Kearney explores Asia’s rapidly changing food services market

A hybrid model of food services is spreading through key Asian markets, sparked by the pandemic-induced shift to online and aggregator-based food consumption. A new Kearney report explores the market’s key developments.

“Covid-19 has been the worst crisis to hit the food service industry in the post-World War II era,” said Kearney’s Singapore-based partner Siddharth Pathak, noting a 30% contraction in Asia’s food service market through 2020. This jumped to 40% for some markets such as India, Indonesia and the Philippines. Asia’s

Repeated lockdowns eviscerated months of in-store sales. Changes to consumer behaviour put cooking at home in vogue, while those who wanted restaurant food started ordering online. The sudden and far-reaching shifts have been devastating, while also paving the way for the fundamental reinvention of food services. 

Kearney surveyed a diverse sample of 900 consumers for a clear idea of where the industry is headed. Predictably, cost-optimisation is the first port of call, with a nod to the broad-based online shift. The physical presence of takeout stores, physical stores and flagship stores presents a heavy and unsustainable fixed cost – losing its appeal as a model.

Instead, businesses are gradually turning to ‘cloud kitchens’ – small, volume-oriented food production facilities built only for online deliveries. Also known as ‘dark’ or ‘ghost’ kitchens, these facilities are not customer facing, and so require lower maintenance and tend to be 40 square metres or less in size – allowing owners to cut down their brick & mortar space.

Further reading: Dark kitchens take centre stage in UAE's food services market. 

Established restaurant chains currently outsource less than 5% of their orders to cloud kitchens. According to Kearney, this could jump to 15% in the future, while the remaining physical infrastructure at large chains will shift from numerous 150-square-metre stores to smaller takeout facilities of about 70 square metres. 

Smaller food brands are even more keen to cut physical presence. Cloud-kitchens make up less than 10% of their network – due to touch up to 40% in the future. The rest will likely be made up of smaller, standalone stores – no bigger than 70 square metres.

The market trajectory is clear, and several third parties have emerged to capitalise on this shift. Some cloud kitchens, for instance, operate as independent entities on a business-to-business service, preparing and delivering food for multiple restaurant owners at once.

Mostly operating these kitchens are food aggregators – online platforms that connect customers with partner food brands, and support the latter with preparation and delivery to varying degrees. In the next five years, the researchers expect up to 20% of food orders in Asia to come through aggregators – compared to around 2% before the pandemic. 

Aggregator cloud kitchens are also growing in prominence, due to occupy 3% of food production by 2025 – up from less than 1% as of now. Per the report, aggregators are set to dominate food services in years to come – backed with an ever-expanding partner network, a quality value proposition and growing production capacity. 

Restaurant owners must respond to this shift – as explained by Kearney partner in Jakarta Shirley Santoso. “Established chains will have to revamp their store network models and build their own platform or partner with aggregators to stay ahead of the curve.”

“Many small brands and standalone stores that have played a large role in the Asian food service industry in the past will have two avenues: they will either be consolidated with the larger chains or have to partner with aggregators and create a new proposition for themselves in the hybrid world of eating out and delivery.”

The consumer’s perspective

So what does this mean for the consumer? As it happens, the entire customer journey is set for a digital transformation. Collecting from the local takeout store will be QR-code-based for speed, health and better resource optimisation for restaurants.

Those ordering online will have a digital menu with a wide product range. Mobile aggregators will take orders; mobile payment apps will process transactions; robot chefs will prepare high-speed, low-touch food; and drones will deliver. Then there is the in-store dining experience, which will also use crowd management technology to minimise infection risks. 

Brands that manage to master this customer journey will likely win out in the new normal. Loyalty programmes will play a big role in customer retention, as will keeping pace with modern customer preferences. Food habits are growing healthier and more responsible. Many consumers are willing to pay a premium for food that is responsibly sourced, organic, and – in many cases – vegetarian. 

“Moving forward, trust will no longer be an afterthought for food service companies but the top item on their agendas. Companies will have to prioritise trust-building with proactive communication and transparency as a prerequisite for success; food stories will become a significant medium through which they can earn consumers’ trust,” concluded Pathak.