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Zomato crackdown on cloud kitchens with over 10 brands in one location

The Financial Express logo The Financial Express 24-09-2022 Tushar Goenka

Zomato, the online food aggregator, on Friday said it would conduct spot checks on cloud kitchens that operate more than 10 brands from a single location. Such operators will, however, be included in the company’s whitelist, it said in a blog post on Friday.

This crackdown comes after Prashant Baid, a Twitter user, revealed — in his personal blog — how one person/entity was running 400 different restaurant listings on Swiggy and Zomato from two tiny kitchens. Currently, the Food Safety and Standards Authority of India (FSSAI) does not mention how many brands can operate from one location, its s FAQs section showed.

Zomato said a few of them were misusing this liberty. “While there is no exact science to the right number of brands. These brands have little to no differentiation in the product offering; instead they confuse/cheat customers by creating a false perception of choice, while none of it actually exists,” Zomato’s blog said.

Cloud kitchens are typically places where the food is only prepared and shipped. They offer no dine-in options to customers. A few examples include Tiger Global-backed EatClub, owners of MOJO Pizza and BOX8, unicorn startup — Rebel Foods, that operates popular brands like Behrouz Biryani and Oven Story Pizza, among others.

Not hindering the growth plans of legitimate companies, Zomato’s blog post added, “We will whitelist the restaurant partners that provide a great experience other than the operators mentioned above from this manual check so that they don’t face delays while expanding the scope of their businesses.”

For customers seeking more information about the origin of their food, the information of multiple brands linked to a kitchen will also show on the restaurant’s page on the app/website. It was immediately unclear if Zomato’s main competitor, Swiggy, had similar plans in place. An email sent to Swiggy seeking details about the same remained unanswered till press time on Friday

Zomato also found that customers’ average delivery rating goes down as the number of brands from a single kitchen goes up. Similarly the number of customers who raise complaints goes up as the number of brands from a kitchen increases. “Such as some fly-by-night operators, who account for less than ~0.2% of registered kitchens,” the blog added.

The trend of cloud kitchens gathered pace primarily during the pandemic when physical dine-in options were limited or inaccessible to most. The model also yields better returns for owners, when compared to physical restaurants, analysts said. “With factors like low capital expenditure (capex), high earnings before interest, taxes, depreciation and amortisation (Ebitda) margins combined with customer satisfaction, cloud kitchens have more advantage in the organised sector,” RedSeer analysts noted.

The capex for a typical dine-in restaurant is 2-3X that of cloud kitchens, analysts underscored.

The cloud kitchens segment was forecast to grow 5-6X in gross merchandise value (GMV) to be about a $3 billion industry by 2025, up from $440 million in 2019.

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