MCO a big win for online food deliveries and cloud kitchens

Lai Wick Kee, a director of Epic Food Hall.

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Before the Covid-19 pandemic, online food deliveries in Malaysia were an up-and-coming trend within urban areas, with the help of technology companies such as Grab and Foodpanda. The service was popular among millennials but struggled to reach the other, more mature demographics.

However, the industry has ballooned with the introduction of the movement control order (MCO), says Lai Wick Kee, a director of Epic Food Hall, a cloud kitchen under The Epic Food Kitchen Sdn Bhd. 

Cloud kitchens, or shared kitchens, are commercial facilities purpose-built to cook food specifically for online deliveries. They do not have dine-in spaces.

"Malaysians love to dine in restaurants. But during the MCO, all the restaurants were closed. When they reopened in May, there were, and still are, restrictions on seating arrangements," says Lai.

He adds that now that people are reluctant to eat out, they have to order their favourite food via online delivery platforms. “Now restaurants are reacting to this trend and high-end restaurants which were reluctant to offer food deliveries in the past are forced to do it to survive.”

Lai explains that the MCO has helped increase consumer awareness and acceptance of online food delivery services, a major obstacle in the past. He explains that customers in the past were afraid of getting their orders wrong, or having their food arrive late even before making their first purchases.

"But thanks to the MCO, customers got to experience the convenience of food deliveries, and now they are able to fully accept the service," says Lai.

"However, after restaurants were allowed to reopen, there was a knee-jerk reaction from customers. Our food delivery sales went down slightly in the first few days because people were rushing to dine in restaurants after being cooped up for three months.

"Everywhere we went, we observed the dining halls were full. People were willing to wait in long queues in shopping malls to get into the dining hall, even though there were only limited spaces to sit. But after that, food delivery sales continued to grow because food deliveries are now part of consumers' lifestyle."

According to Lai, Epic Food Hall has tripled its sales month-on-month since the start of the Covid-19 pandemic. However, he attributes some of this growth to a strategic move, made right before the MCO period, to launch several new food brands.

"We finally became a multi-brand cloud kitchen operator, where we cook meals under different brands from the same kitchen space. In February, we only had two brands under our umbrella, but we managed to open up another six brands, so we now have eight," says Lai.

"We came up with more brands so that we can address everyone's food mission. A food mission is where a customer might want Thai cuisine today, Malay cuisine tomorrow, and Chinese cuisine on the next day.

"When we come up with a different brand, we attract a different crowd of customers, have a different brand message and different positioning in terms of pricing and product offerings. If we are able to cover more customer food missions, we can generate more revenue because not everyone wants to eat burgers every day. "

However, despite the rapidly growing online food delivery industry, there has been a slow uptake of restaurants converting to cloud kitchens, says Lai. 

He explains that converting an existing retail restaurant that relies heavily on dine-in revenue to an online-only platform is an extremely difficult process, maybe even undesirable for some business owners. He also stresses that both business models operate very differently with varying strengths and weaknesses.

According to Lai, retail restaurants excel at providing quality service and dining experiences, while cloud kitchens are able to drive down their menu prices through cheaper rent and lower overhead cost.

"Cloud kitchens are built to make money from food deliveries. Restaurants conduct food deliveries because they need to supplement their sales," says Lai.

"You cannot deliver bak kut teh, a crab meal or a hotpot meal because these are very hard to package. Yes, you can have a meal kit or something similar, but many retail restaurants offer online food delivery service as just a stop-gap measure to at least earn a little bit of money to survive through the MCO period."

Lai highlights that customers look at two key aspects when ordering food online — convenience and the price. In that regard, Lai explains that cloud kitchens are more directly in competition with home-cooked meals rather than retail restaurants.

"We are really in competition with your kitchen and whatever you have in your refrigerator at home because, if you want a very fast meal on the cheap, you will cook instant noodles because it is the most convenient and cheapest way," says Lai.

With these concerns in mind, Lai remains confident that both the online food delivery and cloud kitchen industries will grow exponentially in the years to come.

"There is a report published by UBS titled 'Is the kitchen dead?' which portrays a scenario that we at Epic Food Hall are really hoping for. It means that people no longer need a kitchen in their homes because food deliveries will be cheaper than cooking for themselves," says Lai.

"This scenario is only possible with online food deliveries and cloud kitchens. When food deliveries get more efficient, and menu prices are cheaper than at restaurants but slightly higher than the raw ingredient cost, the online food delivery trend will take over your home kitchen."

On May 15, several food and beverage operators opined that cloud kitchens may not be workable in Malaysia at this point due to hygiene issues.

“One user cannot control the hygiene of other users in the same kitchen. The pandemic has changed a lot of things. What if the hygiene issue of other operators causes the kitchen to shut? Who would be responsible if the other businesses have to cease operations as well?” said Chin Ren Yi, the chief executive officer (CEO) of myBurgerLab.

In response, Lai points out that there are many different business models of running a cloud kitchen, and he says Epic Food Hall is following the necessary health, safety and hygiene guidelines.

“We are running a multi-brand cloud kitchen model, and we function similar to any other type of restaurant. We secure a location, choose to rent or buy the space, and do not let any other food operator access to that space. Epic Food Hall is the only operator of this cloud kitchen, but we offer customers a variety of branded meals,” Lai explains.

“We are also halal-certified by the Department of Islamic Development Malaysia (Jakim). Hygiene compliance is very important in getting the halal certification, and the fact that eight of our brands are halal-certified speaks for itself.”