Restaurants find silver lining in cloud kitchens

Nguyen Van Tung saw revenue from the two restaurants he runs in Saigon plunge 70 percent after the Covid-19 pandemic disrupted daily life in Vietnam. He cut his staff from four to two, but the business continued to suffer.

Then he joined two cloud kitchens, centralized food production facilities set up for multiple restaurants to prepare food, specifically for deliveries. Things began to look up for Tung, then.

The two kitchens, operated by ride-hailing company Grab, have helped increase revenue, Tung said.

Another restaurant owner in the city, Ton Nu Quy Nhi, joined a cloud kitchen after demand for her traditional Saigon food surged two to three times amidst the pandemic. Expanding and managing her restaurant would have been expensive and difficult, so she decided to partner with a cloud kitchen service.

"I don’t know if the business will continue to thrive next year, so I went with the cheapest expansion option, using the cloud kitchen."

Tung and Nhi are among many small business owners in Vietnam who want to take advantage of rising demand for food delivery services in major cities.

There are at least seven cloud kitchens operating in HCMC and Hanoi, three of them operated by Grab, two by South Korean ride-hailing company Baemin and another two by independent companies.

The cloud kitchens help lower costs, being located outside of high-rent locations. They help established restaurants with dining-in services to expand their delivery operations without adding stress to the existing kitchen, free up parking space taken by the delivery vehicles, and expand users’ reach to new neighborhoods.

Hoang Tung, founder of the FoodHome cloud kitchen in Hanoi, said that his facility was fully rented and he was mobilizing funds to open a new one in the Old Quarter area.

Tung said restaurants are moving their cooking to cloud kitchens because they want to focus on selling via apps to access a market of 20 million users that is growing by 30 percent annually.

Industry insiders said that the Covid-19 pandemic has been a catalyst in the recent transition from traditional brick and mortar kitchens to cloud kitchens.

Nguyen Ngoc Giao, manager of GrabKitchen, said that this model allows restaurant owners to expand quickly at minimum cost. "Amid the Covid-19 pandemic, opening a physical store carries greater risks than an online one."

Huy Ngo, founder of a fast food and dessert restaurant chain in Da Nang City and Hoi An Town, has recently started trying out the cloud kitchen model after having to close five of seven branches due to Covid-19 impacts.

The new model allows Huy to focus only on ensuring high food quality inputs. The cloud kitchen employees will help prepare food for delivery, which means operating costs are just half or one-third of his traditional physical store.

Even big and established restaurant chains are also jumping on to the cloud kitchen bandwagon, though it is yet to become a tried and tested concept in Vietnam. Fried chicken chain Otoke Chicken, with 15 outlets, has established a cloud kitchen in Saigon's Binh Thanh District, seeking to expand its delivery service.

Details of average investment and rents charged were not available at the time of writing.

When Grab launched a cloud kitchen in Saigon’s Thu Duc District last year, it had 12 restaurants make food exclusively for GrabFood drivers to pick up and deliver to customers.

Then Grab had given them space to cook for free, with the restaurants having to pay their utility bills and a commission on orders received.

Jerry Lim, CEO of Grab Vietnam, had said then the cloud kitchen model has great potential in Vietnam, and that his company would open more such facilities in Saigon, Hanoi and Da Nang.

Drivers wait to pick up their delivery at a cloud kitchen in Dong Da District, Hanoi. Photo by Hoang Tung.

No guarantee

However, this concept does not guarantee success for all restaurants. The cloud kitchen service, Now Station, began operations in 2017, but closed a year later.

Giao of GrabKitchen said there have been cases where restaurants and the service have had to part ways. He declined to get more specific.

The food delivery services have also come under scrutiny for excessive use of plastic wrappings and cutlery. Giao said his company is studying the possibility of using more environment-friendly materials.

Tung of FoodHome said that joining a cloud kitchen doesn’t mean young business owners will not fail, but it will help them "fail fast and fail cheap" so they can get back up fast and try out other new ideas.