Cloud kitchens: Grab feeds the delivery economy
Grab, one of Southeast Asia’s two big super-app providers, is now opening restaurants where almost no one eats.
The business model is sprouting in many parts in Asia. They’re called cloud kitchens, and they exist almost solely for people who want to dine on restaurant-quality food, but at home or work.
They also follow the food delivery boom that Southeast Asia is experiencing, and which Grab helped to pioneer.
The Singapore company’s first foray into cloud kitchens came in Indonesia. From there it expanded into Vietnam, Thailand and Singapore.
The app operator’s first GrabKitchen in its home market opened in the western neighbourhood of Hillview. The GrabKitchen, which shares a building with a factory and warehouse, has 10 virtual restaurants, including Waboru, a Japanese-style fast-food eatery; Playmade, a bubble tea maker; and a Thai Dynasty.
Each kitchen measures 12 to 21 square metres and is equipped with sinks and other fixtures. The tenants supply their own refrigerators, cooking gear, utensils and ingredients.
Although there is dining space, GrabKitchens mainly operate as export bases that use motorbikes and bicycles to bring meals to customers’ homes or offices.
Cloud kitchens are nothing new. Pizza delivery shops have been around for decades. And the business model of occupying a big space and then subdividing it for clients is much like that of the now-notorious WeWork.
But recent technological and consumer trends have led to an explosion in meal delivery services. Cloud kitchens are both an outgrowth of this boom and an answer to skyrocketing real estate costs.
Before opening a new kitchen, Grab analyses the search histories of GrabFood users to determine what cuisines, fast foods and specialties are popular with local people but in short supply in their neighbourhood.
It then works out an optimum location and operating style in order to keep risks to a minimum for potential restaurateurs.
“Rent is one of the heaviest burdens for food and beverage businesses in Singapore,” says Chiaki Kawamura, whose Prime Business Consultancy has provided support to various new entrants to the Singapore market.
“For restaurants to ensure good customer traffic and revenue, the location is everything. It means you have to be in places like a popular shopping mall near a major train station, which is rarely available and typically very expensive.”
The startup cost for a food and beverage business is not limited to the rent. “If you are operating a restaurant, a substantial amount of capital has to be invested in seating, furniture and ambience,” said Ian Lin, the founder of Thai
Dynasty. Even for a simple-looking food court, the initial cost includes setting up a customer-facing counter and the signboards and menu boards. “Do not underestimate” such costs, Lin warned.
A cloud kitchen helps restaurant operators to save manpower costs, according to Lin. “It is also difficult to find staff for food and beverage operators in Singapore, so the reduction in the required manning for operations is also an intangible benefit of operating in cloud kitchens,” he added.
Singapore’s restaurant industry is not only suffering from high rents, it is also being hit by a labour shortage. GrabKitchen promises entrepreneurial chefs that it can limit these headaches, lower startup costs and alleviate the need to physically interact with customers.
Dilip Roussenaly, the chief of GrabFood Singapore, said GrabKitchens offer another benefit — an inexpensive way to test new concepts.
GrabKitchen is “a low-cost and lowrisk way to expand to new locations” for restaurant operators, a spokesperson said. With basic kitchen facility manpower such as cleaners provided, the restaurant operators can focus on cooking.
GrabKitchen is part of Grab’s strategy to expand its food-related business. According to Grab, users in the seven countries where GrabFood operates in December spent 420% more than they did a year earlier; the number of users tripled in that time.
In addition, GrabFood’s per-customer profit margin is greater than for ride hailing. Grab takes commissions of up to 30-35% from individual customers for food delivery, which is higher than the 20% commissions for rides.
More importantly, some of the restaurant operators are “willing to spend” on subsidies to promote their own brands on Grab, said Lim Kell Jay, GrabFood’s regional head. This is critical for Grab to make its business sustainable, he added.
In the ride-hailing business, the subsidies that the platforms operators such as Grab give out to customers in order to build market share has been the major burden.
According to Lim, the food delivery service is helping to hasten Grab’s march toward profitability.
Ride-hailing app providers, who remain focused on expanding their market share, continue to invest heavily in coupons and other passenger acquisition tools — to the detriment of their margins.
The poor investor reception for Uber after it listed on the stock market has shown that investors have grown sceptical of business models that emphasise cornering the market over making money.
This mindset persuaded Grab to focus on expanding its food-related business.
The first GrabKitchen opened in September 2018, in Jakarta. Last year, Grab opened more kitchens in Indonesia as well as in Ho Chi Minh City and Bangkok. By the end of 2019, Grab was operating more than 50 locations. Manila is up next.
Grab’s biggest rival, Jakarta-based Gojek, has invested in the Indian cloudkitchen unicorn Rebel Foods. They have announced plans to open 100 cloud kitchens in Indonesia in 18 months.