Case Study: Kludio, the Future of Franchise
Foodpanda paved the way for food entrepreneurs to thrive in the digital space! The infusion of technology into the food ordering process was the jump-start the restaurant industry needed to grow its customers' share of wallet. Today, Bangladesh's food delivery market size stands at BDT 1200 crore, with approximately 1.1 lac deliveries made every day (Source: The Daily Star). The hyper-growth in the digital-food space is creating employment, attracting foreign investments, and inspiring bright and entrepreneurial minds to innovate new food-tech solutions. Kludio has been one of such game-changing innovations!
What is Kludio?
Kludio is Bangladesh's first full-stack cloud kitchen, based in Dhaka. You've probably heard of cloud computing and cloud storage, but what exactly is a cloud kitchen? Cloud kitchens are virtual restaurants with no dine-in place or storefront. As you order online, they prepare the meal themselves and then deliver it to your doorstep using either their delivery services or other third-party food delivery services. As a backward integration to third-party aggregators, full-stack cloud kitchens distinguish themselves by having complete control over every aspect, from procuring raw materials to cooking and delivering. There are several business models for a cloud kitchen, which we’ll explore at a later date. For the time being, let’s focus on Kludio.
Timeline of Kludio’s Operations:
Please note that the timeline presented is an estimate rather than a precise one.
Apr 2020: Kludio positions itself as the
first-ever digital food court, offering multiple brands on the same platform.
Ever felt like ordering Achari rice from MadChef and Burgers from Fat Boy in the same order without having to pay two delivery fees? That, however, is not possible on Foodpanda or any other food delivery service. You can’t do that on Kludio either, but Kludio does provide the second-best alternative. The Kludio app offers several cuisine brands, and you can order multiple dishes from different brands in the same order, just like in a food court. Upon receiving your order, Kludio will prepare the food in its cloud kitchen and deliver it to your doorstep. Frybox, Dough on-the-go, and Deshio are a few of Kludio's most popular brands.
Apr 2021: Kludio opens KaaS, Kitchen as a
Service for Home-cook brands, Food Entrepreneurs, and Restaurant chains.
Kludio is a fast-growing startup. As a way to scale its business, Kludio introduced Kitchen as a Service or KaaS. With KaaS, food startups, restaurant chains, and home-cook brands can branch into different locations without investing in infrastructure, supply chain, and personnel. Kludio manages every aspect of the operation, including meal preparation, order processing, customer relationship management, and delivery, requiring partners to only provide recipe preparation guidelines and handle product marketing. Preetom burger recently partnered with Kludio and garnered a positive response from Mirpur. Overall, this is quite an innovative concept!
Aug 2021: Kludio announces Kludio Launchpad to
mentor and invests in young Food & Beverage startups.
As part of its flagship program, Kludio wants to teach young food entrepreneurs the ABCs of brand building and equip them with a support system in the digital-food space. Kludio also plans on investing in the top brands, but it won’t take a stake in the business.
Breakdown of Kludio’s Business Model:
On the front-end:
On the back-end: Kludio is negotiating Digital Franchise Contracts with franchisors, such as restaurant chains and food startups, to prepare and deliver their menu items in selected locations. For the most part, it is a B2B operation.
Now, Kludio wants to maximize its B2C growth by expanding its portfolio with new food brands. This is where KaaS and Kludio Launchpad comes in. Both of these operational moves give Kludio access to more food brands and its users with more food choices. While these strategic directions may yield short-term profitability, they aren't sustainable in the long run.
Kludio’s Sustainability Issues:
1) The Better Product Mouse-trap: Technology is undoubtedly a catalyst of growth. In the end, however, it's all about finding the right technology for your firm and finding the proper time to implement it. When it comes to Kludio, I think it was a mistake to invest so early in its own platform, and what’s more troubling is that the platform doesn’t provide any technological advantage over other third-party aggregators. Here’s why:
- Kludio’s initial concept was to house several digital food brands in its platform and allow the customers to choose from a variety of cuisines. Every third-party aggregator now includes an add-on order option, which allows customers to order multiple cuisines from the same restaurant in the same order. Kludio’s app is rather pointless, considering that if Kludio signed up with third-party aggregators, for say Foodpanda, it would have been treated just like any restaurant with numerous brand options in the aggregator’s platform. Kludio should benefit from the technology of the aggregators and cut its overhead expenditures, such as salaries for app developers, in favor of reinvesting the savings in marketing its brands and R&D to produce new recipes.
- Additionally, Kludio is not turning over its fixed assets at a sufficient ratio, as it is unable to serve its customer customers smoothly via its own delivery service. Kludio likely invested a ton on its delivery fleet, and as it is expanding into more locations, expenditures on both overheads, i.e., wages of delivery personnel, and fixed assets will increase. Whereas, such costs for fixed assets and overhead could have been rather flexible (variable), given Kludio signed up with Foodpanda or other aggregators.
2) KaaS, the Guinea pig for Market Testing: So far, KaaS has been my most favorite concept from Kludio, but it is not sustainable in terms of contractual limitation. Suppose, Chillox doesn’t have a branch in Uttara and plans to go into a one-year digital franchise contract with Kludio. If Chillox gets a good response from Uttara, it’ll open its restaurant after the contract ends, and if it doesn’t get the desired response, it’ll just reallocate its marketing spend. Either way, Kludio suffers. So, bigger chains will treat contracts as more of a market test to analyze if the demography is a good product-market fit. Whether it's a good fit or not, the outcome will always be the same: there will be no long-term commitment to Kludio.
The second biggest challenge with the Kaas model is the shrinking profit margin. Kludio will be able to make higher margins on unit sales, with absolute control over the franchisor’s supply chain. But it is unlikely that Kludio will have total control for two reasons:
- Most food brands have a trade secret, special sauce, or mix, which cannot be shared or sourced from any local markets.
- Again, most chains have a specific preference over certain raw materials; for example, Khana’s burger buns will be different from Preetom's.
Hence, it makes little difference if Kludio has access to the top-of-the-line supply chain, because the franchisor will likely ship over inventory and meal preparation kits to protect its trade secrets and comply with its standard specifications.
Kludio’s management must have realized this issue with large chains and, hence, shifted their focus to startups and home-cook brands with the launchpad program. For Kludio, these brands have fewer trade secrets and specifications, which makes them more profitable. However, having too many lesser-known brands also dilute the portfolio.
3) Economics of Individual Choice: The availability of alternatives and the associated opportunity costs influence the customer's decision. Third-party aggregators now offer diverse alternatives of cuisines across multiple categories, and while Kludio does compete with its exotic portfolio, the opportunity cost to avail of Kludio’s offerings is higher. Kludio's cuisines are substantially more expensive, not to mention the absurd 50-taka delivery price! Such high prices create entry barriers for customers, especially when their online purchase behavior is largely discount-dependent. This approach may be ideal for niche demography, but then again Kludio’s target audience will be too narrowed for future growth.
Strategic Propositions:
Kludio was able to raise USD 650,000 so early in the seed
stage, and it took a driven and agile team to do it. The same team can lead
Kludio to success and long-term sustainability, given they consider the proposed
strategic alterations as follows:
1) Kludio’s future as a Franchisee of Global Brands: KaaS’s potential is wasted on partnering with the local chains and startups. If anything else, Kludio should focus on securing franchise contracts from global brands, like Subway and McDonald’s. There are two ways to do it:
- As a franchisee, Kludio can serve the brand offerings of the fast-food giants straight from its Cloud Kitchens. However, each new location requires a franchise fee of 25-35 lac BDT, thus Kludio must ensure that the franchisor would sign a long-term contract of at least 10 years. From then on, Kludio needs only to pay a 4-5% sales royalty. If Kludio wants to expand with a hybrid model of Cloud Kitchens and Restaurants, it should first purchase the franchise rights for preferred locations, and then resell the rights to some of those locations to other businesses or individuals. In this way, sales cannibalization will be avoided.
- Alternatively, Kludio can be a Master Franchisee, also known as a sub-franchisor. Master franchisees do not own any franchises but recruits and train new franchisees for the franchisors. Kludio will be in charge of overseeing the operations of the new franchisees across outlets and regions and will report directly to the franchisor company. Kludio, on the other hand, initially needs to own and operate a few franchises of the franchisor to attain the rights of a Master Franchisee.
Advantage: Kludio can leverage on the brand equity of these fast-food giants,
while making the brand offerings exclusive for the Kludio app, like Domino’s
Pizza!
2) “Make your own Food” app: It will be a total waste of resources if Kludio plans to ditch on its mobile platform now. To reclaim technological advantage over third-party aggregators, Kludio can repurpose the app to be more like the Starbucks app. With the Starbucks app, customers get to make their drinks and even submit them as a recipe. Kludio could empower its users to do the same, instead of experimenting with startups or home-cooked brands. For example, if the Kludio app allowed its users to custom order a 10-layer burger with six different kinds of cheese and four different proteins, the overall customer journey experience would improve and increase customers' share of voice in social media.
Advantage: Kludio will notice an uptake of User Generated Contents in
social media, and
traffic to its app.
3) A hybrid delivery strategy: Increasing order volume and revenue per customer should be Kludio's top priority with this strategy. In the end, Kludio's overhead and fixed asset costs, as well as the delivery fee for customers, will be reduced.
Overall, Kludio is a terrific addition to the startup ecosystem, and it has massive potential in becoming a major player in the digital food space. A big thank you to all who stuck around until the end of this very long case study. Share your thoughts in the comments section and stay safe!
Comments
Post a Comment