programmes.

Among standalone cloud kitchen players, Mumbai-based Rebel Foods gained a headstart when it pivoted from being a QSR to a pure-play cloud kitchen model comparatively a few years ago. The company has since built 10 brands each serving different target segments including Behrouz Biryani, Faasos, and Oven Story Pizza. It is looking at creating at least 15 large categories in five years. 

Among the aggregators, Swiggy got off the mark with its cloud kitchens programme ‘Swiggy Access’ as early as November 2017. The company’s strategy is to offer partner restaurants a supply-only kitchen facility for faster delivery. Rival Zomato invested in a third-party cloud kitchen company Loyal Hospitality, which provides ready-to-occupy kitchens to restaurants. Uber Eats India has partnered with retail coffee chain Cafe Coffee Day to launch its first virtual restaurant.

Foodpanda India had marked its foray into the cloud kitchen segment last October, after it acquired shuttered food-tech startup Holachef for an undisclosed sum.

Foodpanda India’s net loss for the year through March 2018 widened five times, thanks partly to service charges it paid to its parent firms at the time. While costs rose, slow growth in sales hurt, too. The company's operating revenue grew 17% to Rs 72 crore from Rs 61.4 crore.

According to a recent report by The Economic Times, US-based retail giant Amazon is planning to launch its cloud kitchen services in tandem with its food delivery service roll out in India. The Seattle-headquartered company is reportedly already in negotiations with restaurant chains and is offering them commission rates as low as 6-8% to add them on its platform. Amazon’s cloud kitchens and food delivery service will address supply constraints prevalent among online food delivery companies. Its first cloud kitchen is being set up in Bellandur at Bengaluru. The company plans to make this a base to test deliveries and build up a market in the HSR Layout of Bengaluru.