MORE FROM KrASIA

India government mulls to rein in the country’s burgeoning cloud kitchen space

Swiggy said it has opened 1,000 cloud kitchens lat year.

A Swiggy delivery person's two-wheeler parked in Bengaluru. Photo by Avanish Tiwary

As Uber’s former CEO Travis Kalanick prepares for a larger play in India’s soon-to-be USD 2.63 billion worth cloud-kitchen market, India’s industry and trade body is mulling whether such companies operating in the country are violating foreign direct investment rules.

Cloud kitchens are delivery-only kitchen spaces rented out by tech-enabled startups to restaurants that want to expand their business to newer areas without having to spend time on setting up the infrastructure on dining space, among other things.

The Department for Promotion of Industry and Internal Trade (DPIIT) Tuesday met with the food-tech stakeholders such as Zomato, Swiggy, Uber Eats, and National Restaurant Association of India (NRAI), in addition to other government bodies, to discuss the FDI matter hovering around this new forked out business model of cloud kitchen.

Local media Economic Times reported that DPIIT will share a note with its comments on the issue. An official in the know told ET that the issue related to the status of private label food brands will likely be clarified in a larger industry-wide notification on e-commerce.

“If you go by the definition of marketplace in Press Note 2, these (online food ordering) platforms are transgressing the rules,” the report quoted another senior government official who was present at the meeting. “It needs to be decided whether to change the FDI norms to accommodate cloud kitchens or that it is not going to be allowed at all.”

Naspers-backed Swiggy operates four private brands—The Bowl Company, Homely, Goodness Kitchen, and Breakfast Express—which it claims wasn’t set up with the intention to compete with the third-party restaurants on its platform. In an earlier conversation with KrASIA, a Swiggy official said the sole idea behind these brands is to satiate consumers’ unmet demands which were clearly not getting fulfilled by existing restaurant partners on its platform.

However, the restaurant association body NRAI believes otherwise, as it first asked DPIIT to look into the cloud kitchen and private label companies and investigate whether these platforms are violating FDI norms by starting their own private label restaurants.

According to the FDI rule, e-commerce marketplaces can’t control the inventory of goods sold on their platform or to engage in exclusivity deals with vendors.

While Zomato doesn’t directly operate in the cloud kitchen model after shutting down its pilot in 2017, it has invested in a Bengaluru-based cloud kitchen company Loyal Hospitality. Swiggy, on the other hand, in November 2019 announced it has set up 1,000 cloud kitchens for restaurants through Swiggy Access—its cloud kitchen brand—and is going to invest USD 10.5 million by March 2020.

Last year, after leaving Uber, Kalanick has been focusing on the India market for his new cloud kitchen venture City Storage Systems as he begins setting up the India team. He has on-boarded Ashish Saxena, former TexMex Cuisine India CEO as the general manager based out of Mumbai.