Virtual dining: The new normal in the Indian F&B industry
The F&B industry in India and across the globe embraced a virtual shift, amidst the unprecedented restaurant closures and lockdowns owing to the pandemic. Thus, models like virtual restaurants or cloud kitchens, online grocery shopping & buy online and pick up in-store (BOPIS) became popular. To sustain this trend, the F&B industry needs some innovative solutions.
- The F&B industry accounts for nearly 3% of India’s GDP and is the single largest employer in the country. With the spread of coronavirus, however, the industry had to grapple with a multitude of problems ranging from safeguarding the employees, aligning with supply-chain disruptions, and managing business continuity.
- Amidst this pandemonium, while many restaurants closed operations, the F&B industry witnessed a virtual shift. For example, models like virtual restaurants or cloud kitchens, online grocery shopping & buy online and pick up in-store (BOPIS) became popular in the nation.
- In terms of the gross merchandise value (GMV) in India, the cloud kitchen sector is expected to become a US$ 3 billion industry by 2024, up from about US$ 400 million in 2019. Similarly, the online grocery business is likely to reach US$ 18.2 billion by 2024 in the country.
- While food delivery and grocery have set up their online presence, more innovation is needed to guarantee success in the future. Approaches like real-time inventory information, hygiene, and integrating technology for better customer experiences will be critical in this regard.
Pandemic effect on India’s first love
The food and beverage (F&B) industry accounts for nearly 3% of India’s GDP and is the single largest employer in the country, with more than a 7.3 million workforce. With the spread of coronavirus, however, the industry had to grapple with a multitude of problems ranging from safeguarding employees, aligning with supply-chain disruptions and managing business continuity.
Amidst this pandemonium, while many restaurants closed operations, the F&B industry witnessed a virtual shift. For example, online food and grocery deliveries witnessed heightened success and came to be the lifelines of home-struck customers. Further, the new normal has given birth to virtual restaurants or cloud kitchens, or restaurants built around food delivery rather than sit-down service. Amidst the strict norms of social distancing, online delivery companies such as DoorDash, Uber Eats, Deliveroo, and Swiggy entered the cloud kitchen space by partnering directly with restaurants. At the same time, many conventional restaurants became cloud kitchens by necessity. Shyam Thakur of Momo King notes:
The food and beverage industry has hit an unprecedented low over the last few months. Dine-in has yet to pick up, even in areas where the lockdown is lifted. So we decided to focus more on cloud kitchens to revive the business. The model delivers higher returns with lower operational costs.
At the same time, there was also an increased preference for takeouts (or otherwise known as buy online and pick up in-store (BOPIS) in the retail industry), due to the perceived sense of hassle in dining out and the reduced risk of being exposed to coronavirus. Industry experts expect that a considerable number of these buyers are likely to stay on board, even once the outbreak subsides. A study states in the context of the retail industry that contactless options such as BOPIS rose by 28% year-over-year in February 2020 in the US. In India, too, this touchless dining model is picking up. For example, a popular outlet, Chaayos will allow customers to schedule an order for takeaway, walk into a store at the scheduled time, and leave with the order after minimal human interaction.
Online grocery retail picked up too. According to a report by RedSeer and online grocery firm, BigBasket, India’s e-grocery is expected to have grown from US$ 1.9 billion in 2019 to $3 billion in 2020. The same trend has been replicated in other parts of the globe. For example, Instacart — the biggest independent grocery delivery service in the US, had estimated that only 20% of households would shop for groceries online in the next 5 years. But during the initial lockdown phase, their order volume went up by 150% as new downloads of their app multiplied 7 times. To meet the demand, it went on to deploy 3,00,000 gig workers for pick-up and delivery services.
The future is already here
An article in the Harvard Business Review back in 2011 titled ‘Future of Shopping’ by Darrell Rigby, discussed the effect of blurring lines of the virtual and physical world. The article pointed out an interesting example of this in the F&B industry that we expect to see in the mainstream industry. It cited the example of Tesco’s brand in South Korea called Home plus. The walls of Seoul subway stations featured life-like backlit images of supermarket shelves containing grocery items. Interested shoppers wanting to do their food shopping simply scanned each product’s Quick Response (QR) code into their smartphones, touched an on-screen button, and assembled a virtual shopping cart. These goods were home delivered to them within a few hours. The company estimates suggest that more than 10,000 consumers took advantage of the service in the first three months, and online sales increased 130%.
The worldwide lockdown accelerated this virtual shift in the F&B industry in general as predicted in the aforesaid article. Recent announcements of this shift in India included even behemoth players. iD Fresh Food, is launching its maiden online store driven by a demand surge for its filter coffee post-pandemic. Veteran in the field, Haldiram also setup its e-commerce platform during the lockdown phase in 2020.
Other studies also point towards this trend. As per Goldstein Research, the global cloud kitchen market was valued at US$ 700 million in 2018 and is currently anticipated to grow at a CAGR of 17.25% by 2030. In terms of the gross merchandise value (GMV) in India, the cloud kitchen sector is expected to become a US$ 3 billion industry by 2024, up from about US$ 400 million in 2019. Similarly, the online grocery business is likely to reach US$ 18.2 billion by 2024 in India, growing at an annual growth rate (CAGR) of 57%. Similarly, an anonymous source states:
In India, takeaway and drive-through contributed ~1% of the overall revenue of the restaurant industry as compared to 15-20% in the US and Europe during pre-COVID times. However, given the current trends in India, it is expected to go up to 15% over the next 6 months.
The upcoming new normal
While food delivery and grocery have setup their online presence, more innovation is needed to guarantee success in the future. For instance, these sellers may need to overhaul their approach to inventory management and their supply chain to enhance better operational management. A real-time inventory visibility would also work well for these brands, as it will allow their customers to make informed choices. Similarly, brands can incorporate augmented menus and packaging are finding mainstream buyers to make it an exciting experience for customers. This can also be a tool for educational engagement with the customers.
Lastly, a continued and effective outreach programme to customers through online methods including food reviews, influencers, food bloggers, social media, and safe and hygienic spaces coupled with optimum use of new tech including AI, IoT, VR, AR etc. would go a long way in sustaining the trust of consumers.