Heaptalk, Kuala Lumpur —In Malaysia, the virtual kitchen sector is still in its infancy. Currently, there are only a few participants, and their presence is small in comparison to neighboring Indonesia or Singapore.
COVID-19, on the other hand, is proving to be a godsend to the sector, hastening its expansion. Malaysia has seen the growth of virtual kitchens, sometimes known as cloud kitchens, ghost kitchens, or black kitchens, as a result of the pandemic, which is causing a shift in customer behavior.
A survey by e27, 58% of Malaysians admitted to using more food delivery apps during the pandemic. “Since the March 2020 movement control order, there has been an increase in Malaysians’ awareness and acceptance of food deliveries. According to Nicholas Ou, co-founder and CEO of Loop Foods, “more Malaysians are now open to the idea of food delivery – whether from a restaurant, cloud kitchen, or a home kitchen.”
Delivery platforms were the first to develop virtual kitchens in Malaysia. They invited brands to high-demand locations, rented a building, and constructed various kitchen spaces for different businesses.
Many traditional F&B players have resorted to cloud kitchens to minimize operational expenses, sensing an opportunity. Some of them, like as MyeongDong and KyoChon, have their own cloud kitchens. Some landlords are even converting their vacant properties into cloud kitchens.
On the road to develop
There are two types of virtual kitchens. The first model operates similarly to a co-working space, with the operator renting out the space to renters. Then the second one is the cloud kitchen model where the operator owns and operates all of the brands.
In Malaysia, less than ten cloud kitchen companies are currently functioning under these two approaches. FoodPanda, CookHouse, Coox, Loop Foods, Pop Meals, KitchenConnect, and Aliments are among them. The majority of these have on to two locations across the country. Each of them aims to capitalize on the rising consumer base by utilizing digital platforms/apps for meal delivery.
According to Yiping Goh, Partner at Quest Ventures, Malaysia’s cloud kitchen business is rapidly expanding, dominated initially by Grab and Foodpanda, as well as B2C player Pop Meals (erstwhile dahmakan).
“With various lockdowns constantly disrupting retail F&B enterprises, more sustainable methods such as cloud kitchen operations are being implemented at a quick pace,” she noted. “We continue to see a lot of fragmented B2C players, and we believe that stronger B2B/B2B2C businesses will emerge to serve brands who are long established but have been significantly hit in the ways they operate in this endemic.”
Throughout 2021, the Malaysian internet food delivery market has risen significantly. In 2017, the market was worth approximately $66.3 million, and it is expected to be over 192 million by 2020. By 2026, this value is predicted to reach $319 million.
“For decades, the F&B industry’s business strategy has included prime real estate that could attract customers. “However, with faster internet and greater mobile penetration, consumer behavior is changing,” Ou noted.
Loop Foods is a Sunway iLabs-backed cloud kitchen player that offers multiple in-house ‘virtual restaurant’ brands for online ordering and delivery.
“When you consider being delivery-first, the need for prime real estate vanishes. In addition, we’re rethinking how to make better use of kitchens. A single kitchen serving a single restaurant is no longer regarded as the most efficient method. That is where the idea of a multi-brand cloud kitchen comes into play,” Ou explained.
Numerous obstacles
Malaysia’s dark kitchen industry faces several challenges despite huge growth potential. The first hurdle is changing operations.
“Working in a cloud kitchen is different from running a traditional store,” says Lim Hui Ru, General Manager of Kitchen Connect. A new delivery menu, food and packaging, and material storage are required by traditional restaurants. It takes time to adjust.”
Another issue is quality control. In a typical restaurant, food is served hot from the kitchen. On the other hand, food delivered from a kitchen to a customer follows a different route. It is also subject to external factors such as weather and traffic, which may affect delivery and food quality.
Digital marketing also becomes a major issue. Because most delivery orders are placed online, operators must understand digital marketing and how to apply it to their business. Another issue is small orders. A small order makes delivery less profitable for both the food delivery service and the restaurant/kitchen.
“Combining multiple kitchens in one location saves time and money for both restaurants and delivery partners. “Consumers can order from multiple restaurants at once with low delivery fees,” says Ru.
Malaysia’s internet economy has more than tripled in size since 2015, growing at a rate of 49% per year on average. It has spawned a new generation of tech-savvy, mobile-first consumers who are open to digital-first food and beverage brands.
Compared to Indonesia & Singapore
Malaysia’s internet economy has more than tripled in size since 2015, growing at a rate of 49% per year on average. It has spawned a new generation of tech-savvy, mobile-first consumers who are open to digital-first food and beverage brands.
According to Loop Foods‘ Ou, even legacy F&B brands are looking into cloud kitchen models to reach out to new customers and expand their service coverage.
“We will only see it in major cities in Indonesia, where the density is much higher than in Malaysia’s key cities. As a result, they are likely to achieve better results than Malaysia, but we will also see more players competing for a market share,” said Lee Teng, COO of Aliments.
Singapore, he believes, will be a relatively smaller market with a high density and higher use of online food ordering. Furthermore, due to the size of the Singapore market, cloud kitchens may not need to focus as much on expanding to different locations to expand coverage. “However, they would need to focus on marketing to strategically create more demands,” Teng added.
Aliments is a data-driven food ordering website that claims to have increased its revenue by 400% in the last six months. By 2022, the company plans to develop both nationally and regionally.
Despite its enormous potential, the area has received scant investment.
Hui Ru of Kitchen Connect, on the other hand, anticipates that investors will continue to infuse capital into the sector over the next few years. “With multiple new companies entering the Malaysian market, we anticipate other investors injecting capital into the business to ensure its long-term viability. And as the pandemic spreads and consumer behavior changes (making them more receptive to food delivery and online payment), more delivery-only kitchens will sprout, attracting additional funding.”
Experts predict that virtual kitchens will persist even after the epidemic and will become ingrained in the new standard, similar to online/contactless ordering. Providing the greatest experience possible through technology solutions is critical for success in today’s and future markets.
“In aggregate, the pandemic accelerated the rise of cloud kitchens. The question is whether this is a passing trend or one that will persist following the pandemic. The answer is that it is entirely dependent on the product’s qualities, how well cloud kitchen operators exploit current technology, and the target consumer’s demographic,” Aliments’ Lee Teng explained.
“However, as is the case with all other trends, it will consolidate. Only those that grasp the critical elements (product, marketing, and technology) of cloud kitchen operations will survive and thrive,” Lee concluded.
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