Foodies on cloud nine
New business model updates the takeout
published : 28 Oct 2019 at 10:05
newspaper section: Business
At a bustling warehouse market, tucked away on a back street off busy Rama IV Road, around 50 Grab delivery drivers hang around a takeout counter waiting to get pinged on their smartphones for new food deliveries.
The venue attracting such a crowd of delivery staff is Grab's new cloud kitchen, a bare-bones maze of smaller kitchens providing space for 12 different food businesses located on the second floor of Sam Yan market.
GrabKitchen is opening its first outlet in Thailand, having already opened 18 in Indonesia and one in Vietnam, and represents Grab's initial foray into tangible assets. Grab plans to expand to 50 cloud kitchens in five markets by the end of next year.
After building up to become Southeast Asia's most valuable startup through solely digital services (ride-hailing, food delivery, parcel delivery and financial services), Grab is now moving into owning its own restaurant space.
But think twice before walking up to order from Grab's kitchen like a normal restaurant -- all orders must go through the app.
FAST DELIVERY, LOWER COSTS
Mobile food delivery applications have been riding the wave of the public's new eating habits in the digital age. But ordering meals from restaurants far away could land customers in trouble with high delivery charges and cooked food that is not fresh.
To address this pain point, the concept of a "cloud kitchen" has emerged.
A cloud kitchen is a place where cooks or chefs from various restaurants gather at the same site to cook food in their allotted spaces.
The idea is to enable fast delivery of meals with lower costs. Restaurants do not need to open branches that may be too costly as they can set up a cooking space at a cloud kitchen in places where they can reach their customers via delivery service.
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, according to Suwatchai Songwanich, chief executive at Bangkok Bank (China).
They transformed their business model by opening a centralised cloud kitchen and focusing on low 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, said Mr Suwatchai.
GrabKitchen, however, isn't Bangkok's first cloud kitchen as Foodpanda opened its own cloud kitchen back in February, nor is it the first delivery-only business -- Gallery Pizza has grown into one of Bangkok's hottest pizza delivery providers from a nondescript shophouse on Sathon Road.
Still, cloud kitchens present big opportunities for so-called "super apps" like Grab that are looking to find new revenue streams on their path towards greater profitability, and a new business model for food that combines the power of big data with the time-honored practice of food delivery.
Southeast Asia's food delivery market is currently worth US$5.2 billion (157 billion baht), according to a 2019 Google-Temasek study, twofold growth from the previous year.
By 2025, the market is expected to grow to $20 billion.
DATA IS EVERYTHING
Grab began food delivery in Thailand in November 2017, and since then has been able to collect reams of data on Thai eating habits, restaurant efficiency and delivery logistics.
It used this data to set up every part of its kitchen operation from its choice of food brands right down to the placement of equipment.
"Grab uses data to bridge a demand and supply gap by finding a prime location where merchants can easily reach the customers and the delivery-partners can shorten their service duration," said Tarin Thaniyavarn, country head at Grab Thailand.
"By establishing a central kitchen and pick-up point at Sam Yan -- one of the key central business districts -- merchants are able to cook closer to the customers, drivers can take more orders on short journeys and customers can enjoy their favourite meals faster."
This data-driven model has made deliveries from GrabKitchen 10% faster than the average delivery time of other merchants on Grab's platform.
It allows orders to be made directly to the kitchen from the app, instead of drivers having to make the order in person.
Because of this efficiency and the high volume of orders, many industrious drivers wait around the kitchen all day making deliveries from the kitchen allocated by the app.
The kitchen delivers within an approximate eight-kilometre radius of the kitchen.
GrabKitchen brands are promoted by the app under a separate tab, offering bubble tea, chicken and rice, kebabs and, of course, a range of Thai options.
The 12 brands in the kitchen were selected based on a combination of customer reviews and order volume from their other businesses on Grab's platform.
Unlike many cloud kitchens, Grab does not charge rent, but cuts an individual deal with each restaurant using the kitchen.
Staff prepare food at GrabKitchen. SOMCHAI POOMLARD
CHANGES IN FOOD COMPETITION
Dulyawit Khuiaphai, owner of Ongtong Food Industry Co Ltd, the operator of Ongtong noodles and khao soi store, said the company invested around 400,000 baht to open Ongtong food delivery at GrabKitchen, which opened for service on Oct 8.
Ongtong is among the dozen restaurants providing services at GrabKitchen. It has between 100 and 200 orders each day.
The orders at GrabKitchen in Sam Yan are higher than Ongtong's delivery orders coming from its two stores in Ari Soi 1 and at The Circle Ratchaphruek branch, said Mr Dulyawit.
"It has huge opportunity for delivery business. I saw growth from this channel month by month after becoming an official partner with Grab," he said.
Food delivery apps and cloud kitchens are catalysts changing the food competition landscape, said Anantaporn Lapsakkarn, senior researcher at Kasikorn Research Center (K-Research).
Normally, restaurants are located in strategic and central locations where they want to expand their businesses.
But this business model could fade as restaurants and street food vendors can get onto the online platform with lower costs, Mr Anantaporn said.
Cloud kitchens are a smart choice for customers in Thailand, where the streets are thronged with scores of food stalls, he said.
Street food makes up 30% of the total food market, according to K-Research.
The think tank found 63% of respondents increased food orders through apps with less dining out because of the attractive promotions and discounts on such platforms.
The food delivery app market is expected to grow by at least 10% each year until 2022, higher than the 3-4% growth per year attained by the normal restaurant business.
The value of the food delivery app business is expected to reach 33-35 billion baht this year, a 14% jump from a year earlier.
It is estimated this trailblazing business will account for 8% of total restaurant market value this year.
Weeradej Panichwisai, senior research manager for IDC Thailand, said the cloud kitchen is an attempt by food delivery apps to build up their ecosystem by drawing restaurants onto their platforms.
Without a cloud kitchen, restaurants may choose other platforms, said Mr Weeradej, noting this concept makes a difference.
But restaurants have to be aware that their dishes -- for example, crab omelette -- can also be found on other platforms, he said.
GrabKitchen, however, calls for a higher commission fee from restaurants participating in the cloud kitchen than those only engaged via GrabFood, said Mr Weeradej.
In the future, Grab aims to earn revenue from advertising these restaurants, he said.
With Grab and Foodpanda making their entries into Thailand's cloud kitchen business, other ride-hailing super apps providing food delivery service are interested in tapping into this lucrative market.
Jayden Kang, chief of strategy and head of Line Man, an on-demand delivery service of Line Company (Thailand), said the company is actively exploring the potential of cloud kitchens.
It is gathering opinions from potential business partners and customers on this business model.
"We are collaborating with many restaurant owners, helping them to acquire customers via our platform," said Mr Kang.
If the cloud kitchen can have a positive impact by improving their profits and creating a win-win synergy, Line Man will explore this new business opportunity to enhance our position and fulfill customers' needs."
Conceptually cloud kitchens can yield benefits, but they need to prove out in terms of practicality, he said.
"We need to consider that each dish from each restaurant has its own character and charisma. Most popular restaurants offer not only delicious food but also emotional touches, which can't be copied easily," said Mr Kang.
"People, especially foodies, are looking for those kinds of experiences."
Paisarn Aowsathaporn, executive vice-president for food business at Oishi Group Plc, said GrabKitchen is a good concept for customers if the company has good software and hardware systems to manage and consolidate orders and deliver them to customers within a specified time.
"I don't think this will impact our business because we already provide food delivery via our own delivery platform and other delivery companies," Mr Paisarn said.
Chataya Supanpong, chief engagement officer of Food Passion Co Ltd, said traditional restaurants should not be affected by this business model because each model is different in terms of target groups and strengths.
The physical store model emphasises offering products, services and a full eating experience to customers, a stark contrast to the food delivery model, said Mrs Chataya.
"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 the analogue industry," said Mr Suwatchai of Bangkok Bank.