The Rise of Cloud Kitchens

While the F&B industry took a heavy toll during the circuit breaker period in Singapore – a preventive measure in response to COVID-19 that lasted almost eight weeks until 1 June 2020 – people’s lifestyles had changed. Food delivery services in Singapore were already commonplace, but the circuit breaker period had fuelled its growth as people found a new convenience in such services. Those who can afford it do not hesitate to pay a little extra for the delivery of their favourite food.

Safe distancing and reduced capacity requirements of restaurants now may also render small dining outlets financially unviable, as well as diminish the margins of larger ones.

Consequently, the increasing demand for food delivery, high overheads and thinning margins, coupled with stiff competition in the restaurant space, have led some restaurant operators to shut down their shopfront altogether and open the more economically profitable cloud kitchens.

Related content: Robust Growth of Food Factories report

What is a cloud kitchen?

Also known as dark kitchens, ghost kitchens, virtual restaurants or satellite kitchens, cloud kitchens are cooking facilities that produce food. This would typically be for delivery-only, without a dine-in or customer-facing space. However, we have also seen an integration of cloud kitchens with dine-in concepts, such as those by food delivery service providers Foodpanda and GrabFood in Singapore.

“[F&B businesses] could tap into the shared infrastructure of the cloud kitchen without having to incur high capital outlay and staffing costs.”

Growing demand for cloud kitchens amidst COVID-19

One recuring question I get asked is whether or not we have seen this trend shifting.

Setting up of cloud kitchens is a growing trend and will be accelerated, as it will help some small F&B businesses survive – and probably even expand. They could tap into the shared infrastructure of the cloud kitchen without having to incur high capital outlay and staffing costs.

Grab launched GrabKitchen – its first cloud kitchen in Singapore – earlier this year (Image: Grab)

However, there will not be a significant shift in the use of retail space, as we expect reputable and high-end restaurants to continue to operate from their F&B outlets. That said, some operators from this group could turn to cloud kitchens to address the rising demand for online food requests.

How cloud kitchens are affecting F&B and retail industries

For now, cloud kitchens complement the brick-and-mortar restaurants – and this will not impact the retail market significantly.

Suburban retail malls are still the most convenient and comfortable choices for most customers, as they are strategically located in densely populated catchments. Destination or downtown retail malls such as malls in Orchard Road also attract catchments with their critical mass of activities and centralised locations.

“Colliers forecasted a sustained demand for such factories coming from the growing food industries… Central kitchens located near the CBD area or residential neighbourhoods command higher rents and prices than average.”

Cloud kitchen operators have predominantly set up their kitchens in industrial canteens, shophouses and food factories, where food preparation and cooking are allowed.

In one of our reports launched last year reviewing the future of food factories in Singapore, Colliers forecasted a sustained demand for such factories coming from the growing food industries.

In our view, rental rates and capital values of food factories are unlikely to spike up significantly, as there are abundant new factory developments in the pipeline. Property prices vary quite widely depending on location, building design, specifications and remaining land tenure.

Due to the time-sensitivity for food catering and delivery services, central kitchens located near the central business district (CBD) or residential neighbourhoods command higher rents and prices than average.

Not just a passing cloud – Cloud kitchens are here to stay

Cloud kitchens by larger brands such as Grabfood, Deliveroo and FoodPanda offer some attractive perks, good service, as well as good publicity and branding.

There is also no doubt that some new successful cloud kitchen brands will take the opportunity to expand into physical space just like some online retailers have done, such as The Closet Lover and Love Bonito. It is essential to have omnichannel customer platforms and presence.

Cloud kitchens are here to stay: Food-tech firm TiffinLabs to open 1,000 cloud kitchens across Asia (Image: TiffinLabs)

The in-person dining experience is hard to replicate when ordering takeaway food. Elements in the atmosphere such as food display, music, service, lighting, décor and theme that play a role in creating the overall dining experience are what people look for.

Humans are social creatures, and they need to get out of the house to mingle. This will be even more relevant with work from home being the new norm. Singapore is small, well-connected and it does not take long for one to travel to dine out.

While the future of restaurants is far from dead, cloud kitchens are becoming more common and are here to stay.

Embracing cloud kitchens: Our advice to landlords

Retail landlords should explore reconfiguring some of the less expensive space in the mall to F&B space, so that rents can remain competitive. Making sure to have more interesting tenants, trade mix, anchor tenants and refreshing shopping experience, and advertising and promotion campaigns could draw the crowd to those malls.

Industrial landlords located near residential areas could explore converting some of the space to food-approved space, taking into consideration the physical, financial viability and approvals to be obtained.

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Contact our Colliers Editorial team here.