A hybrid foodservice model is spreading across major Asian markets, triggered by the pandemic-induced shift to online and aggregator-based food consumption. A new Kearney report explores key market developments.
“Covid-19 was the worst crisis to hit the restaurant industry after World War II,” said Singapore-based Kearney partner Siddharth Pathak, noting a 30% contraction in the Asian restaurant market until in 2020. This jumped to 40% for some markets like India, Indonesia and the Philippines. from Asia
Repeated lockdowns have gutted months of store sales. Changes in consumer behavior have made cooking at home fashionable, while those who wanted to eat out started ordering online. The sudden and profound changes were devastating, while paving the way for the fundamental reinvention of restaurant services.
Kearney surveyed a diverse sample of 900 consumers to get a clear idea of where the industry is heading. Predictably, cost optimization is the first port of call, with a nod to the widespread online shift. The physical presence of take-out stores, brick-and-mortar stores and flagship stores presents a heavy and unsustainable fixed cost – losing its appeal as a model.
Instead, companies are gradually shifting to “cloud kitchens,” small, volume-oriented food production facilities designed only for online deliveries. Also known as ‘dark’ or ‘ghost’ kitchens, these facilities are not customer oriented, therefore require less maintenance and tend to be 40 square meters or less in size, allowing homeowners reduce their brick and mortar space.
Further reading: Dark kitchens take center stage in the UAE foodservice market.
Established restaurant chains currently outsource less than 5% of their orders to cloud kitchens. According to Kearney, this could increase to 15% in the future, while the remaining physical infrastructure of the large chains will grow from numerous stores of 150 square meters to smaller take-out facilities of around 70 square meters.
Small food brands are even more eager to reduce their physical presence. Cloud kitchens make up less than 10% of their network – due to hit up to 40% in the future. The rest will likely be smaller, stand-alone stores – no larger than 70 square meters.
The trajectory of the market is clear and several third parties have emerged to capitalize on this change. Some cloud kitchens, for example, operate as independent entities on a business-to-business service, preparing and delivering food for multiple restaurateurs at once.
These kitchens are primarily operated by food aggregators – online platforms that connect customers with partner food brands and support them in preparation and delivery to varying degrees. Over the next five years, researchers expect up to 20% of food orders in Asia will go through aggregators, up from about 2% before the pandemic.
Aggregators’ cloud kitchens are also gaining prominence, due to occupy 3% of food production by 2025, up from less than 1% today. According to the report, aggregators are set to dominate restaurant services in the coming years, supported by an ever-expanding partner network, quality value proposition and growing production capacity.
Restaurant owners must respond to this change – as Shirley Santoso, Kearney’s partner in Jakarta, explains. “Established chains will need to revamp their store network models and create their own platform or partner with aggregators to stay ahead of the game.”
“Many smaller brands and stand-alone stores that have played a significant role in the Asian restaurant industry in the past will have two options: they will either consolidate with the larger chains, or they will have to partner with aggregators and create a new proposition for themselves in the hybrid world of catering and delivery.
The consumer’s point of view
So what does this mean for the consumer? In this case, the entire customer journey is set for digital transformation. Collection in the local takeaway store will be based on a QR code for speed, health and better value for money for restaurants.
Those ordering online will have a digital menu with a wide range of products. Mobile aggregators will take the orders; mobile payment applications will process transactions; robot chefs will prepare food at high speed and with low contact; and the drones will deliver. Then there’s the in-store dining experience, which will also use crowd management technology to minimize the risk of infection.
Brands that manage to master this customer journey will likely win in the new normal. Loyalty programs will play an important role in customer retention, as will the pace of modern customer preferences. Eating habits are becoming healthier and more responsible. Many consumers are willing to pay more for responsibly sourced, organic and, in many cases, vegetarian foods.
“Going forward, trust will no longer be an afterthought for foodservice companies, but the top of their agendas. Companies will need to prioritize building trust with proactive communication and transparency as a prerequisite. to success; food stories will become an important means through which they can gain consumer trust,” concluded Pathak.