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2022 October
Virtual Kitchens: a Disruptor of the Catering Sector

After being hit by the pandemic for almost three years, the catering sector is actively seeking transformation. Takeaway food is now a market favorite, while virtual kitchens will pave new directions for the industry.

 

 

 

Chloe Lam: Time for Reinvigoration

Dragged by the continued epidemic, Hong Kong’s catering industry performed weakly during the first quarter of 2022. According to the data published by the Census and Statistics Department, the value of total restaurants receipts in the second quarter of 2022, provisionally estimated at HKD22 billion, decreased by 5.5% over a year earlier.

 

According to Chloe Lam, Associate Director of Strategy & Performance of KPMG Advisory (Hong Kong) Limited, while the pandemic has certainly brought about challenges to the catering sector, new opportunities to develop new business models have also emerged. If the sector seize these opportunities and work on proper brand development and repositioning, and reorganize their operation structures, they will certainly be better prepared for embracing the digital consumption era.

 

Lam quoted Just Kitchen as an example. The brand first opened in Taipei in 2019 and has been running the highly-favored virtual kitchens model. The company went public in Canada and Germany within two years’ time. Amongst its 31 branches around the world, two are located in Hong Kong. Lam called virtual kitchens a notable success. Although they only emerged a few years ago, virtual kitchens have managed to solve the general pain points of the catering sector by cutting down operating costs and diversifying operational risks.

 

Overcoming pain points

Wages, rent and food ingredients make up the operating costs for a restaurant. The pain points of running a physical eatery become very evident under the pandemic. “Eating at home is the preferred choice amidst anti-epidemic measures. Restaurants overheads become much higher as the transportation costs for importing Mainland’s food ingredients soared within a short time.”

 

A large restaurant chain may work on food preparation in a centralized kitchen and have semi-ready dishes sent to satellite kitchens in various districts for final processing or reheating. The cooked food can then reach customers through takeaway platforms. Lam said that this model can ensure freshness and facilitate mass production. It could also cut down on manpower resources, thus maximize profit.

 

For restaurants with operation pressure, Lam suggested they could partner with different virtual kitchens to reduce costs and expand business lines through a model that focuses on takeaway service. “Restaurant brands must target their solutions to address their specific pain points. Virtual kitchens can resolve the general operation challenges faced by them.”

 

Virtual kitchens are also suitable for the massive mainland market. Lam said that China is the country with the biggest number of virtual kitchens. She suggested that the sector should look further and expand into a broader market.

 

Healthy food to become more sought after

While the end of the pandemic is in sight, 58% of the consumers said that takeaway services will remain a primary choice. “Certainly, physical eateries will still have their operation value, but consumers will expect higher standards for dining-in. Restaurants may need to re-position themselves.”

 

Lam reckoned caterers are now more knowledgeable about consumers’ preferences on mealtimes and food options, thanks to big data. Such information, when incorporated into food ordering and food delivery systems, will be conducive to focusing resources on targeted business development. “The demand for healthy, vegetarian options is gradually growing. The sector should look at brand diversification to respond to new trends.”

 

 

 

Matthew Chiu: Virtual Kitchens Break Limits

Under the heavy blow by the pandemic in the past few years, takeaway is rising to become “the new normal of the catering industry”. A business group saw this opportunity and founded Freshlane to provide its restaurant peers with a virtual kitchen infrastructure and advisory service on market strategy so as to help them expand their catering business with low costs.

 

According to Matthew Chiu, Freshlane Operation Manager, as virtual kitchens mainly cater for takeaway services, they have a low market-entry threshold, which requires only some stoves and utensils plus a few recruits. A virtual kitchen may be up and running in two to four weeks’ time and be ready to take orders from takeaway platforms and earn some strong profit margins.

 

“We have 29 kitchens in our Sai Ying Pun facility, running about 60 restaurant brands. Kitchen partners can provide what the market needs and ride on the agility of their products. The model can help them attract new customers, break geographic limits and rise above the one-restaurant-one-specialty restraint of a physical eatery.”

 

Accurate platform data helps target customer needs

The “face” of a restaurant brand plays a key role in attracting customers. “We have a professional team to advise on branding, logo, menu design and other preparation for online operations. The computer applications provided by our partners, on the other hand, can be used for consolidating takeaway orders and work data. These are regularly reported to the restaurants so that they can make informed forecast on customer demands and identify peak periods.”

 

As virtual kitchens are taking the market by storm, competition is inevitable. Chiu believes that their selling point is a low market-entry threshold and very few limitations, which makes Freshlane uniquely different from other virtual kitchens that only welcome established restaurant brands with selected menus. Freshlane can help small to medium restaurant brands build and expand new customer sources, and the public is provided with more choices.

 

Striving for excellence with a focus on HK market

Chiu is optimistic about the prospects of virtual kitchens. “Our short-to-medium term goal is to set a strong foot in Hong Kong and to gradually perfect the business. We envision to offering our kitchen partners a hassle-free journey, so that they can focus on developing their catering brand and on improving food quality.”

 

Chiu recalled the challenges since opening. Freshlane had to ensure ventilation of all the kitchens in the facilities, to comply with legal requirements, and to keep the logistics of the takeaway service smooth. He stressed that he has always been a humble learner and is communicating closely with his partners, hoping that “the next eatery will be even better”.