Cloud kitchens: the lifeline of restaurants?

Sarah Tan, General Manager, Deliveroo Singapore

The F&B industry is undoubtedly one of the hardest hit industries by COVID-19, resulting in  a more challenging operating environment for many restaurants and eateries. Revenues have significantly dipped and recovery is slow with each phase of Singapore’s COVID-19 journey. Operational factors like steep fixed overhead costs and changing consumer spending habits have further eroded profit margins.

Despite these considerations, aspiring entrepreneurs are not deterred and Singapore’s F&B sector has seen more new restaurants open than close over the past two years.

However, first-time entrepreneurs also face huge challenges which include ever-changing social distancing rules and a saturated market that has had a considerable head start in navigating the dynamic COVID-19 measures.

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A slice of the delivery-only market

For F&B businesses charting a new path in this space, it’s easy to see why food delivery options are a compelling solution to manage revenue streams. Euromonitor reports that the global delivery-only market is estimated to reach US$1 trillion by 2030. The Asia-Pacific region, home to the highest population in the world, constitutes 60% of the international market, and is expected to grow by over 14% CAGR by 2027. Navigating the current climate has its difficulties, but those that persevere stand to find great success.

The big consumer shift: indoors and online

COVID-19 has not only affected restaurants but also consumers too. Many have adapted their lifestyles to work and study from home. An insight on food retail in Asia, published by McKinsey, highlights a shift in online food spending. Consumers have increased their spending by between 16 and 70 per cent, and intend to continue shopping online at this accelerated pace.

All these factors point to a greater need for businesses to establish online sales channels so that they can cater to this growing segment.

Cloud kitchens – delivery-only kitchens operating simultaneously in a centralised facility – may be the solution to optimise and grow businesses, especially in these challenging and uncertain times.

Cloud kitchens: A low-risk, high-return proposition

Virtual kitchens have gained popularity because of their attractive low-risk, high-return proposition. Restaurant partners can tap on delivery platforms’ existing base of users as a testbed for new cuisines and menu concepts, while saving on upfront investments, capital and operational expenses that otherwise would have been incurred in a traditional commercial cooking facility.

These valuable cost savings can instead be used to invest in growing the business in a cost-effective way while building a base of returning customers.

Technology and Big Data just a click away with delivery platforms

With the acceleration of digitalisation, customer behaviours have become more measurable. F&B businesses not only receive marketing and advertising insights and support from food delivery platforms, but they also have access to consumer preferences and demographics with the help of data analytics.

In fact, by leveraging millions of data points, delivery platforms have been able to identify cuisine gaps and match specific restaurants to specific neighborhoods, bringing more choice to local neighbourhoods.

It’s a much-needed boost especially for smaller restaurants who really need the help and for established restaurants who are looking to expand amidst a challenging climate.

Data insights further help brands streamline operations and improve their customer experience on an ongoing basis to ensure these virtual brands satisfy customers’ tastes and needs. These insights help restaurant partners tailor their menus and optimise operations much more effectively.

On top of all this, restaurants can also receive a monthly delivery performance report that includes data on financial performance (e.g. week-on-week sales, completed orders), operational performance (e.g. average delivery and food preparation time) and customer profile (e.g. total and new customers, rating, order frequency, top items) to inform their operations and sales, and improve their delivery performance and business models.

With the impact of COVID-19, delivery platforms have also proved to become a necessary support for small and established restaurants alike. Virtual kitchens have leveled the playing field by providing new entrants with access to customised data insights, so that they can scale up and stay ahead in a saturated and growing market. As Singaporeans adapt their routines to live alongside an endemic COVID-19, one thing is clear. Delivery platforms are not only providing F&B businesses the lifeline but are also providing smaller restaurants a new lease of life.