Tuesday, October 22, 2019

China’s cloud kitchens

May 26. 2019
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By Suwatchai Songwanich
CEO Bangkok Bank (China)

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Food delivery is big business in China. Earlier this year Chinese online food-delivery giant Ele.me acquired one of its rivals, Baidu Waimai, and its related services for $800 million (Bt25.4 billion), enabling it to corner 53.4 per cent of the domestic food delivery market. 

Such consolidation within China’s food delivery space may result in some interesting events on the industry’s horizon. Travis Kalanick, the co-founder of Uber who departed the ride-sharing business in 2017, appears to not have been dissuaded about opportunities in China despite Uber’s own lacklustre performance there: Uber reversed out of China in 2016 after selling its business to Didi Chuxing for $7 billion. 

Kalanick recently partnered with Zhang Yanqi, the former CEO of China’s bike-sharing firm Ofo, according to some reports which claim the duo are planning to launch Kalanick’s Los Angeles-based CloudKitchens in China. 

CloudKitchens’ model in the US focuses on taking over undesirable real estate spaces, fitting them out with commercial kitchen facilities and renting them to hospitality businesses. Restaurateurs benefit because this low-cost way of starting up delivery-only services avoids the costly overheads associated with opening a full-blown restaurant.

The “cloud kitchen” concept is not quite as digital as it sounds, however. It was first developed by the founders of India’s kebab chain Faasos (now Rebel Foods) in the early 2000s to counter years of high rent, outfitting costs and staff turnover. They transformed their business model by opening a centralised cloud kitchen and focusing on cheap rent, online marketing and fast delivery. The company now prepares a variety of foods in its cloud kitchens, marketing each cuisine under a separate brand name. 

It may take time for restaurants in the West to feel some competitive pressure from cloud kitchens, due to high delivery costs. In Asia, where staffing and delivery costs are much lower, cloud kitchens could proliferate at a much faster pace. Consumers could soon be able to have their favourite meals delivered within 30 minutes at the same price, or lower, than restaurants currently charge.

Bricks-and-mortar restauranteurs will likely feel daunted by the prospect of competitors turning to cloud kitchens to inexpensively prepare and distribute meals to consumers. There will still be opportunities for traditional restaurants – particularly those with a unique offering or expertise in social media marketing – but they will need to move quickly before larger, faster-moving companies leave them behind in an analogue industry.

For more columns in this series please visit www.bangkokbank.com.

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