Cloud kitchen. Dark kitchen. Virtual kitchen. We have heard of these terms incessantly ever since Covid-19 turned the industry upside down and forced almost every restaurant to consider going off-premises in one way or another. As consumers quickly made the shift to buying food online, it’s now impossible for restaurateurs to ignore the large appetite for this new model.
One brand in Malaysia has launched this model and they did it even before Covid-19. Since September 2019, KyoChon Malaysia has launched three cloud kitchens in partnership with GRAB FOOD. A South Korean fried chicken chain from Korea, its presence in Malaysia has grown rapidly and has 22 stores in Malaysia. Its success is attributed to a commitment in using the freshest ingredients, cooked fresh-to-order, and truly personal customer care.
Here, we speak to Terry Goh, one of the Co-Owners and Director of KyoChon Malaysia on what it takes to launch a cloud kitchen and why the concept is not for everyone.
Table of Contents
- How did KyoChon Malaysia venture into the cloud kitchen model?
- How were KyoChon Malaysia takeaways doing during the pandemic?
- How does a KyoChon Malaysia cloud kitchen operate?
- What is the difference between your dine-in stores and cloud kitchen stores?
- What were your challenges when you first started?
- What are the other challenges that need to consider as an existing restaurant business?
- Speaking of food delivery partners, can you tell us more about your partnership with GRABFOOD?
- Do you think new restaurateurs should go into cloud kitchens without any storefront?
- What is KyoChon Malaysia’s strategy for staying ahead?
How did KyoChon Malaysia venture into the cloud kitchen model?
The demand for food delivery services has been growing. As our dine-in outlets are located in malls around Malaysia, we typically pay high rent or percentage of sales (GTO) and thus It makes very little sense to operate a delivery service from our existing dine-in stores with such high cost structures.
So, the cloud kitchen serves as a model where we are able to serve the growing demand for delivery at a lower cost while also removing the operational burden from our dine-in stores:
- Location is key for brands like ours. Moving delivery orders out to cloud kitchens enable us to reach out to customers we are unable to reach with our current dine-in stores.
- There’s more opportunity to reach customers that are not near the shopping malls where we are present. The closer we are to the customer, the lower the delivery charge they have to pay.
- Cloud kitchens are significantly easier to run with cheaper rent and lower headcounts that are focused on their job and making the product right.
- As all our orders are cooked fresh, there’s at least a 15 to 25 minutes wait time. If we added delivery capability to our dine-in outlets, diners would have to wait longer for their food even if my team was cooking as fast as they physically could and customers would not want an unreasonably long wait for fried chicken.
Moving delivery orders out to cloud kitchens enable us to reach out to customers we are unable to reach with our current dine-in stores.
How were KyoChon Malaysia takeaways doing during the pandemic?
Our ratio of delivery sales was about like 11% to 12% nationally before the pandemic and peaked at 95% in April 2020. Since then, it’s come down to 38 to 40% of our sales.
How does a KyoChon Malaysia cloud kitchen operate?
Let’s start with the build-up. We build our own kitchens because KyoChon 1991 has specific proprietary kitchen technologies and processes.
Our kitchens are using cloud-based POS and are both cashless and paperless. We receive orders directly to our iPad based systems via our integration with GRABFOOD APIs – there is no cashier and no service crew to key in orders. Our kitchens don’t accept any walk-in customers or any payment. Our crew in the kitchens only prepare and pack the food ordered from our customers.
What is the difference between your dine-in stores and cloud kitchen stores?
- Limited menu and different menu configurations. We don’t have the same menu from our dine-in stores as our cloud kitchens. For example, if you want Kimchi Fried Rice, you’ll need to visit our dine-in restaurant. We also created different portion sizes as the maximum capacity a delivery rider can carry is limited. As business owners, you’ve got to configure your menu to maximize that value.
- The time it takes to construct a cloud kitchen is significantly shorter, as opposed to a six to eight weeks for our restaurants.
- The renovation cost is also significantly lower. Whilst our kitchen equipment standards and requirements are the same as our restaurants, there is no need to incur other costs of fit-out associated with dine-in restaurants to create nicer dining ambience, furniture is unnecessary.
- Our cloud kitchen only needs a minimum of four headcounts to run the whole operation.
- The return on investment is a lot faster in comparison to dine-in stores
What were your challenges when you first started?
Finding the right location will be the biggest challenge for any cloud kitchen. The idea is to target customers that would likely order within the delivery range. You do not want to cannibalize your market. You need to know where your customers are. That was the first challenge.
The second challenge is to find the right format:
- Accessibility: The smaller details such as how do your delivery guys find the location, where do they park, etc.
- Size and equipment: We can start from 800 square feet, with a majority of that kept for storage. You need to have enough kitchen equipment also to be able to service the orders anticipated for that particular cloud kitchen.
What are the other challenges that need to consider as an existing restaurant business?
Delivery commissions are a big challenge for any merchant if you plan to work with a food delivery partner. There are cheaper options like last-mile delivery services where you take orders directly from the customer (online or on the phone) and arrange for the delivery. We tried this for a limited time but didn’t have much success with it – there were too many incidents where we were unable to find a rider to deliver food to our customer on time. It actually worked out costlier for us as we often compensated our customers.
Speaking of food delivery partners, can you tell us more about your partnership with GRABFOOD?
We partner exclusively with GRABFOOD for all our cloud kitchen stores and co-branded them.
Being their signature merchant, GRABFOOD has been a great partner and provides us with strong business support. They provide us with insightful data analytics, opened their APIs for integration with our systems and are attentive to our operational issues. GRABFOOD has also helped us maximise our growth through marketing and advertising support which helps our brand’s visibility on their platform.
Do you think new restaurateurs should go into cloud kitchens without any storefront?
Delivery platforms are algorithm-based. Your brand’s visibility is dependent on the number of searches within the App or platform. There are about sixteen thousand (and counting) merchants on GRABFOOD’s platform alone. If you only have a virtual presence, how would your customer have the desire to search your brand, especially if you’re new? If you rely exclusively on ads on the platform, you may get a few trials but most customers would prefer to order with brands they have visited before. At least, this is what I think.
Also, if your brand only operates exclusively in the cloud kitchen space, it’s hard to build a long term brand affinity with your customer through memorable experiences – they’ll never be able to taste your food when it comes straight out of the kitchen, or when it’s nicely plated and served in a nice ambience.
I think cloud kitchens should be complementary to existing restaurants, and not used exclusively as a platform.
At least for KyoChon 1991, physical store presence still matters to us. As they say, out of sight, out of mind and we definitely do not want our customers to forget us.
What is KyoChon Malaysia’s strategy for staying ahead?
We take every complaint seriously and makes sure we reply to every one within a reasonable time limit. You’ve really got to take care of the customer.
Images credit: KyoChon Malaysia. This interview has been edited for clarity and length. Interview and written by Theri B. Edited by Lim Aileen.
