In an interview with Outlook Business, Kalra, who is also founder and managing director, Massive Restaurants, spoke about Gen Z’s consumption trends, micro-restaurants and cloud kitchens and what AI in restaurant operations looks like
Raves fuelled by caffeine, not alcohol, are fast becoming Gen Z’s latest trend, where customers dance and talk to house music under a DJ’s set. This shift hasn’t negatively impacted the restaurant business. Instead, the emphasis has shifted to food and alternative experiences, says Zorawar Kalra, vice-president, National Restaurant Association of India (NRAI).
In an interview with Outlook Business, Kalra, who is also founder and managing director, Massive Restaurants, spoke about Gen Z’s consumption trends, micro-restaurants and cloud kitchens and what AI in restaurant operations looks like.
Edited excerpts:
What trends have you observed when it comes to Gen Z consumers?
Gen Z is consuming much less alcohol, but they are really embracing the trend of eating out. In contrast, millennials were a huge consumer of alcohol.
One of the trends I’m noticing now is that Gen Z is eating out just as much, if not more, than previous generations, but with much less alcohol consumption. However, the good news is that their frequency of going out hasn’t decreased at all.
This shift hasn’t impacted the restaurant business, as the focus is now on food and other experiences.
For example, coffee raves have become a very popular trend. Instead of alcohol, people are coming together for a party fuelled by coffee. A DJ plays lively music, creating an energetic party atmosphere—all powered by coffee.
They are also ordering in a lot. Delivery has changed many consumption patterns. Earlier, when delivery wasn’t so easy, even after coming back home late from work, you would still step out and go to your favourite restaurant or bar. This can have a cannibalistic effect on dining out.
On that note, have there been changes in average spending on dining out?
In our business, very clearly, liquor sales were always around 20–25%, while 75–80% was always food. Keeping that in mind, our APCs [average per cover] have not changed at all. In fact, they have gone up slightly and we've been able to absorb some of the [effects of] inflation.
A lot of the time, the really high APC restaurants tend to lean towards being alcohol-driven because you can only eat so much food. Apart from our fine dining restaurants, we generally tend to have higher APC. APCs are not affected downward in a major way, but we are seeing some pressure.
What about declining urban consumption? Is this affecting APCs?
No, we haven't seen a decrease in APCs at all. Even though there's a lot of talk about a general decline in urban consumption and rural consumption picking up, we haven't noticed a drop in our numbers yet.
However, we are definitely seeing pressure on consumption patterns. It's very clear that consumer behaviour is changing. To navigate this, it's important to stay more engaged with customers by relying more on loyalty programmes, CRM [customer relationship management] activities and increasing customer interactions and innovations at the restaurant level.
Before the end of the month, we'll be launching a new app—our in-house loyalty app. So even if consumption patterns are reducing, we are trying to incentivise you to come and spend time with us and save, and create “stickiness” [gaining repeat business] among consumers. Because at the end of the day, they have so many options.
Have you noticed any significant shifts in dining-in and delivery trends?
We always believed that dining in and delivery would be complementary and more or less, they are. For us as a company, our dine-in brands such as Farzi Cafe, PaPaYa, Masala Library, Swan have always had a very small percentage of delivery, typically in the single digits. Delivery was a very small part of our business.
That’s why we started new brands like Louis Burger and Slice Pizza. We launched these brands because we wanted to build delivery-only brands. For us, luckily, the growth in delivery has been cannibalistic thus far, because our dine-in brands don’t do extensive delivery and we focus on cloud-only brands for delivery. So, any increase in delivery doesn't impact our dine-in operations to a large extent.
So, are you part of the 10-minute food delivery scene as well?
We are. Quick commerce is definitely exploring a few of our products from some of our brands. We're still trying to find our feet. Sometimes, I feel it's a great opportunity, but at the same time, delivering really high-quality food in just 10 minutes is probably not possible. For example, in some markets, we are offering only a very small number of items.
Let's say, for instance, Louis Burger will have just two or three items available for 10-minute delivery. You can't fight technology or convenience and you can't ignore it completely, but you can make conscious decisions about how you engage with it. For example, I will never put Farzi Cafe, Pa Pa Ya or Masala Library on quick commerce. There’s no way I can deliver their food in 10 minutes—honestly, I can't even do it properly in 30 minutes!
Are there any recent trends that stand out in the restaurant industry?
I think there is a big push towards micro-restaurants and this is becoming a major trend. Micro-restaurants are typically very small restaurants or bars with a small size and footprint. As a result, they have lower occupancy costs, lower running costs and better unit economics. Because of the low seating capacity, they are able to generate a cult following or a sense of virality—simply because you rarely get a table.
Also, I am noticing that regional and hyper-regional cuisines are becoming very popular. India has an incredible variety and depth of culinary sophistication. Many of these regional cuisines were previously only known within the small communities they belonged to—they weren’t widely available for others to experience. The best way to promote your culture is through its food.
If Indians are able to consciously, and in a dedicated and focused manner pursue this effort, I believe Indian food and, by extension, Indian culture can create the kind of excitement and global appeal that Japanese, American and Korean cultures enjoy today.
In 2020, there was a lot of hype around cloud kitchens. But a lot of them eventually shut shop.
The number of cloud kitchens is definitely increasing. However, the overall response has slowed down a bit compared to earlier. Back in 2020, there was significantly less supply, which created a lot of excitement and opportunity. Unit-level sales were higher.
Now, the market has become saturated. Every category has multiple players and everyone is competing for the same customer base. Naturally, competition has increased and while demand has grown, it hasn't kept pace with the surge in supply.
As a result, there will be closures and only the best-run, more focused and professional cloud kitchens will survive and prosper. Those lacking focus may not be able to sustain themselves. In short, supply has increased significantly and demand has increased too, but not at the same rate. The cream players will rise to the top. There will be a certain ratio of closures, which may or may not increase with the number of new entrants.
Restaurants have expressed concern about the high ad cost charged by Swiggy and Zomato just to be among the top 10 in searches.
I would recommend to those paying inordinate amounts to do it on a unit economic basis. Marketing is an integral tool, but it should be done on a percentage basis. A lot of the time, you are given arbitrary numbers, such as paying “X” thousands or “X” lakhs for marketing.
No. You have to control the percentage. Everything in our business is about percentages. For marketing costs, the rule of thumb is that they should not be more than 8 or 10% of sales in the delivery business. In the dine-in business, it should not be more than 3 or 4%. Restaurants should keep this in mind. Marketing is absolutely integral because that is your digital facade, that is your digital storefront. Like here, this is my storefront. In the online world, what is my storefront? My ad, my banner. So, it should be done, it is an absolutely imperative tool. Without that, you will not get sales.
However, I would recommend that you do it based on mathematics and science. Go top-heavy initially when you are launching a new brand and then stabilise at a number that is sustainable.
NRAI has often asked for data from Zomato and Swiggy. Are there any updates on that?
Getting access to data is important and if we are able to achieve that, it will help every stakeholder and the consumer. The demand has been there from day one. With data, your engagement with the customer will be much better. You will be able to address issues much faster and forge a one-on-one relationship.
This is how you take better care of your customer. So, all stakeholders will benefit. The consumer will benefit. The industry will benefit. And Zomato and Swiggy will still continue to benefit because customers will still probably order from Zomato. How many people are able to self-deliver?
What role does technology, particularly AI, play in your business?
We are using it in different ways. The first is that we have moved towards an AI-based auto-indent system. Ordering from our kitchens, both cloud kitchens and restaurants, is now managed through a model. This AI model takes into account empirical data, calculates requirements and auto-orders, rather than a human placing orders like, “4kg of rice, 10kg of flour, 15kg of lentils.”
It’s not happening exactly like that yet, but it's in the process of being implemented. Soon, it will be 100% auto-indent. A human will not be required. The system will generate an auto-indent, but someone in our cost control department will still review it. You can’t trust AI 100% just yet. For example, what if the AI mistakenly orders 100kg of chicken on a Tuesday?
Will AI replace jobs?
In the restaurant industry, tasks like automated ordering in the back-end are already in place. However, for restaurants like mine, there are a very large number of items on the menu and as such, chefs and waiters will still be required because humans always require human interaction.
Eventually, yes, food production will be automated with robots, but that's still a few years away, around five to seven years away and even then not all restaurants, especially those in the premium category, will rely on automated food production.
Do I see fully automated kitchens becoming the norm, especially in QSRs [quick-service restaurants] with limited menus? Yes. But in fine dining, it’s still a decade or more away due to the complexity of the food preparation. Eventually, AI will affect jobs across industries. It’s inevitable that a lot of jobs will be lost, particularly in the services sector, where human interaction is key. People still want a person to serve them or a cook to prepare their food. Some tasks, like making kulcha, require dexterity that a robot currently cannot replicate. No industry will be untouched by this change. But we need to harness it positively. Technology should be used as a tool, allowing humans to focus on the cool, creative and enjoyable aspects of their work while leaving mundane tasks to AI.