InnerChef's recipe for success: String of food labels from cloud kitchens

When Mansi Sharma decided to shed weight quickly, she stumbled upon the concept of keto diet — a low carbohydrate, medium protein and high-fat diet — that is supposed to help burn body fat fast. She turned to Healthie, a food delivery kitchen that offers a daily subscription to a number of types of meals, including keto. “I am tied down to work all day long and live alone in Delhi. So, I couldn’t possibly manage to set up diet based meals every day,” she says. Healthie is InnerChef’s health food brand. 

InnerChef is a shared cloud kitchen that also has Bombay Sandwich Company, Thalis of India, YumYumDilli, YumYumSouth and Indulge in its portfolio. 

InnerChef recently completed its Pre-Series B funding round, raising $6.5 million (Rs 43 crore). Multiple investors, including Mistletoe, Das Capital, Saha Capital, M&S Partners and Brand Capital participated in this financing round. The company has garnered a total of over $10 million in funding. 

The company was founded in 2015 to sell ready-to-cook ingredients. A customer could buy one of these boxes and cook by himself/herself with the help of a recipe suggested inside the box.  But, founder and CEO Rajesh Sawhney says it was soon apparent that the Indian market was still 10 years away from such a concept. So, he decided to pivot the business to the shared cloud kitchen model. 

FACTBOX

Founded: 2015

Area of business: Shared cloud kitchen 

Total funding raised: $10 million 

Presence: 5 cities, 25 kitchens 

Brands: InnerChef, Healthie, Indulge, YumYum Dilli, YumYum South, Bombay Sandwich Company 

Targets: Breakeven in two years; 50 kitchens by 2019 end

The opportunity 

With disposable incomes increasing and a huge young working class, a Redseer report projects that the Indian food delivery market will grow in double digits annually to hit $36 billion by 2020. At the same time, the food tech space is set to hit $4 billion. 

“Going out to have food is cumbersome. In five years, most of our meals in a week will be delivery based. The food delivery space is going to grow 10 fold in five years, and we will do better than that,” Sawhney says. 

Cloud kitchens work like a hub and spoke model as food is prepared by a central kitchen and delivered to customers. These brands don’t have a dine-in facility. InnerChef is a ‘shared’ cloud kitchen as it serves up offerings from its multiple brands. 

FreshMenu, Faasos, Box8, and Biryani By Kilo are cloud kitchen brands that have taken root in cities such as Bengaluru, Mumbai, Delhi, Hyderabad, Kolkata in the past few years. 

Swiggy, a food tech start-up that is known as a food delivery service, too, has started facilities in which it invites restaurant partners to set up kitchens in cities they aren’t physically located. Vishal Bhatia, CEO of Swiggy New Supply, says: “Delivery-only kitchens will be the future of the restaurant industry.” 

The business model 

The restaurant business is said to be a high gross margin industry. InnerChef pegs the number for itself at 70 per cent. However, people’s tastes change and often eateries perish as a reason — it happens a lot with brick and mortar restaurants. Cloud kitchens, on the other hand, don’t have a brand recall associated with a physical space. 

Vidhyashankar Sathyamurthi, executive director at Grant Thornton India, says: “Building brands around food preferences has the extra potential to franchise the kitchens without having to own them.” 

InnerChef and its sister brands offer food items that are priced anywhere between Rs 50 and Rs 350. For Healthie, an app has been launched where customers can both order food on the go and subscribe to meals for up to seven days. If one decides to mix up courses or cancel meals, that too is possible. Likewise, there are standalone websites to order from for each of the brands and apps for all of them are on the anvil. 

Challenges 

Sathyamurthi says InnerChef's focus on separate brands for different cuisines might hurt due to a reduced focus on each. He adds that a populated market with players such as Freshmenu, Faasos, Box8, Eat.Fit, which have raised a few rounds of funding, is a ‘threat’. 

According to a VC Circle report, one of India’s first cloud kitchens, Yumist, was forced to shut down as it couldn't raise enough funds despite achieving a gross profit of Rs 60 on a meal priced at Rs 190. 

Victor Ng of Mistletoe dispels such notions as he says, “I think both Rajesh and Mistletoe have much larger objectives than just being a successful cloud kitchen or online restaurant. We want to positively change the way that Indians eat.”

However, he sees two challenges that InnerChef needs to tackle. First, the economics of the business will change as the availability of resources change. So, human resources or raw materials that were once readily available may become insufficient or unable to scale together with demand. Second, for start-ups that deliver physical goods or services, it usually isn’t long before they will run up against a similar competitor looking to expand. 

The road ahead 

The company sources 50 per cent ingredients for its 25 kitchens in five cities from a single supplier. “It is very important that we team up with suppliers who seek to scale up with us on a national scale,” says Rajesh Sawhney. InnerChef intends to have a network of 50 kitchens countrywide by the end of this year and achieve breakeven in two years. 

EXPERT TAKE

Fatigue factor a big challenge

Sandipan Mitra, CEO & co-founder, HungerBox

Food is a large space but presents some incredibly tough challenges and it is a very unforgiving sector. If the food does not taste good, people will never buy from you again — even if you give it free. That is what some companies that started and shut down faced in the cloud-kitchen space. 

People get tired of the same food, however nice it may tastes. So, the fatigue factor is big. Also, fresh food means proximity to the kitchen or to the restaurant that makes it highly hyperlocal. Tastes also vary very widely in terms of cuisines, type of food, level of spice, calorific values of food, variety, etc. So this makes it one of the sectors where you will have multiple large players and it is not a case of “winner takes all”.

The demand for “healthy” food options are increasing. After InnerChef’s initial pivot from being an ‘ingredient box’ start-up to an ‘internet first restaurant’, the decision to launch the brand, Healthie, which specialises in healthy food options, is the most significant step and is in the right direction. 

Players have “bought” the business by giving cash back and discounts. Such a scenario is not sustainable in the absence of great food. The product has to be great, consistent and of good quality. This is very difficult to achieve at scale. Very few like Domino’s have been able to crack this. Discounts, cashbacks, technology, app design, etc, are all secondary to food taste.  

The ongoing challenge will be in ensuring unit metrics and quality are maintained while being able to scale operations without getting distracted with too many things.