Cloud kitchens fast catching on in the food sector

Cloud kitchens offer a cheaper, faster set-up if owners want to penetrate a different market

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In the wake of the coronavirus pandemic, people around the world have been tackling many challenges with tenacity and fortitude.

Extra stress and pressure have taken a toll on many who have lost their jobs or suffered sharp pay cuts.

The socioeconomic turmoil has overwhelmed millions of ordinary people who have fallen into hardship. In 2019, almost 700 million people were malnourished. With the onset of the pandemic, that figure could have surged another 130 million by the end of 2020.

Despite these tough times, I have witnessed steadfastness, hardiness and the unyielding determination of the human spirit. I know it is a cliché, but every dark cloud has a silver lining. Or as the Chinese say, there is an opportunity even during a crisis.

Against this bleak backdrop, people have devised innovative ways of survival to eke out a living, and one of them is through cloud kitchens.  

A cloud kitchen is a delivery-only restaurant that has no physical space for dine-in customers. Online food collectors respond to orders conveyed by a website or mobile app.

Cloud kitchens are becoming more popular as Covid-19 disrupts the restaurant industry and global food supply chains. This business opportunity in the restaurant industry may even experience rapid growth and become a significant contributor to the country’s services sector.

The digital revolution has converged on the food delivery sector within a brief span. Because of its growing popularity, Malaysia expects growth in the food delivery sector to soar over the next few years by about 18% on average.

Credit for the success of cloud kitchens must go to the efficient food delivery portals that emerged with the onset of the pandemic. Cloud kitchens work in tandem with these food delivery portals, complementing each other. They have provided the solution to customers’ needs during this critical period – something few could have expected.  

Global lockdowns have compelled restaurant owners and food and beverage operators to adapt and be creative to ensure the survival of their businesses.

Putting aside any sense of embarrassment, many retrenched workers, including airline staff like pilots and flight attendants, have embarked on the food delivery sector to eke out a living. Most had little choice as they have families to support and other financial commitments.

Not only in Malaysia but also in Sweden, laid-off airlines staff have switched careers. I salute all of them for tossing away status and coming to terms with prevailing realities for the sake of survival.

In Malaysia, cloud kitchens are relatively new, apart from one which has been around for a few years. Many food and beverage operators have had to reassess their modus operandi amid the pandemic-induced slump. For many, cloud kitchens offer a way out of their predicament

In South East Asia, a well-known food delivery company has been a dominant force in the cloud kitchen market, opening over 50 facilities in countries like Singapore, Thailand and Indonesia.

With new business models, they offer limited start-up costs and maximum profits, especially critical in these hard times. While it may cost a bomb to set up commercial or exclusive kitchens and restaurants, interested folk may set up a cloud kitchen in Malaysia covering a relatively small space for slightly less than RM1,000 a month.

The advantage of a cloud kitchen is that it can reach customers across the city without huge investments – and it could become more profitable than a restaurant.

Cloud kitchens offer a cheaper, faster set-up if owners want to penetrate a different market. For example, a restaurant in Bangsar might want to open an outlet in Petaling Jaya, but that would incur rentals, renovation costs, staff wages and other costs. Cloud kitchens circumvent all these obstacles.

With a cloud kitchen, owners can get the ball rolling faster, and the model allows for higher profit margins too. An investment may take a long payback period, but with the way cloud kitchens operate, the surplus cash generated can be used for expansion and diversification of outlets.

Cloud kitchens have benefited from the movement restrictions to curb the pandemic. When these restrictions were suddenly imposed, entrepreneurs quickly started looking for alternative, more efficient business methods to overcome the setback. And paradoxically, the pandemic has had a silver lining.

The challenge for cloud kitchens is to sustain their momentum of growth once normalcy returns. With vaccinations now underway, cloud kitchens must brace themselves for the challenges posed by conventional restaurants resuming operations as usual.  

This is when the acid test of the success of cloud restaurants can be gauged. Only time will tell if they will be resilient enough to face the likely competition from traditional restaurants.

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Benedict Lopez was director of the Malaysian Investment Development Authority in Stockholm and economics counsellor at the Malaysian embassy there in 2010-2014. He covered all five Nordic countries in the course of his work. A pragmatic optimist and now an Aliran member, he believes Malaysia can provide its people with the same benefits and privileges found in the Nordic countries - not a far-fetched dream but one that he hopes will be realised in his lifetime
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