There has been a lot of talk in the media about cloud kitchens lately.
Whether it's Jollibee's first cloud kitchen in Singapore or Tiffinlab's 1000-unit global expansion, cloud kitchens are being touted as the next big thing in the food delivery game's development.
It is reported that Singaporeans spend more than S $ 500 million a year on online grocery orders, which is five to ten times more than in markets like Indonesia and Vietnam.
The US $ 200 billion (S $ 274 billion) growth spurt in the upcoming grocery industry is attracting both startups and conglomerates like flies. Even companies like Amazon have invested over $ 575 million in Deliveroo.
However, the cloud kitchen industry could soon go head-to-toe with grocery delivery apps. With a monopoly over local markets, cloud kitchens will find it difficult to survive without access to their own delivery apps for customer flows.
Cloud kitchens, explained
Cloud kitchens are built for F&B delivery. The benefit of a cloud kitchen is that it lowers rental, labor and operating costs for F&B retailers.
Food can be produced on a large scale without incurring additional infrastructure costs. Cloud kitchens develop their own virtual brands, lease commercial kitchens and operate delivery lines.
Photo credit: Wamda
However, few choose to control end-to-end food production. Many cloud kitchens are divided into one of two categories: kitchens based on partnerships with regional dealers, or dealers themselves.
This has led to a conflict of interest between competitors in the cloud kitchen and pitted provisioning apps and stand-alone cloud kitchens against each other.
Delivery apps already have their hands in the cookie jar
On August 5, the Singapore Competition and Consumer Commission (CCCS) released a statement confirming that Grab and Deliveroo refused to list restaurants that partnered with Smart City Kitchens in 2019.
Smart City Kitchens, a cloud kitchen startup founded in 2019 by Uber CEO Travis Kalanick, filed the complaint last July.
While Deliveroo and Grab have since ceased their anticompetitive practice, there is still a clear conflict of interest between delivery apps and cloud kitchens.
The two food suppliers have built a strong presence in the Singapore online delivery market and operate cloud kitchens themselves.
These apps work on the “virtual landlord” model: leasing commercial and virtual spaces to participating F&B brands.
Grab Kitchen launched its first cloud kitchen with 10 F & B's in January 2020 and has since expanded to over 50 cloud kitchens in four Southeast Asian countries in the region.
Image credit: Deliveroo
Similarly, Deliveroo has its eye on the cloud kitchen market and is launching test kitchens in London, France and Dubai, known as “Deliveroo Editions”.
The app giant has launched three Deliveroo Food Markets in Singapore, "updated" the Deliveroo Editions. The concept is both a restaurant and a cloud kitchen and features self-service cubbies and automated menus.
Cloud kitchens are facing overwhelming opportunities
These “virtual landlords” cannot be ignored. Delivery apps have captured key markets and monopolized sales pipelines.
GrabFood was Singapore's fastest growing delivery service and Grab & # 39; s fastest growing business unit in 2019. GrabFood orders growth reportedly rose 25 percent from the previous month.
Deliveroo also reported that its 2019 revenue grew 70 percent to S $ 44.5 million. In the same year, the app increased its driver base in Singapore to 6,300 and the number of participating restaurants to 4,500.
User adoption numbers are likely to be even higher as Covid-19 has been effective in fueling the evolution of the grocery industry.
Image credit: Deliveroo
The more cloud kitchens emerge, the more anti-competitive practices would be to exclude them from the food delivery market.
While F&B dealers have the ability to jump ships, doing so would restrict competition and lead to the closure of emerging cloud kitchens.
Monopoly would open up opportunities for abuse: Without other market participants who could put rental prices on a leash, “virtual landlords” can unethically increase the rental contracts for their cloud kitchens.
The next McDonalds?
Can delivery apps be put on a leash? The CCCS probe may have been enough to restrict Grab and Deliveroo – for now.
Singapore's market, however, is a tasty choice. Singapore is home to a wealthy, starved class and has a total addressable market of up to S $ 300 million.
Delivery apps also had a dodgy relationship with their employees and partners. It's not too long since Grab was accused of underpaid and overwhelmed his drivers and restaurants.
It's too early to say whether cloud kitchens will become just another subsection on an app's homepage.
It could go one of two ways: cloud kitchens could pave the way for small entrepreneurial businesses, or become the next wave of mass-produced fast food controlled by a conglomerate.
Selected image source: grave