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Cloud kitchens: Grab scrambles to keep up with the delivery economy

Singapore's super app moves into real estate to help restaurateurs lower costs

Entrepreneurial chefs have set up shop in Singapore's first GrabKitchen, where they serve up meals to diners who prefer to eat at home or work. (Kentaro Iwamoto)

SINGAPORE -- Grab, one of Southeast Asia's two big super app providers, is now opening restaurants where almost no one eats. 

The business model, which Uber Technologies founder Travis Kalanick is betting as the next big thing, 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 in the region.

The Singapore company's first foray into cloud kitchens came in Indonesia. From there it expanded into Vietnam, Thailand and Singapore.

The super app operator's first GrabKitchen in its home market opened in the western neighborhood 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; a Playmade, a bubble tea maker; and a Thai Dynasty.

Each kitchen measures 12 to 21 sq. meters 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 ship meals to customers' homes or offices.

Cloud kitchens are nothing new. Delivery pizza 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 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 analyzes the search histories of GrabFood users to determine what cuisines, fast foods and specialties are popular with locals but in short of supply in their neighborhood.

It then works out an optimum location and operating style so as to keep risks to a minimum for potential restaurateurs.

"Rent is one of the heaviest burden to food and beverage businesses in Singapore", Prime Business Consultancy director Chiaki Kawamura, who have provided supports to various new entrants to Singapore market, said. "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", she added.

Startup cost for food and beverage businesses 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," Ian Lin, Founder of Thai Dynasty, claimed. Even a simple-looking food court, the initial cost includes setting up customer-facing counter and the signboards and menu boards. "Do not underestimate" such cost, Lin warned.

Cloud kitchen helps restaurant operators to save in manpower cost, 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.

Grab vs. Gojek: Grab has more than 50 cloud kitchens in four Southeast Asian nations, with plans to expand into the Phillipines. Gojek plans to open 100 of these 21st century eateries in Indonesia in 18 months. (Kentaro Iwamaoto)

Singapore's restaurant industry is not only suffering from high rents, it is also being hit by a labor shortage. GrabKitchen promises entrepreneurial chefs that it can limit these headaches, lower startup costs and alleviate the need to physically interact with customers.

GrabFood Singapore chief Dilip Roussenaly said GrabKitchens offer another benefit -- an inexpensive way to test new concepts.

GrabKitchen is "a low cost and low risk way to expand to new locations" for restaurant operators, Grab's spokesperson said. With basic kitchen facility manpower such as cleaners provided, the restaurant operators can focus on cooking, it added.

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 that for ride hailing. Grab takes up to 30-35% commissions from individual customers for food delivery, which is higher than 20% commissions for ride hailing. More importantly, some of the restaurant operators are "willing to spend" on subsidies to promote their own brands on Grab app, Lim Kell Jay, GrabFood's regional head, pointed out. This is critical for Grab to make the business sustainable, he added. In the ride hailing business, the subsidies that the platforms operators like Grab give out to customers in order to grow 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 heavily invest in coupons and other passenger acquisition tools -- to the detriment of their margins. After Uber Technologies' shares fell soon after the company listed in May, investors grew skeptical of business models that emphasize cornering the market over making money.

This mindset persuaded Grab to focus on growing 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 of these meal preparation stations.

Manila is next up for GrabKitchens, which will put the business in five Southeast Asian nations. Grab's short-term plan is to then expand the number of ghost commissaries in each of these countries.

Asia's cloud kitchen business has been led by Indian unicorn Rebel Foods and China's Panda Selected. Grab is not alone in bringing the concept to Southeast Asia. Its biggest rival in cornering the region's ride-hail market, Indonesia's Gojek, has invested in Rebel Foods.

Gojek and Rebel Foods have announced plans to open 100 cloud kitchens in Indonesia in 18 months.

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