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Cloud Kitchens: A Recipe For Alternatives In The Next Normal?

Cloud kitchens, virtual kitchens, dark kitchens, even ghost kitchens… The names vary, but the model remains the same - and it is rapidly emerging as a potentially disruptive game-changer for many in the food industry.

Essentially, the cloud kitchen model involves restaurant operators moving their on-site kitchens into typically non-descript, under-used buildings, or fully equipped mobile containers that can be located anywhere. Instead of waiting staff serving customers at their dining tables, restaurants can now take ready-cooked meals directly from the cloud kitchen to their customer's delivery address. No dining tables or waiting staff required, just a customer with a food delivery app.

The rise of the cloud kitchen is a compelling example of how the need to adapt and survive in the face of an unexpected and unprecedented crisis caused by Covid-19 is forcing food service businesses to embrace ideas they may have ignored or even dismissed just a short time ago.

Business-Saving Benefits

Traditionally, the most successful restaurants have been associated with highly visible locations. By contrast, cloud kitchens are often located in less visible out-of-town industrial parks that offer more affordable rents, more flexible leases and even tax breaks, releasing operators from heavy real estate overheads. In a business where margins are typically carpaccio-thin, cost benefits like these can make the difference between building a sustainable business and shutting down.

While the cloud kitchens boom started well before Covid-19 became part of the universal vocabulary, the pandemic has certainly helped to inflate it. A recent survey asking industry professionals how they see the next normal shaping up confirmed this convergence. Among other answers, respondents indicated that kitchens and menus are becoming smaller and more streamlined. Significantly, they also indicated that more kitchens are set to move offsite and into the cloud as consumers shift from dine-in to take-out. Of course, cloud kitchens and restaurant delivery services are two sides of the same coin, with the first feeding the public's increasingly voracious appetite for the second. Their combined growth has been particularly strong in Asia, which is becoming a fascinating real-time case study into how the cloud kitchen model is likely to develop globally.

Spotlighting Asia

Here, big names are already investing big money to capitalize on the cloud kitchen boom. They include former Uber chief executive, Travis Kalanick, who is linked to Singapore-based cloud kitchen operator, Smart City Kitchens, and already has Los Angeles-based CloudKitchens in his portfolio. Key players in the region include FoodPanda, Deliveroo, Gojek, and GrabFood – among others.

In January 2020, GrabFood opened its first cloud kitchen in Singapore. The new GrabKitchen, which spans 6 000 square metres, provides cooking space for 10 restaurant brands – or merchants – and even incorporates a small eat-in area.

The new facility benefits diners, restaurants and Grab in equal measure. One of the big attractions for diners is that they are free to include dishes from multiple GrabKitchen merchants in the same order. In turn, merchants can expand their businesses with low costs and risks – and with immediate access to Grab’s customer base. In addition to renting cooking space to merchants, Grab also takes care of the utilities management within its new cloud kitchen and provides marketing support through its delivery app.

GrabFood already operates in Indonesia, Malaysia, Myanmar, Thailand, Vietnam and the Philippines, where the cloud kitchen boom looks likely to get even stronger. In May, the Philippines fast-food giant Jollibee Foods, announced plans to spend $138 million on building cloud kitchens and reinforcing its delivery service as part of a global restructuring plan. The business has been sharply exposed to the Covid-19 pandemic in the Philippines as well as the U.S., and its new plans are an acknowledgement that the restaurant industry will not be returning to the old normal any time soon - if ever.

An overview of Asia’s current cloud kitchen market would be incomplete without mentioning China, which offers some important insights for the rest of the world. As the first country to go into lockdown, China has a deeply entrenched restaurant culture yet its food delivery sector is growing faster than anywhere else. According to Beijing-based cloud kitchen operator, Panda Selected , more than 500 businesses have already signed up to its service. Rising demand has seen the company open 103 shared kitchens within three years across Beijing, Shanghai and two other major cities. Expansion remains a priority. In recent months, the three-year old company has raised $70 million in investment and counts A-list venture company Tiger Global as its backer.

Challenges Ahead

Still relatively young, the cloud kitchen model continues to evolve and there are likely to be mergers, acquisitions and consolidations down the line as the main players jostle for market share. What’s more, the business will need to address some important challenges along its route to maturity.

For example, consumers are even more concerned than ever about food safety, and those working to lead in the cloud kitchen space need to win their customers’ trust and ensure they guarantee service delivery with safety and quality top of mind. Consumers are also increasingly conscious of ethical and sustainability issues.

So, while the cloud kitchen model offers precious employment opportunities to casual delivery drivers, their livelihoods and well being need to be protected. The shift from dine-in to take out opens up a number of untapped greening opportunities. Among others, they include managing the growth in single-use packaging; and dealing with the environmental impact and noise pollution risks associated with having more delivery vehicles on the road.

Here To Stay

Whatever the challenges ahead, cloud kitchens already seem assured of a place in the next normal as the industry looks towards how it rethinks and adapts while building a safe and sustainable future.

After all, the cloud kitchen model doesn’t only offer established restaurant businesses and their guests protection against the impact of the lockdown. It also opens new opportunities for future generations of restauranteurs by cutting costs and lowering obstacles to entry while fattening the ultra-skinny profit margins that have always been an occupational hazard among restaurant operators.

But one principle will stay the same into the next normal and the next normal after that. Customers will only remain loyal to restaurant brands they can trust to serve safe, tasty, fresh dishes at an affordable price. Pandemic or no pandemic, some things in this business will never change.

Contributing Author: Gwendy Krijger, Joy Ding


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