Home / Opinion / Views /  Zomato, Swiggy and the murky reality of cloud kitchens

It’s a tad difficult to take online food aggregator Zomato’s assertion that it plans to crack down on cloud kitchens operating multiple brands from the same kitchen and under the same licence from the Food Safety and Standards Authority of India and blacklist those not offering “acceptable" quality of standards and service.

After all, both Zomato and arch rival Swiggy are seriously chasing “private label" cloud kitchens as a key route to driving up margins and profitability. Swiggy operates brands such as The Bowl Company, Homely and Breakfast Express, while Zomato Kitchen, the cloud kitchen arm of Zomato, basically works with entrepreneurs to provide turnkey solutions to set up cloud kitchens.

One can understand why Zomato needs to do some firefighting, of course. Bengaluru blogger Prashant Baid’s August 27, 2022 post about how a single hole-in-the-wall cloud kitchen was operating nearly 200 different “restaurants" on both the popular food delivery platforms had gone viral on social media and created a media storm. In reality, these “restaurants" were cloud kitchens which do not have any dine-in facilities or frontage but depend purely on takeaway orders from online platforms like Zomato and Swiggy for business.

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In a blog posted on the company’s website, Mohit Gupta, CEO of the food delivery unit and a co-founder of the Gurugram-based company, said, “Going forward, we are going to manually check any physical location which runs more than 10 brands out of a single location." Why 10 or more? “While there is no exact science to the right number of brands, we believe that even the most organised outlets in the industry don’t see operational benefits and customer trust in operating too many brands from a single kitchen," Gupta argued.

Sharing internal data, Gupta also revealed that the more the number of brands that a single cloud kitchen operates, the lower the average customer rating and the higher the percentage of complaints.

Clearly, this must have been well known to tech and data-driven platforms like Zomato and Swiggy. That neither did anything about it till the matter became a public controversy is because for aggregator platforms, cloud kitchens are vastly more profitable than brick-and-mortar restaurants, for whom the delivery services offered by these platforms is just an additional source of revenue.

While cloud kitchens are totally dependent on these platforms for business and therefor cough up the hefty aggregator fees (as high as 30-40 per cent of the price), restaurants which have their own walk-in customers are much more reluctant to shave so much off their margins. In fact, the representative body of the restaurant industry, the National Restaurant Association of India (NRAI), with whom Zomato said it is working to weed out such players and “jointly create parameters to avoid the misuse of the aggregator platforms in such a blatant and abrasive fashion", had actually dragged Zomato and Swiggy to the Competition Commission of India alleging, among other things, that the platforms favoured their own cloud kitchens over legitimate restaurants!

“NRAI has further alleged that online platforms are engaging in a dual role on their platform where they list their own cloud kitchen brands exclusively on their platform, akin to private labels, thereby creating an inherent conflict of interest in the platform’s role as an intermediary on one hand and as a participant on the other hand," the CCI observed while ordering a wide-ranging investigation into the business of online food delivery in April this year.

The entire episode has exposed the murky – and often mucky – reality behind the breakneck growth in the cloud kitchen market in India, which is expected to hit $3 billion within two years. It is also shocking that there is actually no law against any number of cloud kitchens using the same FSSAI license to operate. While physical restaurants are regulated by civic bodies and are graded according to size, quality and hygiene parameters, the FSSAI license used by cloud kitchen operators is based only on turnover.

This is clearly not enough. It is high time that such cloud kitchens faced stricter regulations, including mandatory health and hygiene inspections and certification by public health authorities. The online platforms also need to be more transparent, disclosing the nature of the outlets they showcase on their apps – whether it is a physical restaurant with dine-in options or just a delivery kitchen – as well as exactly how many cuisines and kitchens are operating from the same premises and under the same licence.

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