More room to grow for cloud kitchens in Singapore

By Valerie Kor

/ EdgeProp Singapore |

August 20, 2020 6:00 AM SGT

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SINGAPORE (EDGEPROP) - The Covid-19 pandemic has catalysed the growth of delivery-only online restaurants in Singapore, which operate out of “cloud kitchens”— also commonly referred to as “dark kitchens” or “virtual kitchens”.

Since such restaurants send food directly to customers via delivery apps, they circumvent two perennial problems faced by conventional restaurants: high shopfront rental costs and manpower crunch for service staff. The business model also rides on an increasing demand for food delivery since the “circuit breaker” period from April to May, during which dining-out was not allowed and more people worked from home.

This year, the online food delivery market is projected to reach US$4.6 billion ($6.3 billion) in Singapore and will have an annual growth rate of 10.8%, according to global research firm Statista. Worldwide, China is leading with a projected market volume of US$51.5 billion this year.

Deliveroo was the first among the food delivery app companies to launch a virtual kitchen space — Deliveroo Editions — at Katong in 2017 (Photo: EdgeProp Singapore)

Major food delivery app companies Deliveroo, Foodpanda and Grab already have their own shared kitchens in Singapore before the pandemic hit. Deliveroo was the first to launch a Deliveroo Editions site at Katong in 2017 and since then, it has opened two more locations at CT Hub 2 and ALICE@Mediapolis, both spanning over 3,000 sq ft. They offer virtual kitchen spaces as well as seats for 20 to 40 diners.

In 2018, food delivery app Foodpanda also launched Favourites by Foodpanda at Woodlands, offering a small dine-in area in order to comply with canteen space regulations. From its location, the restaurants can deliver to areas within a 5km radius such as Sembawang and Yishun. There is also an option for self-collection.

This year, Grab has joined the fray with the launch of the first GrabKitchen space in Singapore, located in an industrial building at Hillview Avenue. The space houses 10 F&B brands, including three delivery-only restaurants. The company already has 50 cloud kitchens in the Southeast Asia region.

Delivery companies are not the only ones interested in the cloud kitchen market. Last month, property mogul Kishin RK announced that he will create a network of 1,000 cloud kitchens across Asia, Europe and the US. Kishin is starting with TiffinLabs in Singapore, which currently has nine restaurant brands under its belt, including Publico Pasta Bar and Huraideu Korean Fried Chicken.

A cloud kitchen space at Tampines Food Co, one of Smart City Kitchens' five facilities (Photo: Smart City Kitchens)

Arin Aghazarian, general manager at Smart City Kitchens, the largest cloud kitchen operator in Singapore, says the main benefit of using their space is low set-up costs. “Our shared kitchens are already fitted out with air-conditioning, exhaust pipes, power sockets and basic equipment. All the licensee needs to do is to bring specific equipment,” she adds.

Counting Jollibean, Ayam Penyet President and subscription catering business Ketomei among their licensees, Smart City Kitchens’ packages start from six-month subscriptions. A 150 sq ft space starts from $3,300 per month in a heartland location, while a prime location starts from $4,500 per month. This is excluding a processing fee of 3%. Due to Covid-19, the company has also introduced shorter packages where the contracts are more flexible, on a case-by-case basis.

Smart City Kitchen also helps to run orders by collecting food from multiple kitchens and bringing them to a collection point. Aghazarian says that this is done manually at the moment, but the operator is testing out robots for this task.

Delivery riders have a waiting area at Smart City Kitchens' Tampines Food Co (Photo: Smart City Kitchens)

For delivery-only businesses, using a dark kitchen not only lowers upfront costs, but allows them to create different “food concepts” from one kitchen space, as well as test flavours and marketing strategies.

This was what Dark Kitchen Lab, a cloud kitchen start-up under Ebb & Flow Group, did with Wrap Bstrd at the start of this year. Based on data collected by Singapore-based AI company SQREEM, the start-up discovered that their customers, who were based in the CBD, enjoy local comfort food, care about health, and want to eat in a convenient way.

Therefore, Wrap Bstrd was created to offer wraps inspired by local flavours, such as Spicy Chicken Indomie and Char Siew Rice wraps. When more people worked from home during the circuit breaker, Wrap Bstrd received requests for delivery beyond the CBD, says Kian Chun Lim, CEO of Ebb & Flow Group, which prompted the brand to offer islandwide delivery. The success of Wrap Bstrd has “validated the firm’s strategy to merge AI technology with creative F&B concepts”, he adds.

Dark Kitchen Lab now has four other brands: Love Handle Burgers, Kaiju Kaiju, Nasi Nuri and Sunny Slices, operating from across three dark kitchens at Ann Siang Hill, Tampines and Orchard.

Kishin’s TiffinLabs is also planning to use data analytics to identify food trends and consumer preferences, as well as to use “smart kitchens” under its network to fill gaps in delivery zones, according to their website.

Positioning the cloud

While cloud kitchens do not require prime retail space, they still need to be near residential areas, says Desmond Sim, head of research and consultancy of CBRE. “Cloud kitchen operators would rather take up cheaper retail space — in suburban malls, for example — due to the need for networks and penetration into neighbourhoods where the demand is located,” he adds. This is unlike central kitchens that are used by large restaurant groups to prepare ingredients in bulk, which can be located in faraway industrial areas.

Smart City Kitchen’s Aghazarian concurs and adds that being near to where expats stay is important. “Expats are a key segment of our customers. They have smaller families, cook less, and are willing to spend on food delivery. The average order for expats is higher as well,” she adds.

Therefore, aside from suburban facilities at Tampines, Clementi and Sembawang, Smart City Kitchens also has a facility at Orchard Tower and invested into a space at Telok Ayer Street last year. “The investment was made before Covid-19 hit, but we believe there are quite a bit of people who live near the CBD, especially expats. From our location, we can deliver to Bugis and Outram Park, so we still cover quite a bit of population,” says Aghazarian.

Ebb & Flow also has three dark kitchens at Ann Siang Hill, Tampines and Orchard, to be close to residential areas. It will be launching two new kitchens in Katong and Hongkong Street and will have four more F&B brands by the end of 4Q2020.

Lim: We believe that the F&B industry will be divided into two categories: those that provide exceptional dining experiences at physical locations, and brands that offer convenience via home deliveries (Photo: Ebb & Flow Group)

While the growth of cloud kitchens is accelerating, cloud kitchens will not eliminate conventional restaurants anytime soon. CBRE’s Sim says, “Cloud kitchens deliver food that fulfills the need for convenience, but it will never achieve the same plating and presentation as with dining in. Aside from the sizzling sounds and the smell of hot food in the air, you also cannot replace the need for socialising.”

Ebb & Flow’s Lim also concurs and says, “We believe the F&B industry of the future will be divided into two main categories: brands that offer value and convenience via home deliveries, and those that provide exceptional dining experiences at physical locations.” Having established previous brands at physical locations, Lim adds it was now vital for the company to expand and grow its footprint in the delivery-only space.

Delivery-only restaurants also face their own set of problems. Sim says, “Certain foods do not maintain well when delivered, such as crunchy food, or cuisines like claypot rice. Cloud kitchens will need to research on how to package food for freshness and optimise delivery times.”

A reliance on food delivery apps can also lead to high platform costs, says Christine Li, head of business development services at Cushman & Wakefield. “The virtual platforms take a substantial cut of the order as commission, reducing profitability.”

“They are the new landlords in the digital age,” she adds.

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