The Squeeze That Was
The story of cloud kitchens in India began with a gold rush. Lower setup costs compared to traditional restaurants and a booming food delivery market created a seemingly perfect recipe for success. However, reality soon bit. Operators found themselves
caught in a fierce battle for survival, defined by crippling commission fees from aggregator giants like Zomato and Swiggy, which could erode 25-35% of an order's value. This dependency, coupled with intense competition that forced heavy discounting, meant that even kitchens with high order volumes struggled to turn a profit. Many early ventures burned through cash, with some reports indicating that nearly half of the operations in major cities were unprofitable.
A Glimmer of Hope with ONDC
A significant shift offering relief is the emergence of the Open Network for Digital Commerce (ONDC). This government-backed initiative is designed to unbundle the digital commerce space, creating an open network where restaurants and customers can connect directly. For cloud kitchens, the most immediate benefit is a dramatic reduction in commission rates. Instead of the 20-30% charged by major platforms, ONDC facilitates transactions with commissions as low as 2-8%. This allows kitchens to retain a much larger portion of their revenue, directly improving unit economics. By listing on ONDC through various seller apps, kitchens can gain visibility across multiple buyer apps like Paytm and PhonePe, reducing their heavy reliance on the algorithms of a few dominant players.
Smarter Kitchens Through Technology
Beyond platform changes, the kitchens themselves are getting smarter. The adoption of artificial intelligence and automation is moving from a futuristic concept to a daily operational reality. AI-powered tools are now used to forecast demand with surprising accuracy, analysing patterns related to weather, festivals, and even cricket matches to optimize inventory and reduce food waste. Automation is also streamlining repetitive tasks in the kitchen, from screen-assisted cooking to automated portioning and packaging, which cuts down on labour costs and improves consistency. These technologies allow operators to run leaner operations, making their business models more resilient and less dependent on manual oversight.
Expanding Beyond the Metro Bubble
Another key strategy bringing financial relief is the expansion into Tier-2 and Tier-3 cities. Markets like Jaipur, Lucknow, Coimbatore, and Nagpur are becoming the new growth frontiers. The logic is simple: operating costs, especially real estate rentals, are significantly lower than in saturated metro areas like Mumbai or Bengaluru. While the initial investment for a dedicated kitchen space can be upwards of ₹10-15 lakh in a metro, it can be substantially less in a smaller city. Furthermore, competition is less intense, and a rising aspirational consumer base with increasing disposable income is eager to try new brands. This strategic pivot allows companies to build a more sustainable and profitable footprint away from the high-burn metro markets.
Building Direct Customer Relationships
The survivors of the initial cloud kitchen boom have learned a crucial lesson: owning the customer relationship is vital. Instead of relying solely on aggregators for discovery and orders, savvy brands are now building direct channels. This includes encouraging customers to order via WhatsApp, dedicated brand websites, or through loyalty and subscription programs. While aggregators remain essential for attracting new customers, moving repeat business to zero-commission channels is a powerful way to protect margins. This hybrid approach allows kitchens to balance the reach of large platforms with the profitability of direct sales, creating a more stable financial foundation for long-term growth.
