Indian cloud kitchen startup Rebel Foods valued at $1.4 billion in $175 million fundraise

Rebel Foods, which operates a large network of dark kitchens in nearly a dozen markets, is the latest Indian startup to attain the unicorn status.

The Bangalore-based startup said on Thursday it has raised $175 million in its Series F financing round that valued it at $1.4 billion, up from about $800 million last year. Qatar Investment Authority, sovereign wealth fund of the State of Qatar, led the financing round with participation from existing investors Coatue and Evolvence. Rebel Foods also counts Sequoia Capital India and Goldman Sachs among its investors.

Rebel Foods is the 31st Indian startup to become a unicorn this year as scores of high-profile investors including Tiger Global, SoftBank, Sequoia, Temasek aggressively double down on their bets to back young firms in the world’s second largest internet market.

Rebel Foods operates the world’s largest number of what it calls “internet restaurants” in 10 countries. Over 45 brands, many of which Rebel Foods owns and also several from global firms such as Wendy’s and Mad Over Donuts, prepare food exclusively for delivery rather than serving dine-in or takeaway customers. The startup says it operates over 4,000 of these internet restaurants.

The idea behind dark kitchens — also known as ghost and cloud kitchens — is to make food serving operations more economical. Setting up and operating a restaurant is expensive as they are also, after all, pieces of real estate.

Setting up cloud kitchens allows partner restaurants and brands to move away from pricey retail locations and also streamlines the business by focusing on just producing food.

“The big disruption that the cloud kitchen model brought about was that you don’t have to put up five real estates to run five different restaurants,” said Jaydeep Barman, founder and chief executive of Rebel Foods in a virtual conference earlier this year. As carmakers produce dozens of models from one factory, “using technology, supply chain and workflows, you can actually have one kitchen for five restaurants,” he explained.

Many investors say that the cloud kitchen model is also crucial for food delivery firms, restaurants, and brands to reach the larger market. In many developing markets including India, the ticket size for a lunch or dinner order is $3 to $5, which makes the existing business models unviable for firms to turn a profit.

This would explain why both Swiggy and Zomato — the two top food delivery firms in India — have made several efforts to explore setting up their own cloud kitchens.

Swiggy, for instance, announced in late 2019 that it had invested in more than a million square feet of real estate space across 14 cities in the country to help restaurant partners of all sizes expand to more locations both within their city and across new cities through cloud kitchens. The firm, which invested over $25 million into its cloud kitchen business, significantly scaled it down last year after the pandemic hit. Like Swiggy, Zomato has also struggled to make inroads with its cloud kitchen efforts.

But the model is here to stay — and investors are buying. “Working in Rebel’s favor is the loss of investor interest in single-brand entities given that these brands don’t have the ability to drive profitable unit economics from just operating one brand. Scaling a single brand across cities requires capital investments far higher than for brands that are part of a larger portfolio, where fixed costs are controlled,” reported Indian news and analysis publication CapTable, which also scooped the fundraise talks last week.

Why have big firms struggled to make inroads with cloud kitchen? TechCrunch spoke with Ravi Golani, the chief strategy officer at Rebel Foods, who said, a challenge that he sees with cloud kitchen model is that there are several different strategies are at play and they are yielding different results.

“We are combining the best of both worlds — digital and physical — to understand how to expand a particular brand, to make unit economics work, and to ensure adequate supply chain and leveraging technology. It’s a different ball game altogether,” he said, adding that some of the other firms have only succeeded to achieve some of these. Rebel Foods works with food delivery apps as its delivery distributing partners.

“If you think about cloud kitchens generally, you would imagine five or different booths in a kitchen. They have their own staff, production material and delivery tie-ups. In our kitchens, what we have done is organize the entire layout by workflows rather than restaurants,” he said.

The startup said it plans to deploy the fresh funds to expand its international footprint and also explore acquisition opportunities. It’s also eyeing to become a public company within two years, said Piyush Kakkad, the startup’s chief financial officer. It’s current annual run-rate is $150 million.

Source Link Indian cloud kitchen startup Rebel Foods valued at $1.4 billion in $175 million fundraise