Cloud Kitchens are the kinds of restaurants that only accept online orders through various online platforms and does not provide for the dine-in facility. The concept of these type of kitchens has evolved after the wake of COVID-19. People have been forced to remain indoors which have boosted the food industry. Some of the famous examples are:
- Behrouz Biryani
- Oven Story
- Biryani by Kilo
- Sweet Truth
But in order to run them, there are various legal compliances which need to be dealt with. The following article provides with ten tips to help you open a cloud kitchen leaving no space for contravention of law.
Top Ten Legal Tips for Online Food Kitchens and Cloud Kitchens in India are:
- Intellectual Property (IP), Data Privacy and Data Protection: The company owner must file trademark applications for the company name and logo including word mark consisting of various colours and patterns in order to establish their distinctive presence on the market in order to protect the brand. Apart from this, Data like number of orders should not be disclosed to food aggregators. Thus, there should be confidentiality and utmost privacy with respect to the identity of customers and their personal information. The data protection and privacy has to be strictly in compliance to the cyber laws and in particularly the Information Technology Act of 2000 respectively.
- Permits and Licenses: Applying for and obtaining Food Safety and Standard Authority of India (FSSAI) License, GST Registration, Health/Trade License, Fire & Safety License. License under the Shop and Establishment Act which applies to all premises where trade, business or profession is carried out but it varies from state to state. Other permits can be Night Operations License, No objection certificate (NOC) from the local municipal officer etc.
- Drafting & Executing proper Employee Documents & Human Resource (HR) Manuals: The online food kitchens and/or the cloud kitchen should necessarily execute proper documents with their employees including their Chefs which includes a proper Offer Letter, Appointment Letter, Employment Bonds and other allied HR related documents before employing them. Further, the Police Verification of the employee is necessary and any kind of failure will land the online food kitchens and/or the cloud kitchens and its Entrepreneur into big trouble.
- Tax Compliances: The income tax reports filing as per the Income Tax Act, 1961, Quarterly Tax Deducted at Source (TDS) returns, GST returns filing (quarterly or half-yearly) should be filed on time in order to avoid any kind of tax related notices and penalties..
- Drafting and Executing Agreements & Contracts: As the cloud kitchens mostly work in a commercial place, it becomes necessary to have certain agreements duly drafted and executed. Agreements like lease agreement, vendor agreement, agreement with food aggregators, hire-purchase agreement etc.
- Direct and/or Indirect Liabilities under the Criminal Laws & the Consumer Laws: Once the food leaves the kitchen, there is no control on what happens to it but there are certain foreseeable circumstances regarding which the liability can be decided. Before deciding who will render the services, confirm whether there drivers are required to follow some protocols or not and who will be held liable for illness. Some food delivery brands deliver food without permission from the kitchen owners. So it’s crucial that you clearly advertise delivery services you have partnered with and include a disclaimer about potential liability from unsanctioned services. The best way to protect your kitchen from any liability issues is with the right insurance by talking to an independent insurance agent who specializes in restaurant insurance. The liability in this case can be both a criminal laiability and/or a liability under the consumer laws respectively.
- Legal Compliances with Food Aggregators: The most important role in the advent of cloud kitchens has been played by them. Listing online food aggregators in your cloud kitchen is critical. The services provided by them are obviously chargeable as commissions due to the order volumes generated by these famous third party platforms. There is a high dependency on food aggregators, one must review each aggregator before going on-board with the said aggregator.
- Inspection by the Government Authorities & particularly the Food Inspector: It becomes vital that these kitchens maintain high standards of health, hygiene and sanitation since the customers cannot visit them. Also Kitchen equipments should be free from faults, there must be safe and efficient disposal of waste products. There can be a surprise visit by the Food Inspector to inspect preparation, proper licensing and whether all the food and safety compliances are met with. So, to evade from any legality it is advised that adequate cleanliness and high-quality food must be present.
- Statutory Penalties: There are various penalties levied in instances like if there is an accident leading to customer injury then a fine of Rs.3 Lakhs reducing it to Rs. 1 Lakhs and in case of death a penalty of Rs. 5 Lakhs has to be paid under FSSAI. In cases of negligence causing injury to the consumer, such person can file an application under Section 82 of Consumer Protection Act, 2019.
- Direct Accountability & Responsibility: The online food kitchens and/or the cloud kitchens are the ones who prepare the food and thus they are directly accountable and responsible for the food made by them. This obligation is inevitable and the online food kitchens and/or the cloud kitchens cannot wash-off their hands from this legal liability.
As cloud kitchens do not have dine-in facility and no physical outlets, it becomes important for them to advertise their kitchen through various ways. One of such ways could be through social media platforms. Nowadays, each and every outlet has its own account and a website to attract the customers. Other ways could be by participating in food festivals, running paid campaigns, putting up food stalls in a local event etc.
Home Cloud Kitchens face more challenges than the kitchens set up in commercial areas. What will you cook? Who will be your target customer? How will you deliver the food to them? How much food do you plan to cook in a day? How will you market your cloud kitchen? Where will you procure your raw materials from? Do you have enough place for storage? Do you know how to maintain the required food hygiene standards? Would you need to employ people? Do you know what equipment you would need? But the current pandemic has helped them overcome these challenges. As these kitchens are delivering foods to Covid patients, they have become much popular and people are coming forward to work with them.
At the end it can be easily construed that whether we like it or not, cloud kitchens are here to stay. However, traditional restaurants are not going anywhere. The industry has just been divided into two separate segments: dine-in restaurants and delivery-only restaurants. Thus, a proper roadmap has to be prepared by the cloud kitchens which includes obtaining adequate professional advice from the professional and then should run their business which is well compliant to the statutory and non-statutory laws of the land.
Authored By: Adv. Anant Sharma & Aashita Khandelwal