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SINGAPORE: When self-taught pitmaster Jayce Ho decided to turn her passion for barbecue into a business, she opted to set up shop in a cloud kitchen.

These facilities – meant only for deliveries – were not only well-stocked with equipment, but also allowed her to test the market without putting much startup capital into the business.

But the cons soon outweighed the pros.

Strangers began trespassing Ms Ho’s kitchen and rummaging through her things. Once, a man even walked in and used her foldable bed while she was working in her office.

“I also had some experience where competitors were looking at my storage rack to see what I'm using,” said the founder of SGBrisketKitchen.

Ms Ho and her fellow tenants also faced fluctuating utility bills. She said the cloud kitchen operator refused to be transparent about this and complicated her budgeting matters.

After one-and-a-half years, she decided to leave the cloud kitchen space.

These kitchens, once popular during the COVID-19 pandemic, are now falling out of favour with food and beverage operators due to high operating costs and shifting consumption patterns.

Also known as ghost or virtual kitchens, they are shared between business owners who use online food delivery platforms to get their food to consumers.

At the height of the pandemic in 2021, there were 18 cloud kitchen spaces across Singapore.

This has dropped almost half to 11 currently, with food delivery platforms – including Grab and Deliveroo – shutting down their dedicated cloud kitchens as well.

When contacted for comment, none of these players were willing to speak on camera about their plans, but �鶹��ý understands some are pivoting to other business models.

NEED TO HAVE UNIQUE SELLING POINT

Analysts said such F&B operators will need to have a unique selling point to stand out amid challenging market conditions.

Mr Pua Wee Meng, consumer industry leader for Deloitte Southeast Asia, said businesses could be “doing more for sustainability (and) social good” to achieve that unique selling point. They could also find new revenue streams that complement the business, he added.

Meanwhile, he noted that substitutes like fast food and quick serve restaurants are eroding the market share that cloud kitchens used to occupy.

“Cloud kitchens operating with low margins are experiencing the acute challenges of rising costs as well as a shortage of labour, in terms of both kitchen and delivery staff,” said Mr Pua.

“Consumers are also coping with inflation in food prices and costs of living by doing more home cooking and making do with simpler meals. As a result, many of the big names in the F&B sector have decided to cut back on losses by closing their cloud kitchens.”

Food inflation in August was at 2.7 per cent, on par with core inflation in Singapore, according to data from the Department of Statistics released last month.

DROP IN DEMAND FOR DELIVERY

For Korean fried chicken chain Bonchon, this change in consumer behaviour led it to exit the cloud kitchen space.

While it has its own restaurant spaces, there was a strong draw from the start to use shared kitchens. It rented space in areas where it did not have a physical presence, in order to attract customers who use food delivery services.

But when the pandemic ended and people moved away from food delivery, Bonchon saw its profits drop.

“We could see there was a drop in delivery sales, which I think is attributed to people going back to dining out and meeting friends. We also realised that there were other forces at play which caused a lot more people to go overseas instead, such as inflation,” said Bonchon Singapore director Jefferson Tandamu.

He also cited high delivery commissions as a barrier in sustaining their cloud kitchen. For example, if the eatery sold fried chicken for S$10 (US$7.60), about 40 per cent – or S$4 – would go to the delivery company.

“We are always looking forward to expanding our footprint, our business in Singapore. But because of the downward pressures that I've shared, I think this year, we are looking to just focus back on what we do best – go back to strengthening our operations,” Mr Tandamu added.

As for Ms Ho, who remains one of the few female smoked meat specialists in Singapore, she now has her own dedicated space to do what she loves.

She said the higher rent and manpower costs are worth it for the bigger space and fewer concerns.

“I realised that privacy and safety is my number one when I'm in this F&B field,” she added.