Uber founder takes aim at South Korea’s shared kitchen market
Chef Youm Jung-phil plans to close his restaurant in Seoul’s affluent Gangnam district this month, worn down by the rising cost of labour and rent as well as declines in the number of customers eating in.
Instead Youm, who has nearly 20 years of experience in the industry, has opted to sell his avocado burgers and bagels by delivery only, renting a 16.5 square metre kitchen space from Uber co-founder Travis Kalanick’s CloudKitchens.
“I am anxious every day. I can’t sleep well because this is not something I have done before,” said Youm, who was approached by CloudKitchens.
“But the risks are low and I’ll have the opportunity to experiment with various menus without high cost,” he said, adding his rent will fall by roughly two-thirds.
The world’s No. 4 market for online food orders, South Korea punches far above its population size in terms of sheer numbers of restaurants and spending on food deliveries.
That, plus a near 30 percent rise in the minimum wage over the past two years, is helping drive a rapid shift to shared kitchens and delivery-only businesses, industry executives and investors say - a shift which threatens the traditional restaurant industry.
South Korea is the first overseas market Los Angeles-based CloudKitchens has entered under its own brand, people with knowledge of the matter said.
“That Kalanick and other investors are entering Korea speaks to its attractiveness as a market for cloud kitchens. It’s a big market and is growing faster than the US,” said Jimmy Kim, CEO of investment firm SparkLabs.
Tucked away in a Gangnam back alley, CloudKitchens’ first South Korean outlet opened quietly in May with more than 20 separate kitchen spaces, sources said, declining to be identified as they were not authorised to speak to the media. Another 10 or more outlets are planned, six of them this year, one source added.
CloudKitchens also acquired local firm Simple Kitchen this year, four sources familiar with matter said. Simple Kitchen, which counts SparkLabs as an investor, said previously it was planning 25 branches for 500 restaurants by end-2019.
CloudKitchens and Simple Kitchen did not respond to Reuters requests for comment.
CloudKitchens, which also offers restaurant owners marketing support, is a unit of shared service provider City Storage Systems which scandal-hit Kalanick bought last year for $150 million after stepping down as Uber CEO. Kalanick has since acquired UK commercial kitchen firm FoodStars and is reportedly looking at investing in China.
In South Korea, a key rival is local firm WECOOK, which has four outlets and plans to lift that to 17 this year.
“Investors are plowing money into South Korea which is coming to the fore in the global delivery market,” said WECOOK CEO Andy Kim, adding he expects shared kitchen firms to use lessons learnt in Korea and apply them to other Asian markets.
While shared kitchens are growing in popularity in many countries including the United States and China, the South Korean market is seen as particularly ripe for development of delivery-only restaurants.
About half of South Korea’s 51.8 million people are located in Seoul and its two surrounding cities, while 95 percent of adults own a smartphone. It also has 127 restaurants per 100,000 people, compared with 69 for China, 57 for Japan and 21 for the United States, according to research firm Euromonitor.