Are Cloud Kitchens Becoming the New Reality for Hong Kong as COVID Eats Restaurant Profits?

How Has Hong Kong's Restaurant Industry Been Affected by the Virus?

As the number of cases of Coronavirus fluctuates in Hong Kong, the government has been shifting and changing its restaurant-based policies accordingly. One of the latest policies, implemented in July, saw all restaurants face a complete ban on dine-in services. Though the government backtracked on this policy only two days later, the sudden halt of dine-in business certainly had a strong impact on many in the F&B industry. 

Industry body Institute of Dining Art chairman Ray Chui Man-wai said about the Hong Kong government's ban on dine-in services, "forcing restaurants to stop serving customers throughout the day was a cause of major inconvenience for Hongkongers, and not the right policy to contain the coronavirus."

However, even without such strict measures to stop dine-in customers, more and more Hong Kong businesses have begun to experiment with, or shift toward a business model that is looking more and more like that of a cloud or ghost kitchen. 

What Exactly is a Cloud Kitchen?

Cloud Kitchens (or Ghost Kitchens) refer to a recent trend of restaurants that "are classified as spaces where food delivery companies can create meals to be sent out and be eaten elsewhere." They bypass the typical brick and mortar restaurant setup and operate solely as kitchens that offer delivery. The benefit of this system is that restaurants can bypass a lot of heavy overhead costs. For example, "there is no need for furniture or wait staff, and they are not limited by their physical location." 

Other benefits of operating Cloud kitchens include low barriers to entry and significantly reduced operating costs. In a city like Hong Kong, where rents are extremely high, Cloud Kitchen businesses can save tremendously just from lower rent, alone. Shared spaces and non-prime locations can reduce rent costs significantly "as most cloud kitchens tend to occupy underutilised warehouses or industrial office blocks."

Why Might Cloud Kitchens be the Future for Many Hong Kong F&B Businesses?

As mentioned earlier, the COVID-19 pandemic has really taken a huge toll on Hong Kong's F&B industry. With government restrictions compounded on top of the public's hesitance to dine out, Cloud kitchens start to look like a very appealing option. Most restrictions imposed by the government target physical gatherings and dine-in customers at brick and mortar locations. In fact, during the dine-in ban that was implemented, the government recommended that restaurants in Hong Kong offer takeaway or delivery options, only. This basically created a market of Cloud Kitchens for two days until the ban was reversed. Yet, even with the dine-in ban no longer in effect, restaurants are still forced to operate at lower capacity, with only two people allowed per table and are required to shut after 6PM, where only delivery and takeaway is permitted.  

When we take into consideration how dine-in restaurants have been so heavily impacted by the effects of the virus and also consider that rents haven't been meaningfully reduced by most landlords, Hong Kong's restaurants are being forced to adapt at an extremely fast rate. New restaurants that open may simply opt to forego the entire brick and mortar location as delivery companies like Deliveroo and Food Panda see unprecedented profits in Hong Kong as more and more customers opt for delivery options to mitigate their risk in terms of the virus.

We can see that Deliveroo, a company with its finger on the pulse of Hong Kong's F&B industry, has also decided to open up its third delivery-only kitchen in Quarry Bay. "Deliveroo's existing sites already include a location in Wan Chai and the Deliveroo Food Market in Sai Ying Pun. With the new Quarry Bay site, Deliveroo Hong Kong now houses a total of 17 kitchens consisting of 42 brands." Deliveroo's new delivery-only will be working in conjunction with companies like Pirata Group, Shanghai Lane, Beef & Liberty, Treehouse, Pololi, and Soupday.

What Does Your Business Need to set up a Cloud Restaurant?

If you are considering completely, or even partially shifting to a Cloud Kitchen (delivery-only) business model, then there are a few tools you will need to succeed. First, and possibly most importantly, you will need a modern POS system that is capable of integrating with delivery companies, sending orders to kitchen staff and keeping track of relevant statistics and data. Your POS will serve as the hub of your Cloud Kitchen and can connect to relevant services and modules that you will need for maximum output. You can also invest in a Kitchen Display System module that will send orders directly from your POS to your kitchen staff in a manner that can be customized to your business needs. This can bypass messy printer tickets, reduce errors and keep your kitchen space clean and organized. Finally, you'll need your POS to be directly integrated with a delivery system that can help your business to stand out while attracting new customers by creating an  an online presence for your restaurant.